Budget Talks May Hinge on Ideals, Not Dollars : Legislation: Unlike tax cuts and Medicare savings, basic philosophical splits between Democrats, GOP can’t be solved by compromise.

If President Clinton and congressional Republicans ever get down to bargaining over the details of their competing plans to balance the budget in seven years, they will face a surprising outlook: The biggest obstacles to compromise may not be disputes over Medicare and tax cuts, which have provoked the most political fireworks.

Instead, the deepest disagreements may be over Medicaid and other programs where the Republicans want to do far more than save money. They want to change the basic structure of government.

Many Republicans, seeking a bill that Clinton would sign, have shown a willingness to compromise over their proposed cuts in taxes and in the growth of Medicare spending. For all the fiery rhetoric, the differences can be resolved by traditional split-the-difference compromise.

Basic Disagreement

In other areas, however, the two sides are divided by basic philosophical disagreements that make finding common ground much harder. Republicans are proposing fundamental changes in the structure of Medicaid and welfare. Clinton wants to keep them largely intact.

“You can’t compromise that,” said Sen. Thad Cochran (R-Miss.). “Someone just has to give.”

But after two weeks of budget talks between the White House and Congress, negotiators have not delved seriously into specific issues. The talks quickly bogged down in GOP demands that Clinton offer his own plan to balance the budget in seven years, on the same terms as the GOP-drafted bill that Clinton vetoed this week.

Clinton responded Thursday by submitting a new budget. Republicans immediately lambasted the plan, saying it fell $400 billion short of balancing the budget.

House Speaker Newt Gingrich (R-Ga.) and Senate Majority Leader Bob Dole (R-Kan.) wrote to Clinton on Friday demanding that he be prepared to submit yet another budget Monday that would save an additional $400 billion.

Talks Suspended

Budget talks were suspended until early next week, when the Congressional Budget Office is supposed to issue new, more optimistic economic forecasts--a revision that is expected to show that $50 billion to $100 billion more could be spent and still balance the budget.

In light of those new estimates, Republicans may revise their budget but leadership aides said that there is no consensus about how the additional money should be used: for more spending, tax relief or deficit reduction.

If the two sides get beyond the preliminaries and into issue-by-issue negotiations, they face formidable obstacles to compromise.

After months of being overshadowed by vitriolic debate on Medicare, disagreements over the Medicaid program for the poor is emerging as a potential deal breaker. Republicans have proposed reducing the growth of the program by $163 billion over seven years. Clinton wants to save only $54 billion from the program.

More important, the GOP wants to transform the program from an entitlement, which guarantees benefits to all who qualify, into a lump-sum payment to states, which would have broad discretion to limit its scope.

Clinton proposed more modest changes to slow the growth of the program and Thursday threatened to veto any budget bill that does not preserve Medicaid’s entitlement status.

“I will not permit the repeal of guaranteed medical coverage for senior citizens or disabled people, for poor children and pregnant women,” Clinton said before meeting with Democratic governors.

During Thursday’s budget talks, Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) reportedly said that failure to end the entitlement status of Medicaid would be a deal breaker for many Republicans.

Welfare Proposals

Similar philosophical differences are at stake in the two sides’ welfare proposals.

The GOP budget calls for eliminating the entitlement status of welfare and giving states broad flexibility to run their own programs.

Clinton has proposed far more modest reforms that essentially would continue the existing system but let states experiment with ways to move the poor from welfare into work.

Earlier this year, Clinton said he could support a Senate-passed welfare bill that ended the program’s entitlement status. But he took so much heat from liberal Democrats that he may now be under pressure not to concede too much to the GOP.

In another area, Republicans are proposing major changes in the structure of the government’s 60-year-old system of farm subsidies. Clinton would reduce farm spending but leave the basic system in place.

The Republicans want to set up a new system of fixed payments to farmers, which would decline over the next seven years but would give them more freedom to decide what to plant. Farm state lawmakers feel intensely about these complex issues, which were the last to be resolved when Republicans drafted the details of their final budget.

Still, disputes over farm programs are unlikely to make or break a budget deal and may in fact be easier to resolve even than the differences over tax cuts and Medicare.

Republicans want to curb the growth of Medicare by $270 billion over seven years. Clinton wants to save only $124 billion. Democrats have made much of this difference in their yearlong attack on the Republican plan, portraying the GOP as the scourge of the elderly.

Yet despite the big dollar differences, the two sides’ Medicare budgets are based on policies that are similar in principle in many respects. Both wring big savings from payments to doctors and hospitals and would try to enroll more beneficiaries in managed care plans.

Medicare Premiums

One of the biggest and most politically volatile differences is in the GOP proposal to make larger increases in the premiums beneficiaries pay.

Republicans don’t seem wedded to their deeper Medicare cuts on principle. Indeed, they might welcome an opportunity to scale back the savings, which are the element of their budget for which they have caught the most political flak.

“We’re not that far off,” said Rep. Sam Brownback (R-Kan.), a leader of the freshman class of House Republicans, which has a reputation for being uncompromising. “These aren’t worlds apart.”

The other high-profile difference between the parties is on tax cuts. Republicans want $245 billion in tax cuts, including a $500-per-child credit to families earning under $110,000 a year and a reduction in capital gains taxes.

Clinton’s $98-billion tax-cut proposal includes a tax credit targeted at lower-income taxpayers and deductions for college tuition.

Many House Republicans have been adamant about not providing less than $245 billion in tax cuts but many other Republicans--especially in the Senate--are clearly more flexible.

House Budget Chairman John R. Kasich (R-Ohio) recently acknowledged in a television interview that the tax cut that finally emerges is likely be less than $245 billion. And a top Republican aide pointed out that tax-cut hard-liners did not kick up a fuss earlier this year when the GOP leadership agreed to impose a lower income cap on eligibility for the family tax credit.

“We don’t know internally what our bottom line is,” the aide said. “But I thought it would blow up over the income threshold on the tax credit and it didn’t.”

Times staff writer Jonathan Peterson contributed to this story.