The Gramm-Rudman-Hollings budget-balancing law could trigger cuts of 25 percent in domestic programs and 18 percent in defense spending next year, congressional budget experts said yesterday.

Sen. Frank R. Lautenberg (D-N.J.) said such cutbacks could have a "terminal" impact on the capacity of the government to function, and Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) warned that the reductions could be even more severe.

"I don't think anyone would like sequestration [cutbacks] to take effect at this level," Congressional Budget Office Director Rudolph G. Penner said.

The projections were aired at a Senate Budget Committee hearing on implementation of the Gramm-Rudman-Hollings law, which sets deficit targets to force a balanced budget by fiscal 1991 and requires automatic spending cutbacks if the targets are not met.

Office of Management and Budget Director James C. Miller III testified that the fiscal 1987 deficit is likely to be "close to $200 billion . . . above $190 billion." With the deficit ceiling set in the law at $144 billion for that fiscal year, a $200 billion deficit would require a cutback of $56 billion.

Penner and Comptroller General Charles A. Bowsher, who shares with Miller and Penner the responsibility for designating the cutbacks, were asked how cuts of about $60 billion would affect domestic and defense spending after excluding such programs as Social Security that are exempt from cutbacks.

Without subscribing to the $60 billion figure, which he said is "extraordinarily tentative," Penner said such a cutback would result in reductions of 18 percent for defense and 25 percent for domestic programs.

"I think you're in the ballpark," Bowsher said.

The figures were in line with an earlier projection by Rep. Charles E. Schumer (D-N.Y.), a member of the House Budget Committee, who predicted cuts of nearly 28 percent for domestic programs and 17 percent for defense.

Defense and domestic programs share equally in any required cuts, although portions of each are exempted. The domestic cuts are higher in percentage terms because the amount of the domestic programs not exempted is smaller than the amount of defense programs not exempted.

Domenici warned that the cuts required "could be as high as $70 billion," meaning even larger percentage cuts than those mentioned.

Domenici contended that the threatened cutbacks put pressure on Congress to come up with alternative way to reach the deficit targets established in the budget law. He indicated that he favors consideration of tax increases as well as spending cuts to reach the targets.

But Senate Finance Committee Chairman Bob Packwood (R-Ore.) told reporters he thinks that Congress will come up with a "gigantic money bill," without tax increases, to meet the target by late spring after hitting an impasse on regular appropriations bills.

Meanwhile, House Budget Committee Chairman William H. Gray III (D-Pa.) said yesterday that he is opposed to the House attempting to avert the $11.7 billion in automatic budget cuts that are due to take effect on March 1 under the balanced-budget law.

"People have to understand that the 1986 sequestration is an appetizer," Gray said. "The entree is coming down in two weeks, and that is the [fiscal] 1987 budget."

Under the new law, the first round of 1986 cuts will become permanent unless Congress enacts an alternative package achieving the savings by other means by then. Gray said even if the House seeks to do this, there is no guarantee that the Senate would go along or that President Reagan would not veto the congressional plan.

Gray said House Democrats will begin to focus attention on the massive domestic cuts in Reagan's budget immediately after it is submitted to Congress in early February.

As both Republican and Democratic leaders met yesterday to map strategy for the coming budget battle, House Minority Leader Robert H. Michel (R-Ill.), speaking on the House floor, accused House Speaker Thomas P. (Tip) O'Neill Jr. (D-Mass.) and the rest of the Democrats of seeking only "partisan political advantage" in the budget debate.