WASHINGTON -- House and Senate conferees slogged through another day of tax bill negotiations amid indications they are seriously considering drastic cutbacks in the proposal to create enterprise zones.

"It looks like they're stripping the guts out of it, " Rep. John Kasich, R-Ohio, told reporters after meeting privately with some of the conferees. Kasich is the top ranking Republican on the House Budget Committee.

Scaling back the zone plan is a possibility because the conferees are trying to keep to a minimum the amount of revenue-losing items in the final bill as they strive to meet President Clinton's goal of $500 billion in deficit reductions.

Rep. Charles B. Rangel, D-N.Y., a conferee and a key supporter of enterprise zones, said he was concerned the conferees would scale back the proposal so far that it would be worthless. Rangel told reporters it would be better to drop the proposal entirely than to hamstring its effectiveness with too many cutbacks.

But Rep. Dan Rostenkowski, D-N. Y., the chairman of the House Ways and Means Committee, told reporters that there was no discussion as yet of completely removing enterprise zones from the package.

The House and Senate tax conferees are also rewriting the enterprise zone provision because Senate leaders believe it could be struck from the bill if the House proposal reaches the Senate floor as originally written, according to John Hilley, counsel to Senate Majority Leader George Mitchell, D-Me.

Hilley said the proposal violates a provision of the budget law known as the Byrd rule, which bars items in budget reconciliation legislation that either have no effect on the deficit or have the effect of raising the deficit.

Under Senate rules, any senator who raises a point of order against an item violating the Byrd rule can strike it from the budget package on the Senate floor, unless 60 senators vote to waive the point of order.

Hilley did not specify which elements of the enterprise zone plan violate the Byrd rule. But he said he believes the problem can be corrected in the tax negotiations, which is partly why the conferees are talking about scaling back the plan.

Despite the leadership's worries that the enterprise zone plan could be struck from the bill, Bill Hoagland, minority staff director of the Senate Budget Committee, said he knows of no plans by Senate Republicans to use their 44-vote bloc in the Senate to try to kill the provision.

In fact, Hoagland said, Republicans believe the enterprise zone proposal does not violate the Byrd rule. It should present no problem on the Senate floor as long as its tax incentives and spending provisions are offset with the increases, as they are under the House bill, he said.

Far from seeking to defeat the plan, Hoagland said the Budget Committee's ranking minority member, Sen. Pete Domenici, R-N.M., and other Republicans actually like the proposal because it is similar to one advocated by Jack Kemp, former President Bush's housing secretary.

The House bill would create 110 enterprise zones, economically depressed areas where tax incentives would be offered to lure businesses from other areas or to encourage the startup of new businesses. The 110 zones would include 10 "empowerment zones" that would receive a wide array of federal benefits and 100 "enterprise communities" that would receive a smaller number of incentives.

None of the lawmakers who spoke to reporters yesterday offered specifies on how the zone plan may be cut back. But lobbyists said one proposal that was being floated would substantially decrease the number of zones to six.

There is still no indication whether the cutbacks being considered by the conferees include narrowing or eliminating the bond component of the plan.

For both types of zones, the House bill would permit the issuance of a new category of exempt facility bond to finance businesses in the zones. The bonds would be bank eligible, regardless of the size of the issuer.

In addition, 75% of each bond issue sold for businesses that are more than 50% owned by residents of empowerment zones, would be exempt from the volume cap. All other bond issues would be 50% exempt from the cap.

Yesterday, the Senate conferees made proposals that resolved a number of outstanding tax issues not related to tax-exempt bonds. But they proposed leaving, open for the moment the question of extending the tax exemptions for mortgage revenue bonds and small-issue industrial development bonds, which expired June 30, 1992.

The House bill includes President Clinton's proposal for making those exemptions permanent, while the Senate has proposed extending them only through June 30, 1994.

When asked how long an extension the administration now favors for the exemptions and a number of other tax breaks also at issue in the conference, deputy assistant secretary for tax policy Samuel Sessions said, "We want them to be as long as possible."

Because the length of the extensions will depend on how much the conferees can afford. to spend on them, lobbyists said these decisions are usually the last ones made.

Over, all. the negotiators made substantial progress on tax issues yesterday, Rostenkowski said. The conferees are expected to continue meeting today.

"I think there has been a tremendous amount of movement in the revenue area," Rostenkowski told reporters. Later in the day, during an open meeting of the conferees, Rostenkowski said the Senate conferees had "shown a true willingness to compromise on key items that makes me optimistic" the conference will conclude on schedule late next week.

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