(FORTUNE Magazine) – In Washington, the timing has rarely been better for a major tax cut. Instead of those nasty old deficits, there's nothing but budget surpluses as far as the eye can see. Republicans, who generally love to slash taxes, are in charge of both the House and Senate. And President Clinton wants to make sure Vice President Gore succeeds him. What better way to make friends than to enact a giant tax cut?

Things are never as they seem in the nation's capital, however. Sure, lawmakers will probably pass a revenue measure this year. But it won't be sweeping. A 10% across-the-board reduction in income tax rates? No way. Termination of the estate tax? Don't bet on it. "We will have a tax cut this year," predicts Richard Bryan, a Nevada Democrat who sits on the Senate Finance Committee. "But the focus of the debate will be on selected tax cuts."

In Washington's typically byzantine manner, broad tax relief is being held up by, of all things, the politics of Social Security. President Clinton has challenged Republicans to "save Social Security first" by devoting 62% of the surplus to shoring up the troubled retirement program. Not to be outdone on so popular an issue, Republicans want to put 100% of the surplus off-limits, leaving themselves only about $10 billion to $15 billion for tax cutting unless Social Security is repaired by year-end. How likely is that? "There's a possibility we could put a [Social Security] proposal together by the end of the year, but it's hard to imagine how," says California Congressman Robert Matsui, a senior Democrat on the House Ways and Means Committee.

So expect a little nipping and tucking rather than serious surgery in 1999. The question is: Where will the incisions hit?

Marriage penalty: Couples who file separately often pay less in taxes than those filing jointly. In the family-friendly world of politics, that's not supposed to happen. Still, this "penalty" will probably just be trimmed; there's not enough money to go around for a total wipeout, which would cost more than $300 billion over ten years.

Estate taxes: The small-business lobby is eager to kill what it calls the "death tax." But even avid tax-chopper William Roth, chairman of the Senate Finance Committee, says, "I don't think it's going to be eliminated in one major step." The exemption, now $650,000, is scheduled to rise to $1 million in 2006; watch for that rise to come sooner.

Alternative minimum tax: The AMT is supposed to catch rich people who escape taxation by using loopholes. Yet increasingly, middle-income folks are getting whacked because the law hasn't been adjusted for inflation. Congress is likely to alleviate this problem, at least for now, by letting filers claim more tax credits.

Child-care credit: Clinton and religious conservatives want to extend this tax break--which is based on job-related child-care expenses--to parents who stay at home to care for an infant. Who's going to say no?

Savings incentives: With savings maven Roth at the helm of the finance committee, there's always a possibility that IRAs of some kind will be beefed up. The Delaware Republican is even pressing for a Roth 401(k), which, like the Roth IRA, would offer tax-free withdrawals.

Capital gains: Don't hold your breath, but Republicans would love to reduce the tax rate on long-term capital gains (now 20%) or shorten the holding period (now a year). Democrats don't like the idea, but then again, it's the one tax cut that can actually raise revenue, at least temporarily.

Stay tuned.

--Jeffrey H. Birnbaum