HARTFORD - (AP) - In hopes of ending Connecticut's budgetstalemate, Gov. M. Jodi Rell says she's offering a compromise thatincreases income taxes on wealthy people but eliminates the inheritancetax and reduces the sales tax from 6 percent to 5.5 percent.

Rell, a Republican, is also proposing increasing the state'scigarette tax from $2 to $3.

In return, Rell says she is asking the General Assembly'smajority Democrats to cut an additional $520 million from theirmost recent two-year $37.8 billion budget.

Rell and the Democrats have been at odds for months over how tocover a two-year, $8.56 billion deficit. The state has been withouta budget since the fiscal year ended on June 30.

Democrats, who lead the General Assembly, said on Wednesday they were encouraged by Rell's compromise budget proposal.

House Speaker Christopher Donovan says he's optimistic that abudget deal can be reached before the end of the month, adding howRell's approximate $37.1 billion, two-year budget plan is providing"common ground" for an agreement.

Democrats say they plan to vote on a budget Thursday.

To watch Gov. Jodi Rell's news conference detailing her proposed budget compromise, go to channel 612 on your iO digital cable box and select iO Extra.