The backers call it reform, but to diehards like Democratic state chairman John B. Livengood, it's the death of the American Dream.

In any of the 50 states, a child can aspire to be president. But in Indiana, which has not had a presidential nominee since Wendell L. Willkie in 1940, there has been a consolation prize: You could hope to get your own license bureau branch.

Since the days of New Deal Democratic governor Paul V. McNutt, more than 50 years ago, the license branches -- where auto tags and driver's permits are dispensed and county excise taxes are collected -- have belonged to the 92 county chairmen of the party controlling the governorship.

The license branch system has meant patronage jobs for about 1,300 of the party faithful, incomes of $30,000 to $100,000 for metropolitan-county chairmen, and a flow of contributions from the branch profits to state and county party organizations estimated at upwards of $1 million a year. License fees are established by the legislature, and the branch manager, like any other small-business operator, pays his overhead out of the fees and keeps the rest.

Now, Gov. Robert D. Orr (R), who calls himself a conservative and who ran the three license branches in Vanderburgh County on his way to the top, wants to end all this and convert the bureaus into state agencies.

Even though Republicans have enjoyed the fruits of the license branch system for 17 unbroken years, Democrat Livengood is livid.

"My own mother and grandmother served their state and their party in such a manner as license branch managers ," he told a legislative reform committee last month. "I see nothing wrong in a 50-cent fee going into the pocket of an honest politician who has worked to earn that money.

"It is true that in Indiana, one must make an involuntary political contribution to drive a car, but . . . I see nothing wrong in requiring all citizens to share all of the costs of a fair, free and competitive political system," he said.

As Livengood made plain in an interview, his feelings are a lot stronger than those words. But he is inhibited by the fact that it was his party's 1984 gubernatorial nominee, state Sen. Wayne Townsend, who raised such a stink about the license branches that they became an issue.

For 50 years, from McNutt to Orr, there was an unspoken gentlemen's agreement between the parties not to kill the goose that laid the golden eggs. Editorial writers, the League of Women Voters and other goo-goos denounced the system, but politicians of both parties formed a solid protective phalanx around the license branches.

Then came Townsend, facing a well-financed incumbent in the year that Reagan was on top of the GOP ticket. He decided to make the license branch system the keystone of his campaign. "The man was desperate," said former state Democratic chairman Gordon St. Angelo. "He took a nonissue and made it an issue," running television spots showing the mud of scandal spattering an Indiana license plate.

Townsend was helped by the fact that the 1980s had seen audits, investigations, shortages, indictments and convictions in license branch offices in several cities, a spate of lawsuits and an Internal Revenue Service probe. As Townsend put it, "The dinosaur had developed barnacles."

Orr defended the system in the 1984 campaign, but was shaken on election night to find that he had run more than 400,000 votes behind Reagan and had beaten Townsend by barely 100,000 votes. In the cold-blooded judgment of Republican state Chairman Gordon K. Durnil, "The noose was getting tight."

A move to revamp or abolish the license branches foundered in the 1985 legislative session, but Orr and Durnil, determined not to let the Democrats have the issue when Orr's successor is elected in 1988, have kept the pressure on Republican county chairmen and legislators.

Last month, Orr announced that he would propose to the 1986 legislature that the license branches be taken over as state agencies -- a move less drastic than it sounds. The jobs would remain in the patronage pool, and the conversion would not become fully effective until the middle of 1988 -- after the 1986 Senate contest, after the 1987 mayoral races and after almost all fees for 1988 have been collected.

Durnil predicted its passage, saying that key Republican county chairmen are resigned to the inevitable. Livengood and some neutral observers think the chairmen may find some way to sabotage it in the State House.

A greater worry to the Democratic chairman is that the Republicans who control the legislature may punish the Democrats for Townsend's impertinence by doing away with the personal license plate -- or PLP -- gravy train.

Two decades ago, when Democrats last controlled the governorship, St. Angelo steered through the legislature a bill that gave each party $15 for each $40 PLP sold.

Republican-controlled license branches contributed more than $450,000 to the state GOP committee in 1983, but that was barely one-fifth of its budget. The $213,000 that the Democratic state committee received for its half of the PLPs represented more than half its receipts.

Giving that up is just too high a price for a man in Livengood's position to pay -- and it's an affront to his grandmother, too. "I don't think it'd be right to take it away from the party people," said 88-year-old Anna Grady, the first county chairman in either party back in McNutt's day. "We have to have something to work for."

It's the Indiana version of the American Dream.