Stimulus bill a shaky vehicle for exemptions, lobbyists say.

WASHINGTON -- The decision by the White House and GOP leaders to push for an economic incentive package this year opens up a new opportunity for extending two popular municipal bond exemptions before they expire Dec. 31, municipal lobbyists said Friday.

But with Congress's top tax writer opposing such a package and Capitol Hill mired in bickering after the Clarence Thomas hearings, proponents of the tax exemptions for mortgage revenue bonds and small-issue industrial development bonds may be looking at a mirage, those sources said.

"The environment is not conducive to the production of a tax bill with bipartisan support," said a municipal lobbyist who asked not to be identified. "The partisan wrangling has become so bitter and so personal it would make reaching an agreement on any area of potential controversy difficult anytime in the near future."

The elements of the package that President Bush discussed with top Senate Republicans reportedly included a cut in the rate of taxation on capital gains, enterprise zones for depressed urban areas, expanded individual retirement accounts, and an extension of the research and development tax credit and the low-income housing tax credit beyond their Dec. 31 expiration date.

But Contress's tax leader, House Ways nad Means Committee Chairman Dan ROstenkowski, D-Ill., sees no chance for a big incentive package passing this year, a spokesman for the committee said.

If President Bush is serious about enacting measures to stimulate the economy, he will jettison his more controversial proposals -- especially the capital-gains tax cut plan -- and agree to a smaller bill that could become the legislative vehicle for extending the mortgage bond exemption, said John C. Murphy, the executive director of the Association of Local Housing Finance Agencies.

"When the time comes, they will put a small bill together that will take care of the extensions," Mr. Murphy said. The BUsh administration will see that such noncontroversial items as the research credit "are the only things doable, and all the rest is for next year." That woudl allow lawmakers to draft a small bill with short-term extensions for both the research credit and the bond exemptions, as well as other expiring provisions, he said.

But others worry that the President is serious about capital gains. Rep. Rostenkowski and Senate Finance Committee Chairman Lloyd Bentsen, D-Tex., are trying to keep the issue from coming up in their committees and would balk at any new attempts to bring up capital gains in their panels.

Sen. Bentsen's job was made more difficult recently when another finance committee member, Sen. John B. Breaux, D-La., announced he was changing his position and would now vote in favor of a capital gains cut if it came before the panel. His switch tipped the scales on the committee.

"There is a fear that any effort to do anything would have capital gains attached to it," said a lobbyist for municipalities. Now that Sen. Breaux has changed his position, "no tax bill can get ouf of finance committee without capital gains, so that kills a tax bill," the lobbyist added.

Another big factor weighing against the passage of a major economic incentive package is the bitterness left over from the bruising confirmation of Judge Thomas as an associate justice of the Supreme Court.

"From now on, everything becomes more political," said Milton Wells, the director of federal relations for the National Association of State Treasures. "The campaign season has arrived early, and it has arrived harshly."

In such a rancorous climate, Democrat tax leaders such as Rep. Rostenkowski and Sen. Bentsen, as well as rank-and-file Democrats, would not want to go out on a limb supporting the tax increases that would be needed to pay for extensions of the mortgage bond and IDB exemptions, lobbyists said.

"Why should guys put themselves in the position of voting for a tax increase at a time when they've got enough ammunition against them for the next election?" said a securities industry lobbyist. That other "ammunition" includes the recent disclosures that House members bounced thousands of checks at their own bank and have an unpaid $300,000 tab at the House cafeteria.

Mr. Wells also saw another way in which the Thomas confirmation process harmed the chances for a tax bill.

With so little time left in the congressional session, "now the calendar is the main thing," Mr. Wells said, "Thomas ground up a couple of weeks" in that schedule, and other must-do legislation such as the civil rights bill "will grind up a couple more."

"I'm still assuming they would put [a bill] together quickly in a week's time" just before they adjourned for the year, said Amy K. Dunbar, director of governmental affairs for the National Association of Bond Lawyers. "But it wouldn't surprise me if they put it off and didn't do it."

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