White House Hints at Willingness to Scale Back Tax Cuts : Budget: OMB chief suggests compromise with GOP moderates with eyes on deficit reduction is possible. Clinton’s family tax credit may be retooled.

President Clinton’s budget chief, seeking ground for compromise with moderate Republicans, said Tuesday that the White House may be willing to scale back the tax cuts Clinton proposed last year and hinted that it might be done by restricting a $500-per-child family tax credit to lower-income families.

Alice Rivlin, director of the Office of Management and Budget, said this year’s battle over federal spending and taxes could yet produce a compromise that “could be a very good budget.”

“I think in the optimistic scenario, you would end up with a budget that had a smaller and more targeted tax cut, maybe smaller than ours,” she said in an interview.

If congressional Republicans negotiate with the Administration, she said, the result could be “a compromise position that might be nobody’s first choice, but that is really quite a good budget.”

“It would have additional deficit reduction, but not as much as the Republicans want. It would have some tax cut, but more focused on people who really need it and perhaps more focused on education. It would protect the spending that we think is most important to reform education . . . and invest in the future. And it would contain a health reform of some dimensions that would reform Medicare and Medicaid and lead to lower rates of growth, but not decimate those programs.”

Rivlin’s comments were the Administration’s first public signal of a specific budget issue on which Clinton is willing to bend--in this case, his tax cut, a proposal that already divided the President’s advisers and failed to capture the public’s imagination.

Conservative House Republicans--led by Speaker Newt Gingrich (R-Ga.) and Budget Committee Chairman John R. Kasich (R-Ohio)--have proposed tax cuts of an estimated $350 million over the next seven years, even as they act to slash federal spending to balance the budget by the year 2002.

Clinton denounced those tax cuts as too large and a windfall for the wealthy. But late last year, fearful of being left behind in a tax-cutting contest, the President proposed his own tax cuts of $63 billion over five years--including a tax credit of up to $500 per child for families making less than $75,000 per year, and tax deductibility for most college tuition.

Then polls showed that most voters were unimpressed by either tax cut proposal and were more interested in balancing the budget.

Last week, Senate Republicans, led by Budget Committee Chairman Pete V. Domenici (R-N.M.), passed a budget resolution with no tax cuts. And on Sunday, Sen. Christopher J. Dodd of Connecticut, general chairman of the Democratic National Committee, said he recommended that Clinton abandon his tax cuts, saying: “This is not a time for tax cutting. Deficit reduction ought to be the primary goal.”

Tuesday morning, welcoming Democratic congressional leaders to a White House meeting, Clinton said he is sticking with his $63-billion tax cut proposal for now, but willing to consider other suggestions.

“I believe that we can pay for [tax cuts] in the range that I have proposed with . . . deficit reduction,” he said. “That’s my position, but . . . I’m prepared to hear from anybody else who’s got any other ideas.”

In her more explicit suggestion that a scaled-back tax cut was possible, Rivlin appeared to be encouraging members of the Senate to negotiate a compromise that the Administration could support, leaving Gingrich and Kasich on the fringe.

Her comment that the $500-per-child tax credit might be “more focused on people who really need it” suggested that it might be offered only to lower-income families--meaning that a measure intended to keep Clinton’s 1992 campaign promise of a middle-class tax cut might go only to the lower end of the middle class. Rivlin declined to say what kind of cutoff the Administration would consider for the tax credit.

The budget director added, however, that the Administration is intent on keeping its proposal to make tuition tax-deductible for post-secondary education. “It fits what we think are the most important things to be doing about the economy right now,” she said.

But any budget compromise may still be months away, she said.

Clinton, Rivlin and White House Chief of Staff Leon E. Panetta all have indicated that the Administration’s first priority in the budget process--before sitting down to work on a compromise--is to hammer at GOP-proposed cuts until the Republicans back off.

“I do not believe that we should cut Medicare deeply, cut long-term care for the elderly deeply to pay for tax cuts for upper-income citizens,” Clinton told reporters, repeating a favorite theme of the past month.