Democrats began feeling hopeful when they heard Republicans mention the word ““orphanage.’’ Evoking Oliver Twist is the perfect way to paint the recently released Republican welfare-reform plan as wacko extremism. But the ““Personal Responsibility Act’’ – offered as part of the ““Contract With America’’ – merely offers money to the states to set up orphanages if they want, and even then it’s an extremely minor part of the welfare plan. Indeed, one of the bill’s authors, Rep. James Talent of Missouri, told Newsweek that he wants the idea removed.

That’s not to say the Republicans just want to tinker with welfare. In fact, the emotionally charged orphanage debate may divert attention from just how radical the Republican plan is. Compare it, for example, with Bill Clinton’s, which itself angered liberal Democrats when issued earlier this year. Clinton proposes eliminating welfare abuses by some immigrants; the Republicans wipe out all benefits for legal immigrants. Clinton wants to limit the length of time people could stay on welfare; the Republicans abolish benefits for many recipients right away.

Welfare reform is one of the hardest issues to debate without lapsing into demagoguery, as both sides have already demonstrated. The plan, which Republicans promise to vote on in the first 100 days of the session, is constructive in some ways, cynical in others. To understand what it really tries to do, one has to isolate its assumptions about who are on welfare, why they’re poor and what the government can do to alter human behavior.

The republican plan assumes that the prevalence of out-of-wedlock births is the main reason people stay poor. That’s right. Study after study indicates that poor kids who start out with only one parent will almost certainly stay poor. Legislators hope that cutting off benefits to teen mothers will force most girls to change their minds about having babies. Sure enough, Julia Lestido, a 17-year-old welfare mother from Elizabeth, N.J., says that if the government abolished aid, ““I would prevent myself from having more children.''

But it’s not clear that ending benefits will stop pregnancies often enough. Girls get pregnant for a variety of powerful psychological reasons that have little to do with rational economics. Many low-income teens view having a baby as the fastest way to respectability. A 14-year-old without a child is a ““teenager’’; one with a child is a ““mother.’’ Many girls get pregnant in order to keep their boyfriends from leaving them, and others because they know they’ll get support at home.

What’s more, single parenthood has become acceptable well beyond adolescent culture. Among the poor, half of those who go on welfare do so after the age of 18. And though the illegitimacy rate among the poor nearly doubled from 1979 to 1992, it also doubled among those who weren’t poor and weren’t getting welfare checks.

Clinton and the republicans agree that welfare fosters dependency. Experts estimate that at least 2 million families have become long-term, repeat users of Aid to Families With Dependent Children. That’s a horrifyingly large number. Both Clinton and the GOP attack the problem by putting limits on the number of years someone can stay on welfare.

But another several million families with kids use the welfare system as it was original-ly intended: a short-term life support to carry a family through emergencies. About 30 percent are on welfare for under a year, and welfare rolls generally increase during economic slumps. The food-stamp program grows in the winter months when there are few-er warm-weather construction and agricultural jobs available. Others end up on welfare after being abandoned by the father. Indeed, some mothers are doing the responsible thing by staying on welfare, because low-wage jobs would not pay enough to provide child care or medical insurance.

Republicans say they remove the cushion for welfare addicts without eliminating the safety net for the conscientious poor. By allowing adults to be on welfare for two years at a time – and a cumulative total of five years – they cover emergencies. But in other ways, the plan’s details undermine that goal. The legislation requires welfare recipients to work or go to school, but provides no extra money for day care. Who will take care of the children? The Republicans hope relatives, schools and private charities will, but forcing mothers to work would require baby-sitting for about a million kids. The Clinton plan offers government jobs for those who can’t find private-sector work; the Republicans provide no real backup. So after a few years on assistance, some women could end up without welfare or a job.

The plan would eliminate several federal aid programs, and give the money saved to the states. The theory is that state governments can operate the programs more efficiently because they are smaller and closer to the problems. But is that true? Many state bureaucracies are just as feudal as the federal government. More important, states are not equally willing to put resources into helping people out of poverty. California pays AFDC recipients an average of $198 a month; Texas offers $57. Under the Republican plan, such disparities would almost certainly widen.

The Republican plan fails to acknowledge that some federal programs have worked quite well, even by conservative standards. Republicans like Robert Dole have long championed the food-stamp program because it successfully prevents malnutrition and hunger. The aid comes in the form of a voucher instead of, say, government-run food pantries; where AFDC can be spent at the racetrack or for drugs, food stamps can buy only food. Under the Personal Responsibility Act, states would have no obligation to offer food stamps.

Republicans proudly note that their approach (unlike the Clinton plan) would save money. However, the biggest savings come not from efficiencies but from eliminating many federal benefits to most legal im-migrants. The plan would bar them from receiving student loans, school lunches, job training, adoption assistance and dozens of other popular programs. Politically, the Republicans are gambling that the American public views legal immigrants as being roughly the same as illegal aliens.

Of course, they’re not. For one thing, legal immigrants pay taxes – about $70 billion per year, more than half of which goes to the U.S. Treasury. As a group they use government benefits no more than the ““native’’ population. The Republican plan would lead to many morally arbitrary distinctions. A legal immigrant who pays taxes for five years, works full time and then is abandoned by her husband and slips into poverty would be ineligible for a penny of aid. But her lazy neighbor who never works or pays taxes – but was born in America – would get full benefits.

Republicans usually promote ““family values,’’ but they have a different emphasis for teen mothers. They want girls who get pregnant to give up their infants for adoption. Most simply ““don’t know how to be good mothers,’’ says Charles Murray of the American Enterprise Institute, whose writings helped shape the Republican plan. ““A great many of them have no business being mothers and their feelings don’t count as much as the welfare of the child.’’ The legislation would encourage interracial adoption to help ensure that any bumper crop of new parentless babies found homes.

This policy may or may not be sensible, but it is certainly not laissez faire. Even in troubled homes, the maternal-child bond is not one to be disrupted lightly, especially by government. ““The bill will likely drive some parents to relinquish their children not because the parents are abusive or neglectful, but because they are destitute,’’ warns the liberal Center on Budget and Policy Priorities.

Although Democrats have tried to paint the Republican plan as heartless and cruel, much of it is thoughtful and sincere. But there is one deeply cynical element in the Republican approach: the pledge that real welfare reform saves taxpayers money right away. Local experience has shown that successfully moving people from welfare to work entails some short-term costs. In their zeal to squeeze out $40 billion over five years, the Republicans wrote a plan that would ig-nore the critical question of child care, destabilize good programs like food stamps and adopt inflammatory anti-immigrant policies. As a result, their package could actually exacerbate crime, family breakup, homelessness and other social pathologies.

Clinton’s views on welfare have always been closer to those of Republicans than to congressional liberals, who oppose the very concept of time limits on welfare recipients. Clinton’s plan included many of the same stringent features that are in the GOP bill, such as cutting off benefits to any mother who doesn’t help establish the paternity of an out-of-wedlock child. The Republican takeover of Congress paves the way for a compromise that would combine the toughness of the Republican plan with the more realistic elements of Clinton’s bill.

The outlines of such a middle ground began to appear last week in the form of a sweeping proposal from the Progressive Policy Institute, the think tank run by the centrist Democratic Leadership Council. ““It is wrong – not simply foolish or impractical – for women and men to make babies they cannot support emotionally and financially,’’ the report declared. When that section was read to Charles Murray, he gushed, ““God bless them! God bless them! That is really important.''

The PPI calls for a major national campaign to stigmatize out-of-wedlock birth. Instead of having teen mothers give up their children, PPI proposes creating ““second-chance homes,’’ where teen welfare mothers and their children could live in structured, supportive environments that would allow them to move out of ““abusive or unstable situations.’’ PPI also proposes offering incentives for good behavior instead of just punishment for bad. Teenagers would get ““opportunity accounts’’ – long-term financial help – if they stay in school and don’t become parents.

Clinton’s welfare reform is an improvement upon the traditional liberal approach because he responded to longstanding conservative criticisms. The question now is whether the Republicans are willing to improve their plan by incorporating the smarter parts of Clinton’s welfare plan. Or they could just do what liberals did for years: score political points – without actually fixing the system.

70 percent of welfare recipients leave the system within two years. But almost half of those who leave end up returning.

RETURNING MONTHS ON WELFARE, AS A % OF WELFARE RECIPIENTS 1 year or less 33.9 1-2 years 19.3 3-5 years 27.0 5 or more years 19.7 AFDC WELFARE SOURCE: WAYS AND MEANS COMMITTEE, 1994 GREEN BOOK

There is a vast difference among welfare payments in different states.

HIGHEST MONTHLY PAYMENTS PER RECIPIENT

Alaska $253 Hawaii 214 Connecticut 199 California 198 Vermont 192 LOWEST MONTHLY PAYMENTS PER RECIPIENT Puerto Rico $34 Mississippi 42 Alabama 57 Texas 57 Tennessee 59 AFDC WELFARE SOURCE; WAYS AND MEANS COMMITTEE, 1994 GREEN