Congress eyes menu of budget cuts. Will lawmakers fiddle with Gramm-Rudman targets?

Sen. John Danforth (R) of Missouri was listening to some union officials testify about trade the other day when one of them mentioned the country's desperate need to reduce the deficit. ``I said, `Huh?''' recalls Senator Danforth, wondering why the officials would suddenly be talking about the federal budget deficit at a trade hearing. ``It turned out they were talking about the trade deficit, not the budget deficit.''

As political Washington engrosses itself in the problems of United States trade and industrial competitiveness, the ``other'' deficit - the budget deficit - has been pushed in the background. But the problems surrounding the budget deficit, and the choices that politicians must make if it is to be reduced, remain as politically unsavory as ever.

But the Democratic leaders of the House and Senate have pledged this year to stick to the budget schedule as mandated by the Gramm-Rudman balanced budget act - something that has never happened. Under the law, which sets a deficit ceiling for the 1988 fiscal year of $108 billion, Congress must pass a deficit-slashing budget resolution by April 15. Without any reduction measures, the deficit could weigh in from $150 billion to $169 billion.

So, like it or not, lawmakers will soon have to choose from the grim menu of this year's budgetary alternatives.

``It is going to be tougher than ever,'' says House Budget Committee chairman William Gray III (D) of Pennsylvania. Most lawmakers have resigned themselves to the impossibility of an agreement between the White House and Congress on tax increases to help plug the deficit hole. The White House refuses to consider them, and most members of Congress are unwilling to advocate a tax increase in the face of presidential opposition. Having given up on that solution, they must negotiate past a series of political barriers that could make last year's budget struggle seem mild in comparison.

In January the White House sent a budget to Capitol Hill that it said would meet the Gramm-Rudman targets. But administration budget officials employed such sunny economic assumptions in their deficit calculations that the nonpartisan Congressional Budget Office last week predicted the Reagan budget plan would actually result in a deficit of $134.4 billion. CBO says that lawmakers will have to find $61 billion in spending reductions and revenue increases to hit the Gramm-Rudman target.

It is thought unlikely that Congress will propose new revenues in excess of the $22 billion worth in the President's budget. That leaves almost $40 billion in spending cuts that must be made in defense and domestic programs. ``You can't touch the entitlements like social security, medicare, and medicaid - and then there's the interest on the debt,'' observers Danforth. ``So you only have 31 percent of the budget free to be cut, and those programs have to be cut 18 percent if you're going to hit the target.''

All this assumes that the lawmakers are really going to try to hit the Gramm-Rudman target, if they fashion a budget based on CBO's economic assumptions. Gramm-Rudman allows the lawmakers to declare victory if they come within $10 billion of the deficit target.

So lawmakers could shoot for a $118 billion deficit in fiscal 1988, thus obviating the need for $10 billion of deficit reduction. ``There's enough smoke and mirrors in the budget to take care of that,'' says Senate Budget Committee member J. James Exon (D) of Nebraska.

But many members now question whether they want to even pretend to hit the Gramm-Rudman targets as they now stand.

``It might be appropriate to change the targets,'' suggests House majority leader Thomas Foley (D) of Washington. He and other lawmakers suggest that the law could be changed to require that Congress reduce the deficit by $36 billion each year, without specifying what each year's final deficit target would be.

They estimate that the federal budget would be balanced by 1992, instead of by 1991 as called for by Gramm-Rudman.

The original Gramm-Rudman targets were achieved by reducing the deficit in steps of $36 billion each year for five years.

But changing economic conditions have made the law's deficit targets unrealistic, some lawmakers say. That idea is slowly catching on, even among some Republicans.

Later this week Representative Gray is expected to join Republican House Budget Committee member Willis Gradison of Ohio in a letter urging colleagues to support the target change in the Gramm-Rudman law. The proposal would run into stiff opposition from Gramm-Rudman supporters, even those skeptical of present budgetmaking efforts. ``I think it would be a shame to lose the discipline of those targets,'' says Danforth.