WASHINGTON - Mystery novels always follow some kind of plot, and tax bills generally do too.

Now Congress is more than halfway through writing its latest tax bill, and how the story will turn out is anyone's guess.

But there are some interesting theories bouncing around that envision outcomes for the municipal market ranging from very good, to mediocre, to virtual disaster.

Just before Congress left town last week for a monthlong recess, the Senate finally managed to put in two half-hearted days of debate on its version of the latest tax measure.

During that debate, the plot began to thicken and it appears as if there are three possible ways for it to play itself out.

The finale that would be the most favorable to the municipal market would see President Bush and the Congress hammering out a bipartisan compromise.

Based on the contents of the House and Senate bills, such a final bill would be likely to allow the expanded use of tax-exempt bonds in enterprise zones, the permanent extension of mortgage revenue bonds and small-issue industrial development bonds, an increase in the use of bank-qualified debt, and several proposals that simplify and ease the curbs on municipal bonds.

Whether Mr. Bush is willing to compromise on a tax measure will depend heavily on what happens at this week's GOP convention in Houston. Party conservatives are trying to pressure him to veto any tax bill unless it contains tax cuts, especially reductions in capital gains. They reject any tax increases, such as the $31 billion in the Senate bill that are needed to pay for its tax breaks.

Some municipal lobbyists feel Mr. Bush will take an election-year hard line and veto any House-Senate measure containing tax hikes. If so, Congress will have little time or choice but to try to enact a trimmed-down bill before adjourning in early October.

That would be a disappointment for the municipal market because it would probably mean only a temporary extension of mortgage bonds and IDBs plus a few low- or no-cost bond simplification measures. Expansion in the use of bank-qualified debt would be unlikely.

But the worst outcome for the municipal market might come if Congress tries to play hardball over a veto.

Some lobbyists feel there is a danger that the failure of the Senate to pass a bill before leaving town last week may delay final House and Senate action on the current measure until early October. Then, in retaliation for Mr. Bush's likely threat to veto any bill containing tax increases, Congress might send the bill to the White House and adjourn, leaving Mr. Bush to put up or shut up.

If the President went through with his veto, all the bond provisions would be lost and the use of mortgage bonds and IDBs, which expired on June 30, would be in limbo until sometime next year.

Let's hope that isn't how this tax bill mystery ends.

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