Bush Imposes $16 Billion in Automatic Gramm-Rudman Federal Spending Cuts : Budget: The President’s action underscores the failure of Congress to meet the law’s deficit target.

President Bush, in a step that captures the inability of government policy-makers to find common ground on key economic issues, was forced Monday evening to impose $16.1-billion worth of automatic spending cuts because Congress has failed to meet the Gramm-Rudman deficit target for the fiscal year that began Oct. 1.

“We don’t have any choice,” said Richard G. Darman, director of the White House Office of Management and Budget. “We are doing what the law requires.”

The spending cuts are likely to be rescinded soon, when the Senate and the House reach agreement on a deficit-reduction measure that would impose a series of relatively minor spending cuts and revenue increases.

The Senate approved a bare-bones, $14-billion bill last Friday that is likely to serve as the model for congressional action. Earlier, the House had approved a much broader measure that--because it included a number of new spending programs--would barely make a dent in the deficit.

Despite the expectation that the automatic cuts would be reversed, analysts contended that the failure to reach agreement on a budget before the deadline illustrated a broad disarray over economic policy in Washington.

“Who’s in charge there?” asked Larry Kudlow, a Wall Street economist with Bear, Stearns & Co.

Many congressional leaders agreed with the criticism.

“We simply don’t have strong leadership to try to reduce the deficit and make tough choices,” Rep. Leon E. Panetta (D-Monterey), chairman of the House Budget Committee, said Sunday.

“Let’s face it,” added Senate Minority Leader Bob Dole (R-Kan.). “We wouldn’t need Gramm-Rudman if Congress had been doing its job. Instead of making tough choices, we’ve been playing dodge ball.”

There are other signs of disarray.

The Administration has sent out confusing signals about its response to the recent spate of airline takeover attempts, perhaps contributing in part to the failure of the UAL deal that sparked the stock market plunge Friday. While Transportation Secretary Samuel K. Skinner forced Northwest Airlines to reduce a stake held by KLM Royal Dutch Airlines, other Administration officials have expressed opposition to the move and attempted to curb further such steps.

Meanwhile, the Treasury Department and the Federal Reserve have been feuding over the dollar. Administration officials have indicated that they would like the Fed to lower interest rates to halt the dollar’s rise, while Fed officials have contended that the dollar should take a back seat to the campaign against inflation.

“One of the things that continues to worry me is this monetary warfare between the Treasury Department and the Federal Reserve,” Kudlow said.

A key reason for the delay in reaching agreement on a budget for the current fiscal year was the trench warfare between the White House and Democrats in Congress over capital gains. The White House has long sought to include a capital gains tax cut in this year’s budget, contending that it would stimulate investment and raise revenues to narrow the deficit.

The House, despite opposition from Democratic leaders, went along with that argument after a months-long struggle and a razor-thin 19-17 vote in the House Ways and Means Committee.

The Senate, however, refused to accept a capital gains reduction as part of its deficit-reduction bill. The White House now reluctantly agrees that the legislation will probably not include the tax cut, although it intends to press for a reduction in a separate bill.

The result of the stalemate is the automatic spending cuts, which were put in the Gramm-Rudman budget law to serve as a club that was supposed to force Congress to eliminate the deficit by fiscal 1993.

House Speaker Thomas S. Foley (D-Wash.) said that key legislators were meeting but that they could not reach a compromise with the Senate in time to hold off the automatic spending cuts.

This year’s deficit target of $100 billion requires equal cuts of nearly $8.1 billion from defense and domestic programs. That amounts to a 4.3% trim for defense and a 5.3% cut for the wide variety of domestic programs that are not exempt. Social Security and some other big benefit programs are exempt, while Medicare payments to doctors and hospitals are limited to a 2% cutback.

The impact of the cuts on federal spending are not likely to be felt for at least a few weeks, giving Congress time to reverse them without affecting most government operations.

But Pentagon officials warned that the cuts, if left in place, would lead to sharp reductions in arms programs and operations around the world. The Gramm-Rudman cuts could mean a reduction in U.S. active military personnel of nearly 200,000 and up to 132,000 from reserve forces, officials said.

Agencies were ordered Oct. 1 to start holding down spending to the lower funding level that formally took effect Monday.