Bank Securities Targeted in Budget Plan

WASHINGTON - The budget plan unveiled by President Clinton on Thursday takes aim at securities issued by banks and other companies that blur the line between debt and equity.

Among the instruments that would lose some or all of their tax advantages under the President's budget plan are 100-year bonds, monthly income preferred stock, bonds that pay out in stock instead of cash, and liquid yield option notes.

"Ordinary financial transactions are not affected by this proposal," an administration official said. "Normal people doing normal things can relax."

In the Clinton administration's view, the problem with monthly income preferred stock, 100-year bonds, and the like is that they take advantage of tax deductions for interest while behaving more like stocks than bonds. In some cases, they even count as Tier 1 capital for regulatory purposes.

The President's budget plan, a response to the Republican proposal he vetoed on Wednesday, calls for cutting the interest tax deductions on these securities' interest payments.