Lawmakers Become Masters of Illusion When It Comes to Gramm-Rudman Law : Budget: Congress is cutting the deficit with sleight-of-hand maneuvers in order to appear to be complying with the statute’s stringent targets.

Remember only four years ago when Congress and the White House, with much breast-beating and self-congratulation, solemnly approved the Gramm-Rudman law and promised to close the massive budget deficits by 1991?

They wish you wouldn’t. That’s because lawmakers, with the complicity of both the Ronald Reagan and Bush administrations, have spent most of the time since 1985 engaging in a fiscal shell game designed to evade Gramm-Rudman’s porous limits.

Through a host of one-time savings and other budgetary gimmicks, politicians here have become masters at finding ways of claiming to meet the supposedly stringent targets of the law while actually allowing federal borrowing to go unchecked. But by appearing to comply with the law, Congress and the White House have deflected complaints about their failure to narrow the budget gap.

“Instead of using Gramm-Rudman as a sword,” said Sen. Ernest F. Hollings (D-S. C.), a co-sponsor of the original budget measure, “we’re using it as a shield to hide behind.”

Gramm-Rudman’s ultimate weapon is scheduled to be rolled out today. Because Congress has failed to approve legislation to bring the fiscal 1990 deficit down to the Gramm-Rudman target, automatic spending cuts of more than $16 billion will go into effect, hacking equal slices from nearly all government programs.

The specter of indiscriminate spending cuts--the budgetary equivalent of “Nightmare on Elm Street”--was supposed to scare Congress into curbing the deficit rationally. That didn’t happen this year, in part, because the across-the-board cuts look downright benign compared to the alternative.

This year’s deficit-reduction bill, which is still wending its way through Congress, would impose little more than token spending cuts and revenue increases. And, at the same time, it would add several new costly programs and tax breaks.

“What we’re about to produce is ‘Rosemary’s Baby,’ ” confessed Sen. J. James Exon (D-Neb.) after voting in committee for a measure that claimed to save $14 billion this year but would actually add to the deficit in the long run. “And it’s not looking any better as we go along.”

“I didn’t think it was possible to construct an alternative worse than” the automatic cuts, said Carol Cox, head of the Committee for a Responsible Federal Budget. “But this year, Congress has managed to do it.”

On Friday, the Senate, staring at the monster it was about to create, decided instead to approve a bare-bones deficit-cutting measure aimed at simply meeting the Gramm-Rudman target.

It remained unclear how the House, which has already passed its own kitchen-sink deficit bill that includes a capital gains tax cut, would respond to the Senate action. House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.), who supported the House’s own $11-billion deficit-reduction measure, is having second thoughts.

“Shelve this legislation and allow the Gramm-Rudman spending cuts to go into effect,” he said. “Make them permanent and make them hurt.”

And on Sunday, White House Budget Director Richard G. Darman suggested that the Bush Administration favors allowing the automatic cuts to remain in effect. The cuts may be “the best available alternative. At least it’s real,” Darman said on ABC’s “This Week With David Brinkley.” “I think it would be good if people would live with it and say, don’t restore the cuts,” Darman added.

Don’t count on Congress following that advice. For the 1990 fiscal year, which began on Oct. 1, the now-revised Gramm-Rudman law calls for a deficit not to exceed $100 billion. Lawmakers are still expected to ultimately approve a deficit-reduction measure aimed at hitting that target, allowing them to claim victory and rescind the automatic cuts.

Once any new deficit measure is approved, though, it will be back to business as usual. Many of the new tax breaks and spending initiatives the Senate dropped from its version are expected to be revived.

And no one really expects the budget gap, which exceeded $150 billion in the fiscal year just ended, to narrow by $50 billion. Under the best of circumstances, says the nonpartisan Congressional Budget Office, the deficit is likely to surpass $120 billion, and it could easily reach $140 billion.

But as far as Gramm-Rudman is concerned, that won’t matter. After Oct. 15 of each new fiscal year, Congress and the White House are free to ignore their own deficit limits and spend as much as they dare without fear of subjecting the government to Gramm-Rudman’s automatic spending cuts.

Never was this more painfully apparent than in September, when Congress was completing action on the savings and loan bailout.

Lawmakers, with the support of the White House, agreed to spend as much as $20 billion before the 1989 fiscal year ended on Sept. 30. It was a safe course because the Gramm-Rudman law had long since lost its power to curb spending in fiscal 1989.

Congress could not use the same gimmick to shield the other $30 billion in S&L; bailout costs from the Gramm-Rudman discipline. It needed to spend that $30 billion in fiscal years 1990 and 1991, when Gramm-Rudman still applied.

So lawmakers fell back on the baldest gambit of all: They adopted an off-budget financing mechanism that exempts the $30 billion from Gramm-Rudman accounting. In fact, under its Alice-in-Wonderland rules, this phase of the S&L; bailout will actually reduce the 1990 deficit by about $13 billion as funds borrowed by a specially created outside financing agency flow into the Treasury.

In other maneuvers exploiting loopholes in Gramm-Rudman, the Pentagon shifted a payday from Oct. 1, the first day of the fiscal year, to Sept. 29, the last workday in fiscal 1989. Meanwhile, the government speeded up crop-support payments to farmers so that they would show up in last year’s budget rather than the current one.

Together, the sleight-of-hand sliced $4 billion from this year’s deficit, while adding an equal amount to 1989’s--the one that no longer counts.

“We’re becoming more and more addicted to these golden gimmicks,” said Sen. William L. Armstrong (R-Colo.). They help Congress “meet the technical requirements of the budget act without fulfilling the spirit.”

Critics of Gramm-Rudman contend that the law itself is to blame for much of Congress’ fiscal gamesmanship.

“Gramm-Rudman has become counterproductive,” said Rep. Robert T. Matsui (D-Sacramento). “We set up targets we know we can’t meet, so the only alternative is to find ways to get around them.”

Moreover, under the existing regime, Matsui points out, legislation is often written to avoid any immediate budgetary impact while adding to future spending. “Sometimes, in struggling to meet this year’s targets, we end up making things worse down the road,” acknowledged Sen. Pete V. Domenici (R-N. M.), a Gramm-Rudman backer.

But Sen. Phil Gramm (R-Tex.), the driving force behind the legislation, defends his handiwork and criticizes his colleagues instead.

“Gramm-Rudman-Hollings did not elect this Congress,” Gramm said. “I don’t think we can blame the mechanism. We have to blame ourselves.”

In fact, Gramm is planning to propose yet another change in his deficit-reduction law, which now calls for a balanced budget in 1993.

Gramm and others are proposing to separate Social Security, which is running huge annual surpluses, from the rest of the budget as of 1993. Such a move would immediately add more than $100 billion to the deficit, though, and so Gramm is planning to boost his targets one more time. That would put off the supposed rendezvous with a zero deficit until the end of the century.

For now, the focus of attention in official Washington is on today’s deadline for the White House to order across-the-board cuts.

Technically, the automatic spending cuts went into effect provisionally at the start of the fiscal year Oct. 1. But most federal agencies have ignored them so far because they are counting on Congress to undo any damage. Even after Bush issues an order tonight making them “permanent,” there will be almost no immediate practical effect.

For one thing, more than half of all federal spending, including Social Security, food stamps, federal pensions and interest payments is exempt from the automatic cuts. Medicare is limited to a maximum cut of 2%, and most of that would hit doctors and hospitals rather than the elderly themselves.

The rest of federal spending would be shaved slightly more than $16 billion, with equal chunks coming from the defense and non-defense budgets. That spells a 4.3% cutback in the defense budget and 5.3% for the rest of the government.

A number of programs, such as the Corporation for Public Broadcasting and subsidies for dairy farmers, face immediate problems because they receive funds at the beginning of the fiscal year.

But there have been few shrieks of pain from elsewhere in the vast government bureaucracy. Officials can be counted on to juggle funds for weeks to avoid any serious impact.

House Budget Committee Chairman Leon E. Panetta (D-Monterey) estimated Friday that it would take at least 30 to 60 days for the across-the-board spending cuts to be felt at all. And once congressional negotiators settle their differences over the deficit-reduction legislation, lawmakers are expected to repeal the cuts as if they never happened.

MISSING THE TARGETS

The 1985 Gramm-Rudman set a series of targets, revised upward in 1987, for the federal deficit. The deficit has consistently come in higher.

Fiscal 1985 1987 Actual year law revision deficit 1986 $172 -- $221 1987 144 -- 150 1988 108 $144 155 1989 72 136 161* 1990 36 100 118* 1991 0 64 -- 1992 -- 28 -- 1993 -- 0 --

*Preliminary CBO estimates.

Source: Congressional Budget Office