CLINTON BUDGET COULD ELIMINATE TAX STRATEGIES : BANKS, BROKERS MAY PAY MORE.

Byline: Paul Nyhan Bloomberg Business News

A number of tax strategies popular on Wall Street will be on the line next month when President Clinton presents his new budget.

While final decisions have not been made, Clinton is considering tax law modifications to eliminate ``shorting against the box,'' to make companies pay more tax on dividends they receive from other companies, to limit interest deductions on the longest-term bonds and to make individuals average the price of shares purchased when computing capital gains taxes, to name a few.

Most of these ideas were in Clinton's budget last year, but more is at stake this time because Republicans are no longer so opposed. In fact, Republicans need the revenue to help balance the budget. Republicans will give the proposals ``more serious scrutiny than they received last year,'' said Ken Kies, the chief of staff of the Joint Committee on Taxation.

Adoption of Clinton's proposals would hurt some investors and put a crimp in the earnings of investment and securities firms such as Salomon Brothers Inc. and Merrill Lynch & Co. It ``will limit certain securities that have been popular with issuers and investors alike,'' said Scott Ulm, co-head of debt capital markets at New York-based Credit Suisse First Boston. ``We'd just as soon not see these disappear.''

The president's budget is due on Capitol Hill on Feb. 6 and changes are still possible, but a White House aide familiar with the budget draft said Clinton is likely to propose the following:

Scaling back or even eliminating a technique that allows companies to deduct 70 percent of the dividends they receive from investments in other companies.

Denying companies the ability to deduct interest expenses on bonds that mature in more than 40 years. The administration has argued that bonds with maturities that far into the future are, in essence, stock. Bond issuers disagree, saying the bonds are debt and that establishing a 40-year cutoff is capricious and arbitrary. The size of the 100-year bond market is more than $3 billion. Today U S West Capital, a division of U S West Inc., sold 100-year bonds as part of a sale of $4.1 billion of debt.

Eliminating financial instruments known as Trust Preferred Capital Securities. Companies, almost always banks, can treat these securities as debt for tax purposes in order to deduct the interest, while counting them as part of the capital regulators require them to hold to cover loan losses.

Requiring that investors who buy shares of the same stock at different prices average the cost of the shares when computing capital gains on shares sold. Currently investors can minimize taxes on their gain by choosing to sell shares that were purchased at the highest price.

Prohibiting investors from using a tax technique known as shorting against the box. Under that strategy, investors first borrow, than sell, a quantity of shares equal to the number of shares in a company they own. This strategy allows investors to make a profit if the share price has gone up, while holding on to the voting power of the shares. They also can delay capital gains taxes on the profit. Capital gains taxes can be avoided entirely if the short position is kept open until the owner of the stock dies.

While Republicans aren't saying which proposals they'll support and which they will block, the one with the smallest chance of passage is probably the move to make companies pay more tax on the dividends they collect from other companies. House Ways and Means Chairman Bill Archer of Texas views that as a tax on business and has said he will block any new taxes.