WASHINGTON -- The Senate's failure to complete action on the urban aid tax package before adjourning for a monthlong recess could endanger the measure's final passage this fall, tax aides and lobbyists said yesterday.

Those sources said that if President Bush adopts a confrontational approach toward Congress after next week's Republican National Convention, the tax bill could bog down in partisan wrangling next month.

In a separate development, Sen. Robert Dole, R-Kan., said on the Senate floor Wednesday night he will offer legislation next month to scale back the tax package's proposed extensions of expired provisions.

The package would renew such tax breaks as the exemptions for mortgage revenue bonds and small-issue industrial development bonds, which expired June 30, and extend them through Dec. 31, 1993. Sen. Dole's plan would change the expiration date to Sept. 30, 1993, to pay for a proposal to resurrect a tax credit for the use of nonconventional fuels.

Sen. Dole said he wanted to offer the plan as an amendment to the tax bill, but as debate would down on the measure Wednesday night he said he would hold off until the Senate returns after Labor Day.

The Senate made little progress on the tax bill Wednesday, as Senate leaders worked behind the scenes to fashion an agreement to limit amendments to the measure. At the end of the day, Senate Finance Committee Chairman Lloyd Bentsen. D-Tex., said agreement had been reached. But because the Senate was scheduled to begin its recess that night, the chamber stopped work on the tax bill and adjourned.

Tax aides and lobbyists said the monthlong hiatus, coming in the middle of the presidential campaign, could weaken prospects for enactment of the tax bill. President Bush, they said, has been under pressure from conservatives to repudiate the tax bill because it contains some tax increases.

He has also been counseled by aides to veto any revenue and appropriations measures Congress sends him next month, to show he views the Democrat-controlled Congress as a group of tax-and-spend liberals.

"In theory, the Senate will just come back and do [the tax bill]," said a congressional aide. "But with the presidential campaign and the intervening convention, there's no way you can tell what's going to happen."

A municipal lobbyist said that if the President does decide to play political handball, "it's going to make September a very ugly, difficult month," for lawmakers trying to finish the tax measure.

"The President will be running against Congress," said John T. McEvoy, the executive director of the National Council of State Housing Agencies. "I'm concerned that by the time the President gets the bill he won't want to sign it anymore, no matter what it contains."

Congress may have missed an opportunity to push through the tax bill earlier in the year, when Democratic lawmakers and the Bush administration were working together and had agreed to craft an urban aid package, lobbyists said. The core of the measure is a plan for urban enterprise zones, which the two sides agreed were needed to aid distressed cities in the wake of the Los Angeles riots.

"The longer they let it go, the less impetus there is to do a big bull," said a tax lobbyist. "Enterprise zones aren't as urgent anymore. That day has long since passed."

The enterprise zone proposal contains a number of tax incentives that would be available to businesses in distressed areas. One of those incentives would be a new type of exempt-facility bond issued to make loans to small businesses.

The bonds would be bank-eligible, regardless of the size of the issuer, and 50% of each issue would be exempt from the private-activity bond volume cap. The per-business limit on the amount of bonds issued would be $1 million.

The tax package before the Senate also contains a group of bond simplification proposals, including one designed to increase the supply of bank-qualified bonds. Another would eliminate the $150 million limit on outstanding 501 (c)(3) bonds that applies to private, non-profit organizations other than hospitals.

Tax legislation passed by the House last month contains a slightly different enterprise zone plan, and would make the tax exemptions for mortgage bonds and small issue IDBs permanent. It also includes a different-group of bond simplification proposals, such as a provision that would increase the $5 million small-issuer arbitrage rebate exemption to $10 million.

Outside the bond area, both packages have become, weighted down with a host of other provisions. For example, the Senate bill would ease restrictions on Individual Retirement Accounts, institute a first-time home-buyer credit, and ease tax restrictions on real estate investments.

If the full-blown tax package does become bogged down in the Senate or in a House-Senate conference, some lobbyists and tax aides said, Congress could still pass a more narrow bill before adjourning for the year in October.

They said they expected such a bill to contain only the extensions of expiring provisions and a popular proposal to repeal the luxury tax on boats, along with possibly a small enterprise zone proposal.

"I think there will be a premium on both parties to do some sort of enterprise zone plan," said a proponent of one of the expiring provisions. "Does that mean [they pass] as ambitious a bill as the one on the Senate floor now? No."

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