The Reagan administration is circulating a strongly worded defense of its plan to eliminate the Legal Services Corp.

It suggests poor people might be better off paying modest fees for legal representation and it attacks the organized bar for evading responsibility by expecting the federal government to subsidize for the poor.

The defense is designed to prevent what could be an embarrassment for President Reagan when the House, within the next two weeks, takes up a reauthorization bill for the corporation. wPowered by massive lobbying from the legal profession, the bill was gathered support even from some conservatives.

The Office of Management and Budget is recommending veto of the legislation if it passes.

The paper, written by Michael Horowitz, counsel to OMB Director David A. Stockman, is being circulated in Congress as part of the lobbying campaign.

It is the first organized presentation setting out the administration's view of how legal representation should be provided to the poor. The view is important because even if the corporation is not abolished, it will be controlled by Reagan administration appointees.

The Horowitz paper attacks the Legal Services Corp. as "self-designated tribunes" imposing a liberal ideology on poor people and as an "employment agency" for the 6,200 lawyers who receive money from it.

It suggests the lawyers should compete like everyone else for state block grant money for legal services. The gap should also be filled by donations of time from the private bar and client-paid work by legal clinics.

Representation should be along the traditional legal aid society lines, a case-by-case approach, rather than a "public interest" approach with emphasis on "impact" suits and social change, it says.

Stripped of its guaranteed federal handout, Horowitz says, legal services will have to compete with other groups for money from states. To survive, he added in an interview, "they will have to conform with reality."

In addition, the paper says, "the free, i.e., no-fee, approach to legal services of LSC is to be questioned. As practicing attorneys know, the attorney-client relationship is dramatically affected by whether or not a fee is paid by the client.

"One of the virtues of the mushrooming legal clinics is that they give power and dignity to clients who have paid for the right to direct the activities of attorneys. . . . Dependencies by the poor are necessarily enhanced by LSC's free" services.

The paper is part of one of the most intense struggles in years between and administration and the legal profession. Lawyers have showered Washington with letters from more than 300 local bar associations, have taken full-page newspaper ads so thick with names they look solid black, and are coordinating a massive lobbying coalition of clients, legal services lawyers, law school professors, deans, and even judges.

Opponents of legal services, through the Mountain States Legal Foundation, have prepared a suit against the corporation to stop its lobbying, which they and a recent General Accounting Office report say is prohibited by law. The corporation argues that the GAO has misinterpreted the law.

The combat, like so many of this year's budget skirmishes, goes beyond questions of spending. Legal services supporters shout from the pulpits of law school commencements that it is a matter basic to American tradition, a question of equal justice under law.

OMB has its version of what the fight is about. It's mission, Horowitz said in an interview, is not elimination of lawyers for the poor but the breaking up of a centrally directed "movement of the left" financed by taxpayers but out of their control.

Between Horowitz's proposals and the bar, there is little room for compromise. "There is no realistic possibility that the legal needs of the poor will be met absent" the Legal Services Corp., ABA President William Reese Smith recently told a House subcommittee.

So supporters are putting their efforts into a bill they hope will, at least, keep LSC alive by satisfying objections of conservative members of Congress to what they view as "abuses" in the past.

The reauthorization proposal (there must also be an appropriate for it to have any effect) calls for a $260 million corporation budget, compared with the current funding of $321 million.

The bill places restrictions on classactions suits, on advocacy of political activities by LSC grantees and on representation in cases involving abortion, homosexuality and illegal aliens, among other things.

Horowitz described the restrictions as "cosmetic." But the bill appears to be meeting the objections of some conservative members of Congress, such as Rep. M. Caldwell Butler (R-Va.), a Judiciary Committee member.

"Quite frankly," Butler said in an interview, "I think we have met all the complaints. I'm not lobbying for the legislation; there's really no alternate plan for providing the services. At a time when the legal rights of the poor are going to be more critical than ever [because of budget cuts], I don't think we ought to take this resource away from them at this time."

The Horowitz paper is designed, in part, to convince Congress that there is an alternative -- the state-administered block grants, and private bar activities. It also takes the organized bar to task for its position.

"It is difficult to understand how a practicing bar whose gross annual income in 1977 exceeded $19 billion cannot substantially support a legal services program it is admittedly obligated to provide," Horowitz says in the paper.

The bar exercises its "responsibility by lobbying for federal funds rather than by doing it themselves."

The paper says legal services activities "often hurt the poor . . . in the interest of LSC's pursuit of ideology. . . . Specific examples include cases in which LSC has made it far harder to suspend and evict disruptive students and tenants from schools and public housing projects, at the expense of the overwhelming bulk of poor people preyed on by the presence of a small minority of such people."

The problem, he writes, is LSC's commitment to "public interest" law where the "clients are merely 'notational,' i.e., they are means by which public interest lawyers pursue their personal, idiosyncratic view of the public interest. [It] is essentially clientless lawyering, and while it may offer middle-class lawyers major opportunities to 'change the system,' clients are the means rather than the end by which and for whom the game is played," the paper said.