Repeal of withholding measure appears likely

Unprecedented political pressure from banks and millions of their customers appears to be winning the war against tax withholding on interest income. The American Bankers Association (ABA) is sending out the message to its members this week to ''delay for the time being'' spending significant funds to carry out the withholding law, due to go into effect July 1. The provision is part of a tax bill passed last year to improve income tax enforcement, which the government estimates would bring in some $20 billion over six years.

Although leaders in both the House and Senate have resisted repeal of the law , withholding opponents rounded up the 218th signature in the House of Representatives Wednesday to complete a ''discharge petition'' that will force action on the issue before May 23.

Many banks are already prepared to begin withholding taxes from their customers, says ABA spokesman Fritz Elmendorf, but he calls the successful completion of the House discharge petition ''very encouraging.'' His group is now advising financial institutions to hold back on the withholding.

''There is no question that there's a clear desire out there to have action on the bill'' to repeal the withholding provisions, House Speaker Thomas P. O'Neill Jr. (D) of Massachusetts told reporters Thursday. He also said the massive lobbying effort by banks has resulted in so much ''resentment'' that it has spawned talk of attaching new bank taxes to the withholding repeal.

Mr. O'Neill said, however, that ''legislation for spite is never good legislation,'' and added that he is urging the House Ways and Means Committee, which writes tax legislation, to wait until ''things are cooled off.'' Then the Congress may consider some new bank taxes to compensate for revenues lost in repealing the withholding tax.

Although it seems clear that the 10 percent withholding provision will not go into effect in July, it's not yet certain how it will be stopped. President Reagan has threatened to veto a repeal. A Senate compromise worked out last month provides for a postponement of the law, which might give him a way out. But House Democrats appear to be leaning toward passing a strict repeal, which could present a tough choice for the President.

So powerful has been the public outcry and bank opposition to the new withholding law that a veto would almost certainly be overidden by two-thirds of Congress.