"Look, Ma! No Hands!"

By Evan Thomas.

Most landmark laws are signed in the Oval Office amid great hoopla, by a beaming President surrounded by self-promoting politicians grinning in the glare of television lights. But when Ronald Reagan penned his name on the Gramm-Rudman Balanced Budget and Emergency Deficit Reduction Control Act of 1985 last week, he did so without ceremony or cameras.

The official silence was, in a way, understandable. Few bills that cross a President's desk have the potential to reorder the national agenda or change the way Government does business. Gramm-Rudman has precisely such potential, but the force that drove it through Congress was an embarrassment, not something to crow about. For at heart, Gramm-Rudman, an amendment to a bill to raise the debt ceiling, is a statutory act of desperation, an admission that Government is incapable of governing itself.

The final days of any legislative session are always chaotic, but Congress last week seemed to be spinning out of control, its leadership almost hopelessly fragmented. Racing to adjourn for Christmas, the legislators were unable to agree on a series of spending bills that faced the threat of a presidential veto. Meanwhile, a revolt by House members of Reagan's own party sidetracked--and possibly derailed--his avowed No. 1 domestic goal: tax reform.

After years of paying lip service to balanced budgets while racking up annual deficits approaching $200 billion, Congress and the White House have finally decided to fit themselves with a fiscal straitjacket. The bill, sponsored by Senate Republicans Phil Gramm of Texas and Warren Rudman of New Hampshire and by Democrat Fritz Hollings of South Carolina, compels Congress to vote to balance the budget within five years or face automatic cuts. "What % this bill does is put the fat in the fire," declared Gramm. "It forces decisions." Senator J. Bennett Johnston of Louisiana, however, likened Congressmen voting for the bill to "the person who writes on the bathroom mirror in lipstick, 'Stop me before I kill again.' "

The long-term impact on the economy is difficult to gauge. On Wall Street, the prospect of Gramm-Rudman's passage helped spark a stock-market rally that sent the Dow Jones industrial average surging past the 1500 mark on the hope that lower deficits will bring down interest rates and spur growth. But some leading economists castigated the budget-balancing bill in the most scathing terms imaginable. "It is," said Walter Heller, who served as President John Kennedy's chief economic adviser, "economically capricious, socially unfair, militarily risky, constitutionally questionable, politically irresponsible, procedurally perverse and administratively outlandish."

The political impact could be profound. To the Democrats who controlled Congress for a half-century, GrammRudman marks the end of an era, assuming its provisions are actually followed. No longer will legislators be able to view their primary role as dispensers of Government largesse. From now on, the overriding business of Congress becomes the politically unrewarding task of slashing, and in some cases abolishing, the legislative handiwork of the past three decades.

Though whittling down Big Government has been a favorite cause of Ronald Reagan's, Gramm-Rudman leaves the President in an awkward bind. By his own measure, his two greatest achievements since taking office have been building up America's defenses and cutting taxes. Yet Gramm-Rudman is all but certain to force him to cut defense spending or raise taxes, or both.

Gramm-Rudman is designed to work with a kind of relentless efficiency. The deficit ceilings set by the bill march inexorably downward. The target is $171.9 billion for the fiscal year that began Oct. 1, and $144 billion for 1987. Then the bill decrees that the deficit go down by $36 billion annual increments: to $108 billion in 1988, $72 billion in 1989, $36 billion in 1990 and finally zero in 1991. If Congress fails to meet these targets, the cuts that automatically kick in will be evenly divided between defense and domestic programs, and they are likely to be applied with about as much discrimination as a lawn mower shows high grass.

If the Gramm-Rudman approach seems a strange abdication of budget-setting powers, Congress gave a vivid display last week of its inability to deal with spending through its normal procedures. Having failed to complete work on six of 13 appropriations bills, Congress struggled to pass a $498 billion catchall measure for 1986 that Reagan threatened to veto because it gives too much to domestic programs and too little to defense. At the same time, Congress scrambled to finish a $50 billion farm bill, also regarded as veto bait because it exceeds the White House target by $5 billion. Even if the White House and Congress can resolve their differences, the 1986 budget seems likely to fall short of the deficit-reduction target set by Gramm-Rudman for this fiscal year, thus triggering the first round of automatic cuts, totaling some $12 billion.

The painful surgery begins next month, when the White House and Capitol Hill begin looking for $50 billion in savings. Under Gramm-Rudman, this year some 70% of all federal spending, including sacred cows like Social Security and antipoverty programs like food stamps, is protected from the budget ax. At least half the budget will be protected in future years. That, of course, means deeper cuts in everything else, from environmental protection to federal housing subsidies (see box).

In the back halls of the Capitol, Gramm-Rudman brought hoots of derision from staffers. "Today we begin Government by Veg-O-Matic," declared Chris Matthews, a top aide to House Speaker Tip O'Neill, sardonically referring to the kitchen device once hawked on late-night TV ("It slices! It dices! It really, really works!"). On the floor, some prominent legislators were scornful. Gramm-Rudman, huffed Wisconsin Democrat Les Aspin, chairman of the House Armed Services Committee, "is just about the dumbest piece of legislation I have seen in my 15 years on Capitol Hill." O'Neill himself warned, "Wait until you get to 1987 and have to cut $55 billion. Wait until you hear the American people." Certainly, the cries of lobbyists will be heard loudly on the Hill as interest groups scramble to protect their favorite federal programs.

The act is not without defenders. Said Martin Feldstein, Reagan's former chief economic adviser: "It is very good policy because it gets us out of stalemate. The essence of Gramm-Rudman is to force a compromise and to provide political protection for agreeing on a compromise."

Yet some Congressmen questioned whether the bill might not serve simply as % the ultimate vehicle for political hypocrisy. Rather than try to make hard cuts, Congress might be tempted to pass a phony budget, stuffed with goodies for the folks back home, knowing full well that the impersonal machinery of Gramm-Rudman would automatically chop it down to size later. Scoffs Economist Heller: "Gramm-Rudman is a kind of 'Look, Ma! No hands!' or 'Who, me?' approach to budget cutting."

There are those who contend that it is also unconstitutional. Last week Democratic Congressman Mike Synar of Oklahoma filed suit in federal district court in Washington challenging Gramm-Rudman as an unconstitutional delegation of Congress's power of the purse. The case could wind up in the Supreme Court by spring.

At the Pentagon, which has grown accustomed to getting what it wants after a five-year, $1 trillion buildup, the top brass is hoping that Gramm-Rudman will be struck from the statute books. Congressional passage would send "a message of comfort to the Soviet Union," warned a Pentagon spokesman before the bill came to a vote last week. Said he: "We are looking at reductions that would cut defense by 3% to 8%, coming out of our hide."

Unless, that is, Congress decides to raise taxes. Though Reagan made flat- out opposition to a tax hike his No. 1 campaign promise in 1984, even the true believers in the White House are beginning to waver. "Nobody here is hankering for a tax increase, but sure, we've given it thought," a top aide conceded last week. Some conservatives are toying with the idea of what is known as a "dedicated" tax increase, one that would raise money only for defense, perhaps specifically to fund Reagan's Strategic Defense Initiative, or Star Wars.

The Democratic-controlled House, however, is hardly apt to vote for a tax increase dedicated to guns and not butter. Some Democrats are convinced that Gramm-Rudman will at last force the Administration to back a general tax hike. "Many people here feel that it makes the President choose between sacrificing a continued buildup of national security and getting additional revenue," warned Democratic Whip Tom Foley.

For the Democrats there was some bitter satisfaction at the prospect of seeing the President squirm. In the 1984 campaign, Reagan delivered dreamy, feel-good preachments of peace and prosperity while his hapless opponent, Walter Mondale, dourly warned of tax hikes and hard choices ahead. In so doing, Mondale induced Reagan to commit himself, perhaps more firmly than he wanted, to oppose any increase in taxes or cuts in Social Security. Having won a resounding victory, Reagan now finds himself boxed in by his own campaign rhetoric and living Mondale's grim fiscal prophecy.

Even more galling to the President, the growing public fears over the deficit have disrupted, at least for the moment, his crusade for tax reform. The drive to overhaul the nation's tax laws by closing loopholes and lowering rates is in precarious shape, as last week's surprising setback in the House demonstrated.

To push tax reform through the Democrat-controlled House, the President had taken a calculated gamble and formed an unholy alliance with Ways and Means Chairman Dan Rostenkowski, a bluff old-style Democratic pol. Though studded with deals and concessions to buy off various Congressmen and their constituencies, the tax package Rostenkowski wrung out of his committee last month was at least a reasonable facsimile of the reform proposal launched by Reagan with great fanfare last spring. Beset by conflicting advice from his aides, however, the President hesitated before endorsing Rostenkowski's bill two weeks ago, and even then his praise was lukewarm.

Meanwhile, a mutiny was brewing in the ranks of Republican House members. They felt ignored by the White House, and many considered Rostenkowski's bill antibusiness and hence a damper on growth. Reagan moved last week to try to bring the G.O.P. into line, but he faced determined opposition from Minority Leader Robert Michel of Illinois and the rest of the House Republican leadership.

In a shrewd and sudden pre-emptive strike, the G.O.P. leaders pushed their followers to vote against what is known as "the rule," the procedure by which the House was supposed to debate tax reform. The White House and Democratic chiefs wanted to hold a simple up-or-down vote on the Rostenkowski bill, as well as on a Republican alternative that was given no chance of passage. At a G.O.P. strategy session, however, Whip Trent Lott of Mississippi urged, "Let's kill this snake before it gets out of the hole." On the House floor, Republicans moved to do just that by insisting that they be given the chance to vote on amendments. They were all for tax reform, they disingenuously avowed; they simply wanted the chance to make a few improvements.

This rationale offered perfect political cover for Congressmen whose real purpose was to protect the endangered tax breaks of special-interest groups. . Sunbelt Congressmen could look out for oil and gas; Northwestern Congressmen could protect timber; Representatives from Rustbelt states could defend steel and heavy industry. In the end, 164 Republicans and 59 Democrats rebelled and defeated the proposed rule, 223 to 202. Only 14 Republicans backed the President.

"The patient is on the table, dying but not yet dead," said a dejected Richard Gephardt, the Missouri Democrat who has made tax reform his major cause. But Reagan, who grew increasingly angry as he mulled over the G.O.P. defections, ordered his lieutenants to try to revive the moribund bill last week. Said Treasury Secretary James Baker as he headed off to Capitol Hill to cajole and arm-twist, "It ain't over till it's over."

Democratic leaders, however, refused to bring up tax reform again until the White House could guarantee at least 50 Republican votes. Into the weekend, the Reaganauts feverishly searched for a formula that would woo G.O.P. converts. In an unusual display of accommodation, Reagan made plans to journey to Capitol Hill personally on Monday to lobby G.O.P. leaders on their own turf. Minority Leader Michel demanded that his party be allowed to vote for an amendment increasing the personal exemption to $2,000, while other House Republicans wanted an assurance from Reagan that he would veto the tax bill if certain revisions were not made when it reaches the Senate next year. But any concessions that the White House could promise them risked losing Democratic votes or opening up a special-interest bidding war that would unravel the whole package.

Already the political posturing has begun in earnest. White House strategists had hoped to use tax reform to broaden the party's base by appealing to lower- and middle-income voters with lower tax rates. But by attacking the Rostenkowski bill as antibusiness, House Republicans allowed the Democrats to revive an old refrain that the G.O.P. is the party of fat cats. Democratic Party Chairman Paul Kirk almost gleefully told reporters last week that the G.O.P. Congressmen opposed tax reform because it "strikes at the heart of the Republican elite" by closing their favorite loopholes.

If tax reform does finally make it through the House this week, it faces an uphill struggle in the Senate next year. Reagan has urged House G.O.P. members to vote for the bill simply to get it into the Republican-controlled Senate, where it can be reshaped to their liking. Yet last week Senate Finance Committee Chairman Robert Packwood of Oregon blandly stated that the Senate had no intention of making significant changes in the Rostenkowski version. For Senate Majority Leader Robert Dole of Kansas, tax reform has never been a high priority. Cutting the deficit remains on top of his own agenda, and that makes it likely that a tax increase will be on the Senate agenda, rather than tax reform.

By putting so much weight behind tax reform and failing to heed growing public fears about the deficit, Reagan may have forfeited his chance to exercise leadership on Capitol Hill and squandered much of the huge, if diffuse, public mandate he won only a year ago. His miscalculation is made doubly unfortunate by the vacuum of leadership in a Congress that is already split between a Republican Senate and a Democratic House. Leaders in both parties have trouble controlling their members, many of whom are more apt to heed the special-interest groups who finance their re-elections. To cite but one example of Congress at work: House Majority Leader Jim Wright may not vote for the tax-reform bill because 1) its sponsor, Rostenkowski, is his rival to become Speaker of the House when O'Neill steps down in 1986, and because 2) oil and gas interests in Wright's home state of Texas stand to lose tax breaks.

Adrift and divided, lacking intelligent leadership from the White House, the members of Congress have chosen to abnegate their constitutional responsibility in the hope that the blunt, crude mechanism of Gramm-Rudman will compensate for the failure of political will. Therein lies the final irony of a bill so bad that it may actually do some good. For in all likelihood, Gramm-Rudman will force the Government to choose between sharp spending cuts and sizable tax increases, and that is the sort of vote no politician wants to cast.

With reporting by Laurence I. Barrett and John E. Yang/Washington