WASHINGTON -- Remember HR 3419, the tax simplification bill? After languishing for a long time, it has recently been the subject of some wild speculation about how it might get approved by Congress this year.

The problem is that the two scenarios suggested for its passage involve health care reform legislation and a campaign finance reform measure, which are mired in political troubles of their own. But that hasn't stopped Capitol Hill watchers from engaging in wishful thinking.

Before outlining the two scenarios, it might be helpful to remember just why the municipal market cares about the simplification bill. One of its three bond provisions would ease requirements for bona fide debt service funds under the 1989 arbitrage rebate relief law. Another would clarify that transactions in which state or local governments prepay equipment purchases are eligible for tax-exempt financing if certain conditions are met.

The third provision would expand the six-month exception from the arbitrage rebate requirement to an issuer that spends 95% of proceeds within that period and spends the other 5% in the following six months.

Legislative junkies with good memories will recall that, as originally introduced by Rep. Dan Rostenkowski, D-Ill., in 1993, the bill also included two major bond provisions. One would have increased to $10 million the $5 million smallissuer exemption from the arbitrage rebate requirement. The other would have repealed the so-called 5% unrelated-use test.

But when it passed the simplification bill last November, the House Ways and Means Committee dropped those two provisions in an effort to minimize the bill's cost to the federal government.

The measure was then forgotten for several months, but suddenly resurrected and passed by the House this May. Since then, its progress has again ground to a screeching halt.

The bill can't go any further until the Senate takes up the issue. But the Senate Finance Committee has shown no inclination to draft a simplification bill. The committee's former chairman, Lloyd Bentsen, championed simplification, but his successor, Sen. Daniel P. Moynihan, D-N.Y., has been more concerned with the health care bill and welfare reform.

Now, some Capitol Hill watchers say they see two scenarios under which the bill might yet win congressional approval this year. For one, there is the chance that the Senate could complete action on health care before the House. Because the health care bill has a revenue component, the Constitution requires that the bill must Originate in the House. In congressional parlance, this is known as "needing an HR number," a reference to the way bills are numbered in the House.

In the past, Senate leaders have gotten around this requirement simply by attaching major tax bills to minor tax bills that had already been passed out of the House and were awaiting consideration in the Senate. Simplification is one such pending bill, so Senate leaders could, theoretically, tack the entire health care measure to HR 3419 and send it back to the House.

The Second scenario involves campaign finance reform legislation, which has been slogging its way to enactment for some time. Lobbyists say there is some talk that the bill could need a tax component, which would have to be drafted by the Ways and Means and Finance panels. In drafting the campaign finance tax provisions, tax lawmakers could conceivably slip in the simplification bill.

The problem with both scenarios is that the health care bill and the campaign finance bill have troubles of their own. It's hard to know when, if ever, the health care bill will get out of the Senate, and the campaign finance bill may be stalled indefinitely.

Next year may be a better year for simplification proponents: President Clinton has promised a major infrastructure bill, which would in turn lead to a major tax bill drafted by the Ways and Means and Finance committees. Under that scenario, there should be plenty of room for a little simplification of the tax code in general, and of bond provisions in particular.

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