Banking industry officials breathed a sigh of relief Monday as President Clinton backed off plans to strip lenders of their hard-fought subsidy for student loans.

But the $1.8 trillion budget plan the President released Monday would impose a $15 fee on new and refinanced mortgages and tighten the accounting treatment of interest on short-term obligations.

The White House renewed efforts to impose examination fees on state- chartered banks, make S-corporation conversions more expensive, and restrict employer-purchased life insurance.

The budget also proposes a nearly 5% cut in the Small Business Administration's 7a program. The agency could guarantee just $10.5 billion in general business loans to small businesses during 2000.

Anthony J. Feraro, senior vice president for small-business lending at Zions First National Bank of Salt Lake City, predicted demand could reach as high as $12 billion.

However, the administration also proposed reducing fees for borrowers and lenders under the program, and to increase to $150,000 the loan size that can qualify for an 80% guarantee.

Student lenders lobbied the Clinton administration after learning it might propose killing the government's 50-basis-point subsidy. Lenders grudgingly accepted a smaller cut last fall after threatening any further cuts would drive them from the business.

"I would like to assume that the Office of Management and Budget and the administration did pay heed to the signs they were getting," said Joe Belew, president of the Consumer Bankers Association.

However, President Clinton did propose barring lenders from charging interest after a student loan is delinquent for 180 days. Lenders would continue to be required to wait 270 days before turning a past-due loan over to a guarantee agency for collection.

Emphasizing the importance of savings, President Clinton said Monday that using the surplus to pay down the national debt is the cornerstone of his budget. He argued that attacking the debt burden now-instead of using the surplus to cut taxes or increase spending-will serve as insurance for the next generation in case global economic turmoil spreads to the United States.

"This is a budget that ensures for young Americans the same chance enjoyed by baby boomers after World War II," he told reporters at a White House news conference.

The President again touted his plan to devote 11%, or $500 billion, of the anticipated budget surplus over the next 15 years to universal savings accounts. These so-called USA accounts are similar to 401(k) plans in the private sector. The government would make an initial contribution to the account, perhaps $100, and match deposits made by individuals. "USA accounts will help Americans invest and save more for retirement," he said.

Though the savings message is music to their ears, bankers flinched over other budget proposals.

For example, the budget would impose a $15 transaction fee on mortgage originations and refinancings. Raising $312 million over five years, the money would cover updating the Federal Emergency Management Agency's inventory of flood-plain maps. The Administration argues that lenders rely on these maps to meet the legal requirement that homes in risky areas carry flood insurance.

The administration also asked Congress to overturn a 1993 U.S. Tax Court decision. In that case, banks that use the cash method of accounting successfully argued that they should not pay tax on interest accrued on short-term loans until it is paid. The administration wants banks to accrue interest daily, and estimated the move would increase the industry's tax bill by $72 million next year.

"This would be a tax increase for a sizable number of community banks," said Donna Fisher, director of tax and accounting at the American Bankers Association.

Industry officials sounded what has become an annual call to arms to prevent the Federal Reserve Board and the Federal Deposit Insurance Corp. from imposing examination fees on holding companies and state-chartered banks. The proposal would raise $450 million over five years, the Clinton administration said.

"The banking lobby has been successful in getting that out the last six years," said Kenneth A. Guenther, executive vice president of the Independent Bankers Association of America. "Too bad the administration hasn't learned this isn't going to wash."

President Clinton also proposed barring companies with more than $5 million of assets to avoid taxes when converting to an S corporation. Under his plan, investors would have to liquidate their corporation, pay the capital gains tax, and then re-form as an S corporation.

Small banks have been switching to S corporations in increasing numbers in recent years because it lets shareholders avoid so-called double taxation. S corporations pay no corporate taxes; profits pass directly to shareholders, who are taxed individually.

Tax deductibility of employer-purchased life insurance would be sharply scaled back. Banks, like other corporations, would be required to pay some tax when they borrow against these policies. The measure would raise $1.9 billion over five years. Congress rejected a nearly identical proposal last year.

The budget also seeks to raise taxes on insurance companies. "Right after tobacco, the life insurance industry is the biggest recipient of the hits," said Douglas P. Bates, director of federal relations at the American Council of Life Insurers.

The administration's budget would raise $4 billion by more than doubling the tax insurers pay on annuity and life insurance premiums. This tax forces life insurers to spread out over 10 years the cost of acquiring new policies.

The budget proposal also would raise $78 million over five years by boosting taxes on the sales of some discounted bonds.

Consumers who put more than allowed into an Individual Retirement Account would be subject to a 10% excise tax, a 400 basis point increase from the current penalty. The increase, applicable to regular and Roth IRAs, would raise $50 million over five years.

Other provisions would:

Limit bank ownership in real estate investment trusts to 50% of outstanding voting shares for new REITs. The current limit is 99%.

Eliminate the deduction of dividends for some types of preferred stock.

Increase the low-income housing tax credit by 40%.

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