Fixed Budget Cuts Will Not Be Reimposed : Deficit: Clinton aides say he will avoid stringent Gramm-Rudman economies in favor of continuing the current flexible spending goals.

President-elect Bill Clinton, faced with an immediate test on the worsening federal deficit, has decided not to reimpose the stringent budget-cutting targets required by the 1985 Gramm-Rudman law, Clinton aides said Monday.

Under the 1990 budget agreement, Clinton must announce by Thursday whether to return to fixed deficit-reduction targets for the next year, or continue the more flexible spending goals now in effect.

The five-year budget agreement passed in 1990 effectively eliminated those fixed targets for three years, but its rules require the President to decide on Jan. 21, 1993, whether to reimpose them for fiscal 1994, the first year for which Clinton will craft a budget.

Congressional Republicans, sensing an early opportunity to attack Clinton’s resolve on the deficit, have been publicly demanding in recent days that he agree to reassert the fixed deficit targets. House Minority Leader Robert H. Michel (R-Ill.) and Rep. John R. Kasich (R-Ohio), the ranking Republican on the House Budget Committee, wrote a letter to Clinton last week saying “you have an opportunity to take the initiative and demonstrate that you intend to act on your stated deficit-reduction goals.”

Recent Bush Administration forecasts said that the return to the fixed targets would have required an automatic $9 billion in across-the-board budget cuts in 1994 and $30 billion the following year.

But Clinton’s advisers believe that a return to fixed targets would take away Clinton’s maneuvering room in crafting his own economic agenda and would also impose arbitrary pain on a fragile economy. They insist that Clinton remains committed to serious deficit reduction, and that the decision not to return to fixed deficit targets is merely a technical legislative issue that should not be seen as a test of Clinton’s resolve.

In the 1990 budget summit between the White House and Congress, Bush Administration budget director Richard G. Darman successfully negotiated the presidential option for returning to the fixed deficit targets after three years. At the time, Darman and other Administration officials assumed that George Bush would be reelected in 1992, and that the stringent, fixed targets would provide Bush with negotiating leverage to fend off renewed Democratic assaults on the defense budget.

Under the 1990 agreement, Congress could not take money from the Pentagon to increase spending on domestic programs for three years; now it can.

The decision not to return to fixed deficit targets comes as Clinton and his aides have already been forced onto the defensive on the economic front. Clinton has backed away from his pledge for a middle-class tax cut and for a halving of the deficit, and appears to be scaling back his plans for big new investments in job-creating public works programs.

Clinton aides insist that they have been forced to step back from some campaign promises because the deficit now looks much worse than it did last summer when Clinton’s economic agenda was first crafted. And Clinton’s advisers add that even the Bush Administration’s latest budget forecasts, issued this month, still hide the full extent of the deficit problem that Clinton will face by the end of his first term. The Bush Administration said that the deficit will hit $305 billion by 1997, but Clinton aides say a more realistic forecast is $357 billion.

Those bleaker figures, Clinton aides insist, have imposed a new sense of urgency within the Clinton camp about the need to take radical steps to deal with the deficit. So in their confirmation hearings in recent days, a steady stream of Clinton economic appointees have told Congress to expect dramatic, politically unpopular spending cuts in entitlement programs like Social Security and Medicare. Such fast-growing entitlements now account for more than half of the federal budget, and virtually all budget experts agree that serious, long-term deficit reduction cannot be accomplished without cutting those massive health care and retirement programs.