WASHINGTON - President Bush and Sen. Lloyd Bentsen have proposed major liberalizations of the limits on bank-eligible municipal bonds in their separate urban aid bills.

The Bush administration and the Texas Democrat alike would significantly ease a provision in the Tax Reform Act of 1986 by permitting banks to deduct 80% of the cost of purchasing and carrying a new kind of private-activity bond that could be sold by any size issuer in enterprise zones. Outside of the enterprise zones, Sen. Bentsen, chairman of the Senate Finance Committee, would go even further. His bill would allow banks to deduct carrying costs for issuers anywhere in the country that expect to sell no more than $25 million in governmental bonds annually. The current limit is $10 million.

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