Political Leaders See Bush, Lawmakers on Crash Course as Congress Returns Today : Government: Clashes are expected on China, defense spending and tax cuts. Both parties are seeking an election-year advantage.

With President Bush attacking the Democratic-controlled Congress even before it convenes today for its 1990 session, confrontation appears certain to overwhelm cooperation between Capitol Hill and the White House in this election year.

Democratic and Republican leaders expect major battles over the level of defense spending, rival tax cut proposals, campaign finance reform and China policy.

“Both parties appear to have lost their appetite for statesmanship,” said a veteran Democratic observer on Capitol Hill. “They will try to find the political high ground by going for issues that have public appeal without caring whether it’s the best policy.”

China appears likely to cause the first showdown. Although Bush’s invasion of Panama last month drew an enthusiastic response from Congress, his dispatch of a high-level mission to China soon after it crushed pro-democracy forces in Tian An Men square last June was met with nearly total disapproval.

The House is expected Wednesday to override Bush’s veto in November of a bill that would extend for four years the visas of Chinese students in this country who fear persecution if they returned home. The Administration is trying to rally Republicans in the Senate to sustain the veto and prevent an embarrassing setback.

A second donnybrook is likely if Congress, as expected, votes to impose sanctions on China. Bush opposes sanctions as part of his policy of maintaining close contacts with the Beijing regime despite its human rights violations.

Senate Majority Leader George J. Mitchell (D-Me.), an outspoken Bush critic, recently declared: “The President’s position on China is inconsistent with American ideals and American interests . . . . We are aligning ourselves with a repressive Chinese regime of old men whose days are numbered.”

On an issue closer to home, Sen. Daniel Patrick Moynihan (D-N.Y.) has thrown a wild card into the tax debate by proposing a $55-billion-a-year cut in Social Security payroll taxes. His scheme has picked up surprising support from Republicans and the business community despite instant disapproval by the President.

“It’s going to take off like wildfire,” Rep. Thomas J. Downey (D-N.Y.), a member of the House Ways and Means Committee, said of the election-year reaction to the Moynihan plan.

Democrats delight in contrasting Moynihan’s proposal with Bush’s plan to reduce capital gains taxes, which they claim would confer most of its benefits on the wealthiest 5% of all Americans.

Mitchell, although reserving judgment on Moynihan’s suggestion, described the Bush policy as: “Let’s cut taxes for the wealthy but not working people and middle-class Americans . . . . Let the little people pay.”

However, Assistant House Republican leader Newt Gingrich of Georgia termed the proposed reduction in payroll taxes a “bait-and-switch” gimmick that would lead to a monumental income tax increase and lower future retirement benefits for the baby-boom generation. He predicted that Congress would scrap the plan when it realized what was in the “fine print.”

In another potentially controversial initiative, Senate Republican leader Bob Dole of Kansas suggested a cut of 5% in foreign aid allocations for Israel, Egypt, Pakistan, Turkey and the Philippines to pay for new assistance to the nations of Eastern Europe, which are emerging from decades of Communist rule.

His proposal to shift funds underscored Congress’ predicament as it seeks to finance new programs. The federal deficit still looms large, and Bush adamantly opposes tax increases.

“People look to us, particularly Democrats, to solve problems,” said Rep. Vic Fazio (D-Sacramento), “but there is no money.”

With the victory of anti-communist forces throughout Eastern Europe and Soviet President Mikhail S. Gorbachev’s enthusiasm for arms reduction agreements, most members of Congress look forward to some kind of “peace dividend” from cutting the Pentagon’s $300-billion budget.

But the nature and extent of the savings remain uncertain. Many lawmakers want to protect defense industry jobs in their districts, and others favor a gradual approach to cutting the defense budget on the theory that the changes in Moscow might not last.

Even so, Senate Budget Committee Chairman Jim Sasser (D-Tenn.) predicted that Congress will cut billions from the President’s military spending proposal.

Gingrich, vowing to fight such a move, declared: “All of the liberal Democrats who voted against the Reagan military buildup are salivating at the prospect of disarming unilaterally as quickly as possible.”

Bush is waving his veto pen over complex child-care legislation that appears likely to emerge from Congress this year with provisions going far beyond his recommendations for additional tax credits for working parents. “He’s prepared to go to the mat this year,” Gingrich said.

On some issues, there is at least the possibility of something less than trench warfare.

Senate and House Democratic leaders say they are determined to push hard, for example, to change the laws governing election campaign finances and spending, in the wake of highly publicized contributions from savings and loan executives. Key Republicans have said they could agree to a ceiling on outlays, but other parts of the package remained unresolved.

Congress is expected to approve the first major revision of the Clean Air Act after more than a decade of deadlock. But Bush has threatened a veto if it doesn’t meet his guidelines for limiting additional costs for industry.

There is also a promise of presidential cooperation on a Senate-approved bill to expand access to transportation and public buildings for the disabled. Bush has indicated that he would sign such legislation.

But, for the most part, the strident rhetoric on both sides portends partisan warfare ahead.

In two recent appearances during the lawmakers’ two-month recess, Bush charged that Democratic opponents of his capital gains proposal were “demagogues” and complained that his legislative program was “lost in the jungles of Capitol Hill.”

Senate Democratic leader Mitchell brushed off the criticism, although he said such presidential attacks were “not helpful.”

In the House, some leaders viewed the Bush tactics as a signal of future Congress-bashing in preparation for the fall election campaign. “Our new (Democratic) leadership can be more aggressive and less reactive,” said Fazio, vice chairman of the Democratic Caucus.

House Democratic leader Richard A. Gephardt of Missouri is expected to lead the partisan charge against the White House while Speaker Thomas S. Foley of Washington remains aloof from political attacks and tries to curb the traditional Democratic wrangling over leadership proposals.

Although there are some ethics cases pending in the House, it is the Senate that will be the focus of attention this year, with seven senators facing ethics investigations.

The media spotlight will be on the so-called “Keating five,” including Sen. Alan Cranston (D-Calif.), who received more than $1.3 million in contributions from Charles H. Keating Jr. and then intervened with federal regulators on behalf of Keating’s Lincoln Savings & Loan Assn. of Irvine.

Taxpayers are expected to be billed up to $2 billion to make good on deposit insurance at Lincoln, and the 22,000 Californians who bought now-worthless bonds from Keating’s parent firm may lose their entire investments.

Congress’ schedule this year was drafted with the November balloting in mind. Each chamber has scheduled frequent recesses, in addition to a monthlong August vacation, and set the target adjournment date for Oct. 5.