WASHINGTON - President Clinton on Thursday threatened to veto a $245 billion tax-cut package that is filled with provisions sought by the banking industry, particularly community banks.

The measure - which the House passed 237 to 174 later in the day-would create a special tax-deferred savings account for farmers and ranchers, let banks pay interest on business checking accounts, raise limits on contributions to retirement savings plans, and create tax breaks for banks and other companies that invest in poor communities.

"On balance, it's bank-friendly, but tailored toward small businesses and community banks," said Paul Merski, director of federal tax policy at the Independent Community Bankers of America.

In a letter to Republican leaders, the President described the bill as a "partisan legislative package that ignores our key concerns on school construction, health care, and pensions policy."

Among other concerns, the President complained that the bill does not contain any savings provisions targeted specifically at the poor. Republicans at the last minute dropped a provision that would have allowed low-income individuals to establish tax-favored Individual Development Accounts.

Congressional leaders refused to say Thursday afternoon what they would do if the package is vetoed, though senior aides indicated that the veto would stand and there would be no tax cuts next year.

Of particular interest to community banks is the creation of farm savings accounts, which farmers, ranchers, and fishermen could use to deposit up to 20% of their taxable income. The deposits would be tax-deductible and could be kept in the account for up to five years.

Edward L. Yingling, the American Bankers Association's chief lobbyist, said the provision is "something we have been working on quietly behind the scenes, because it has the potential to help farmers and ranchers directly, and also because it will provide an additional source of funding for banks in farm areas."

Under the bill, banks would be allowed to pay interest on corporate checking accounts starting in late 2002. In the interim, the bill would quadruple the number of withdrawals that could be made from interest-bearing business checking accounts each month, to 24.

Industry opinion is divided on business checking interest.

Diane Casey, president of America's Community Bankers, said that "interest on business checking is a way to increase and resolve some of the funding problems that community banks are facing."

Small businesses have said they would put deposits back into banks if the interest measure passes, she said. "It's time to get this done."

However, other small institutions fear the move would drive up the cost of deposits. Some large banks oppose the legislation because they have already invested so much in sweep programs.

Meanwhile, Senate Banking Committee Chairman Phil Gramm has not given up on legislation that would protect a broad range of swaps contracts from federal regulation and clarify their legal status. The Texas Republican has opposed the version of the bill adopted by the House last week as too weak.

"We are still working on language, but we are optimistic we can get this done before Congress adjourns," a spokeswoman for Sen. Gramm said.

Also in the Senate, negotiations continued on a package of banking-related provisions the House passed Tuesday. The legislation would relieve bankers of 20 minor regulations they consider burdensome, renew some key banking regulatory agency reports, and create low-cost mortgages for teachers and other municipal workers.

However, Senate aides said they do not expect to reach an agreement before adjournment, which now is expected next week


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