The automatic budget-cutting process required by Gramm-Rudman-Hollings may be the nation's "last chance" to deal effectively with mounting federal deficits, Washington attorney Lloyd Cutler told the Supreme Court yesterday as it began formal consideration of the budget-balancing law's constitutionality.

The fiscal red ink is a "growing cancer that may soon become inoperable," said Cutler, whose client, the comptroller general, is the key actor in deciding whether and how much to cut the budget if Congress and the president cannot meet deficit-reduction targets in the law.

But Solicitor General Charles Fried, speaking in a packed chamber, said the bill is unconstitutional because its automatic trigger for cutting the budget is in the hands of the comptroller, a legislative branch official.

The Constitution requires that Congress pass the laws and that the president and his cabinet administer them. Congress may not execute the laws, the president may not legislate, he said.

But the budget law, Fried said, gives the comptroller, an agent of Congress, "executive functions importantly affecting the whole of the executive branch and directing the president himself." Such powers, Fried argued, can only be performed by someone in the executive branch under the total control of the president.

In two hours of legal sparring yesterday, the justices did not tip their hands as they questioned lawyers for both sides. But the thrust of their questions indicated that they are at least more comfortable with, if not more sympathetic to, some of the arguments of those challenging the automatic trigger. In contrast, they appeared unsure of the claims of those supporting it.

The law, enacted in December, requires that budget deficits be reduced gradually to zero in five phases by fiscal 1991. If Congress fails to meet the prescribed targets in any year, the law requires across-the-board spending cuts sufficient to meet the targets. The comptroller general determines the level of cuts needed.

Unlike Cabinet members, who can be fired by the president for any reason, or heads of regulatory agencies, who can be fired by the president for good cause, the comptroller is nominated by the president but can be fired only by Congress. In February a special three-judge panel declared the law unconstitutional on the grounds that it improperly gives executive branch budgetary powers to an official (the comptroller general) who is a creature of Congress.

Chief Justice Warren E. Burger, along with Justices Byron R. White, William H. Rehnquist, Sandra Day O'Connor and John Paul Stevens, closely questioned Cutler, House general counsel Steven R. Ross and Senate counsel Michael Davidson over who controls the comptroller and what powers he has under the budget law.

Davidson and Ross insisted that the comptroller general has a "green-eyeshade accountant's job" under the budget law, that he is a "neutral scorekeeper" with very limited discretion.

But Stevens said it seemed "inconsistent" to argue that it is so important that the comptroller be a neutral officer if all he is doing is an accountant's job.

Rehnquist said that, from his experience, it seemed clear the comptroller worked for Congress. "If the executive branch wanted a favorable legal opinion," Rehnquist said, "they would go to the attorney general. If Congress wants a favorable opinion," he added, it would go the the comptroller.

Cutler argued that adopting the solicitor general's view that the administrative functions must be given to someone totally under the president's control would jeopardize the status of several regulatory agencies, such as the Federal Reserve Board and the Federal Trade Commission.

Fried, calling that a "scare" argument, said his own argument "does not in any way cast any doubt on the independent agencies."

"I'll confess you scared me," O'Connor said.

Fried said the distinction is that the comptroller's powers under Gramm-Rudman-Hollings are "so sweeping" that they "affect every nook and cranny" of government, "every agency and the president himself."

Fried said the administration's argument may sound, as O'Connor said, "novel," but that this is because the powers given the comptroller are so novel. Those powers, however, could be given to someone in the Cabinet directly under the president's control, he said. Congress, he insisted, was trying to "have it both ways" and was simply "unwilling to let go of the administration" of the budget.

Alan Morrison, representing the House members challenging the law, said the Constitution does not allow Congress to delegate such "sweeping powers" to anyone, whether under the control of the president or Congress. "That kind of abdication" of congressional power "goes to the heart of our legislative process," he added.

The "hard policy choices" Congress must make "have not been made," Morrison said, adding that Congress also "cannot retain a hand" both in passing the laws and "in administering the laws."