Gramm-Rudman hit. Supreme Court says budget-balancing law violates Constitution's separation of powers

The Gramm-Rudman chickens are coming home to roost. Now that the Supreme Court has declared a key provision of the Gramm-Rudman law unconstitutional, Congress may come under the gun to vote for sharp reductions in spending which it thought would be automatic. If the lawmakers back off the Gramm-Rudman federal deficit targets, they could embarrass themselves politically as a critical election looms.

Yet the economy is registering slower growth, leading some economists to say that Congress should not strain to meet the Gramm-Rudman targets. As the recovery grows older, the argument goes, the federal deficit can provide a stimulus.

Tough political and economic decisions thus lie ahead as Congress grapples in late summer with the budget deficit issue.

President Reagan, too, may find himself in a dilemma, even though the early pressure will be on Congress. In a written statement Monday, Mr. Reagan said the Supreme Court decision ``should change little, except that now Congress must make the difficult choices.''

If the lawmakers end up passing severe spending cuts to meet the Gramm-Rudman targets, however, Mr. Reagan will have to decide whether to sign a bill that cuts defense and/or raises taxes or veto the measure and be perceived as frustrating the deficit-reduction process.

The high court ruled Monday, 7 to 2, that the central provision of the Gramm-Rudman act empowering the comptroller general, an officer of Congress, to perform an executive function violates the separation of powers between the executive and legislative branches. Under Gramm-Rudman, the comptroller general, with the advice of the Congressional Budget Office (CBO) and the Office of Management and Budget (OMB), can in effect order the President to make specific spending cuts to bring the deficit to a mandated level.

The court's decision does not end the Gramm-Rudman process, however. The law contains a fallback provision that allows Congress itself to vote on a deficit-reduction package if the automatic feature is invalidated.

Under this fallback provision, the heads of the CBO and OMB would still determine a list of cuts if the deficit target were not attained. Both houses would have to vote on the cuts within five days. Any measure agreed to would go to the president for veto or signature.

Some analysts suggest that the court ruling gives Congress more flexibility at a time when the economy is not performing at earlier projected growth rates.

``This outcome should be welcomed,'' says John Palmer, an economist at the Urban Institute. ``If the deficit is up because of slow growth, you do not want to cut spending. Gramm-Rudman would have straitjacketed Congress.''

The important thing, says Mr. Palmer, is that the structural deficit -- the deficit that would exist if there were relatively full employment -- continues to decline. The CBO has projected that the deficit will be under 2 percent of the gross national product by 1991 -- a tolerable level.

John Makin, an economist at the American Enterprise Institute, agrees that Congress would have to back off Gramm-Rudman anyway at a time the economy is showing some weakness. ``Gramm-Rudman was too sharp,'' he says. ``We should be on a more gradual path. You learn how much pain there is when the economy slows and the numbers get bigger.''

Complicating the picture is the new tax reform bill.

If the lawmakers fall short of the 1987 deficit target in August, when an economic projection is due under the Gramm-Rudman law, they could pick up $10 billion in expected revenue from tax reform in the first year. But in subsequent years, unless the economy expands, there will be trouble meeting the deficit targets, because the new tax system is expected to yield less revenue in later years.

Other economists would hold Congress's feet to the fire. It will never be a good time to make sharp reductions in the budget deficits, they say.

``The reason the economy is so unstable is the existence of the deficits,'' says Robert Reischauer, a senior fellow at the Brookings Institution. ``If Congress dodges the Gramm-Rudman bullet, there will be a heightened sense of cynicism in the nation over whether they can ever come to grips with the problem, and confidence on Wall Street would be eroded.''

Congress has already approved a budget of almost $1 trillion for fiscal 1987. It projects a deficit of $142.6 billion, which is below the Gramm-Rudman target of $144 billion. But poorer-than-expected economic performance is expected to alter the figures on which the budget projections are based.

Politically, it may prove hard for legislators to meet the Gramm-Rudman target this year. ``It's a new law and highly visible,'' says congressional expert Norman Ornstein. ``So the pressure on Congress to respond is greater. And all the deadlines come between Aug. 15 and Oct. 15, just before the election -- thus putting even more pressure on them.''