Banking industry trade groups stand to lose hundreds of thousands of dollars each year under a Clinton administration proposal to tax trade associations' investment income.

The plan is part of President Clinton's fiscal 2000 budget, which seeks to raise $1.4 billion over five years by subjecting trade group income from interest payments, dividends, royalties, and real estate to a 35% tax.

Officials at the banking groups said they were unsure how much the tax plan would cost, but an analysis of 1997 tax forms, the most recent year available, shows the bill would be high.

Hardest hit would be the American Bankers Association, which would have had to pay $1.3 million in taxes on its $3.7 million of investment income. That equals about 2.5% of its 1997 operating expenses.

America's Community Bankers would have had to pay $525,000 on its $1.5 million in 1997 investment income, and the Independent Bankers Association of America would have been liable for nearly $300,000 on its $854,484 of investment income. The Consumer Bankers Association's tax bill would have risen $88,000 on its $251,157 of investment earnings.

Under the President's budget, income from membership dues and from sponsoring conferences and seminars would remain tax-exempt.

"It's a big deal for every trade association," said Donald G. Ogilvie, the ABA's executive vice president.

Though the organizations are committed to fighting the proposal, passage is not considered likely by experts who are following the issue.

"Congress ... isn't terribly impressed with much of the President's budget," said Harvey J. Berger, a trade association tax specialist at Grant Thornton LLP in Washington. "The Republicans in Congress aren't inclined to raise taxes in general."

But others were less optimistic. Paul Merski, chief economist and federal tax specialist at the IBAA, gave the proposal a 50% chance of being enacted.

"Any time a provision like this is in the President's budget and they're pushing for it, it's in play," Mr. Merski said. "I wouldn't write it off."

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