State House and Senate negotiators, searching for new revenue to close the state's budget deficit, agreed last night to raise income taxes on the wealthy and hotel-room taxes that fall mostly on tourists.

Lawmakers also agreed to raise taxes on cigarettes and other tobacco products and tighten a high-technology tax credit for investors. The tax increases, which now go before the full House and Senate for approval, get lawmakers closer to a balanced budget.

Other options, such as diverting hotel-room taxes from the counties and shifting money from special funds, are still possible.

"We still have to do more, both with the budget and with other revenue bills," said state Rep. Marcus Oshiro, D-39th (Wahiawa), the chairman of the House Finance Committee and one of the lead negotiators. "But these are the bigger ones."

Gov. Linda Lingle has said she would veto increases to income and hotel-room taxes but would likely agree to tax hikes on cigarettes and other tobacco products. A standoff between the governor and lawmakers over tax increases could leave a gap in the two-year budget.

"We're concerned. And we believe that the travel industry is going to be concerned as well," said Linda Smith, the governor's senior policy adviser.

Lawmakers, meeting in conference committee, reached consensus quickly. Over the next few days, lawmakers will identify how large a hole remains and then will debate what combination of spending cuts and revenue-generating ideas are necessary to balance the budget.

Under agreements reached last night, state income taxes would rise on individuals who earn $150,000 or more a year, heads of households who make $225,000 or more a year, and couples filing jointly who earn $300,000 or more a year. After two years, lawmakers would raise the standard deduction, which would provide a break for taxpayers who do not itemize on their tax returns.

The higher income taxes would provide the state with about $48 million in additional revenue each year.

"We're not asking them to pay a lot more. We're just asking them to pay a little more," said state Rep. Pono Chong, D-49th (Maunawili, Olomana, Enchanted Lake), one of the negotiators.

Smith said an income-tax increase could be difficult on small-business owners who count their business income as personal income. She also said higher-income taxpayers may reduce the amount they give to charity or the arts if they have to pay more in income taxes.

Lawmakers agreed to raise the hotel-room tax — known as the transient accommodations tax — by 1 percentage point in July and another 1 percentage point in July 2010. The higher rate would remain through 2015. The higher hotel-room taxes, which would bring the rate from 7.25 percent to 9.25 percent, would generate about $30 million extra for the state in the first year and then $60 million in the second and following years.

Although popularly known as a hotel-room tax, the tax is applied to operators of hotel rooms, apartments, condominiums, beach houses and other places rented to visitors. The assumption is that operators will pass the tax increase on to their guests.

"We don't think it's going to prevent anyone from visiting us," Oshiro said.

Marsha Wienert, the state's tourism liaison, said many hotels are offering room discounts and other promotions to attract visitors during the recession. The steep decline in tourism over the past year is one of the significant factors in the state's economic downturn and the health of the industry is crucial to economic recovery.

"It's counterproductive," Wienert said. "Now is not the time to increase taxes on our visitors. Now is the time to understand where our revenue is generated from, and to do everything that we can to keep those visitors coming."

Lawmakers also agreed to raise the 10-cent tax per cigarette by 2 cents starting in July, with the money from the increase going into the state's general fund. Previously scheduled one-cent increases to the cigarette tax will also go forward over the next few years, but that money will continue to be split between health and tobacco prevention programs.

The tax rate on other tobacco products, such as pipe and chewing tobacco, would jump from 40 percent of the wholesale price to 70 percent of the wholesale price. But, responding to complaints from local makers of premium, hand-rolled cigars, lawmakers agreed to raise the rate on cigars from 40 percent to 50 percent of the wholesale price. Thinner cigars that resemble cigarettes would be taxed at the same rate as cigarettes.

Looking to trim tax credits, lawmakers agreed to alter the high-technology tax credit, known as Act 221, by limiting investors to 90 percent of their allowable return. Lawmakers would also prevent investors from taking multiple state tax credits on a single investment.

Lawmakers agreed to withhold 5 percent of conveyance tax revenues to the rental housing trust fund and the natural area reserve fund, with the money shifted to the general fund. Lawmakers would not divert revenue from the land conservation fund, as initially planned.

State Sen. Rosalyn Baker, D-5th (W. Maui, S. Maui), one of the negotiators, said the changes to income taxes would make the state's tax system more progressive and the increase in hotel-room taxes would be mostly exported to tourists. She said she hopes tobacco tax hikes, although meant to bring in new revenue, would discourage people from smoking or using tobacco.

"Nobody likes to pay more taxes. But I think it's something that we needed to grapple with," she said of the state's revenue shortfall.