House GOP Promises to Protect Medicare : Congress: Leadership says it can be done along with a balanced budget, tax relief. Gingrich warns that the system requires a long-term remedy.

Leading House Republicans on Friday promised to shore up the ailing Medicare system without compromising their twin goals of balancing the budget and providing tax relief to families and businesses.

But House Speaker Newt Gingrich (R-Ga.) warned that Medicare’s long-term problems will not be solved soon.

“I think you’re going to see us produce a very dramatically improved program,” Gingrich told reporters after House Republicans completed a private strategy session outside Washington. He added, however, that “it’s impossible for us, in my judgment, to make Medicare sound for the baby boomers in this Congress. It’s just too big a job.”

Until now, much of Congress’ rising debate over the budget has centered on controversial changes in health care for the elderly and the wisdom of providing tax relief to families and corporations--reducing the government’s income--while managing to eliminate the deficit all at the same time.

But additional issues will begin to take the stage, as key panels in the House and Senate next week take on the formidable challenge of approving blueprints for balancing the budget by the year 2002. Increasingly, members will duel over a plethora of topics that have received little attention so far, as the clumsy budget process advances through a web of committees in both houses.

On Friday, for example, Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) said in an interview that he will propose axing 100 federal agencies, programs and commissions, including one unidentified Cabinet department.

In addition to the Medicare debate, members of Congress are focusing on such sensitive matters as:

* Defense spending. It appears that defense spending will be sheltered from significant cuts but House Budget Chairman John R. Kasich (R-Ohio) would freeze it at about $270 billion a year for the next seven years, a level that might not keep up with inflation.

* Treatment of the working poor. Some Republicans wish to cut back the earned-income tax credit, which reduces tax burdens for low-income, working households. The provision, which has been criticized for leading to errors on tax returns, is a favorite anti-poverty strategy of the Clinton Administration.

* Eliminating Cabinet agencies. The departments of Energy, Housing and Urban Development and Commerce rank prominently on many budget-cutters’ lists, although cutbacks are more likely than full-scale terminations.

* Funding for public broadcasting and arts. Republicans are expected to continue to try to cut funds for the National Endowment for the Arts, the National Endowment for the Humanities and public broadcasting.

* Tax relief for families and businesses. Senate Republicans, led by Domenici, have made deficit-cutting a higher priority than their House counterparts but they face pressure within the Senate to include tax cuts in the budget outline.

Speaking to reporters Friday, Sen. Phil Gramm (R-Tex.), a conservative candidate for the GOP presidential nomination, vowed to push a $167-billion tax-cut package when the Senate Budget Committee’s blueprint reaches the floor, possibly before the end of this month.

Gramm’s plan, which is similar to a tax package that already has passed the House, would include a $500-per-child tax credit for families, a capital gains cut and other tax breaks for business. Gramm’s proposal marks a sharp break from Domenici, who has sought to make tax reductions strictly conditional on progress in reducing the budget deficit.

Certainly, the debate is heating up as budget committees in the House and Senate prepare to unveil their budget resolutions next week--similar but competing outlines intended to guide Congress toward a balanced budget by 2002.

In an interview Friday, Domenici said that the Senate panel is operating on the assumption that 100 federal departments, agencies and programs would be abolished or merged. He also said that his blueprint would contain a contingency plan for $170 billion in tax cuts but only if the Congressional Budget Office confirms that the spending cuts represent a sound, reliable path to a balanced budget.

In addition, he maintained that his approach is yielding a political dividend: Putting spending cuts before tax cuts has helped blunt Democratic attacks that the Republicans plan to slash Medicare to finance tax cuts for the well-to-do.

“That position is serving us well,” he said.

As the House’s budget battles begin--a process that is certain to be less orderly than House Republicans’ 100-day “contract with America”--Gingrich sought to cast the coming debate as an extension of the popular policy initiatives that have helped preserve discipline among GOP members in the opening days of the 104th Congress.

“We are building on the ‘contract with America’ by in effect creating a contract with our children to leave them a balanced budget and lower interest rates and lower taxes, and we think that’s a very, very important step in the right direction,” Gingrich declared.

The step is likely to spark new controversies.

Some Republicans are pushing hard to eliminate the earned-income tax credit, which has been expanded under the Clinton Administration as a way to push up incomes of poor, working families with children.

“I wouldn’t be surprised if the earned-income tax credit was one of the areas where growth is going to be greatly curtailed,” said a spokesman for Sen. Don Nickles (R-Okla.), who is a member of the Budget Committee.

Times staff writer Janet Hook contributed to this story.