Changes in the Gramm-Rudman-Hollings law will transform it from a measure aimed at cutting the federal deficit to one designed to control federal spending. The changes allow the federal budget deficit to rise over the next three years, as long as it is not the fault of Congress.

The modifications, part of the budget bill lawmakers approved last weekend, should reduce the rancor of budget debates and eliminate the possiblity of across-the-board spending cuts through fiscal 1993, which begins one month before the 1992 presidential election.

"This is a bill to reelect the president . . . by statute," complained Sen. Daniel Patrick Moynihan (D-N.Y.).

The latest incarnation of the Gramm-Rudman-Hollings law -- its third since it was enacted in 1985 -- will, when the deficit-reduction package is signed into law, shift the emphasis from reducing the deficit to a specific target each year to achieving a designated amount of savings each year, regardless of the resulting deficit.

For the first three years, including 30-day-old fiscal 1991, this version will set legal limits for each of three categories of spending that must be appropriated each year: military, domestic and international. If spending in any of those areas exceeds the limits, all programs within that category will be cut equally in order to meet the target.

For the fourth and fifth years, the savings are not allocated among separate categories, but are lumped together for all appropriated sums.

While the law will still specify annual deficit targets, it will require the White House Office of Management and Budget to revise them each year through fiscal 1993 to reflect economic changes -- which impact both tax collections and spending in such nondiscretionary areas as unemployment benefits -- and changes in technical estimates. The agency will have the option to recalculate the targets for 1994 and 1995.

Further, certain spending, such as that for the savings and loan cleanup and for the military operations in the Persian Gulf, will be counted as part of the budget -- but will not count against the savings targets. Emergency spending, such as disaster relief, will also be given special treatment. Therefore, those items could not cause the spending limits to be breached.

In addition, such benefit programs as Medicare will be allowed to grow as more people become eligible for them. However, any expansion in benefits or cuts in taxes will have to be offset by other spending cuts or revenue increases.

The modifications mean that deficit targets will become virtually impossible to miss. For example, last fall the administration projected that the deficit for fiscal 1990, which ended Sept. 30, will be $99.7 billion. The actual shortfall was $220.4 billion, the second highest in history. But only about $2 billion of the difference was due to increased congressional spending. The rest resulted from a slower-than-expected economy and higher-than-expected spending on savings and loans.

The modifications mean the deficit can rise as long as congressional spending is not the cause. In fact, the $327-billion deficit target for the current fiscal year is almost 1 1/2 times the amount of last year's deficit.

"No one is supposed to notice or care that the deficit skyrockets," said Sen. Ernest F. Hollings (D-S.C.), an original sponsor of Gramm-Rudman-Hollings. "The deficit can continue to grow unchecked in each and every year of this agreement, but as long as we reach our target for proposed savings, then we get to claim we did our job. Perhaps nothing more clearly illustrates the inadequacy and sham of this approach."

Congress has always set its target date for a balanced budget five years in the future, said Moynihan. "Not this year, not next year. . . . Like in 'Alice,' it was jam yesterday and jam tomorrow, never jam today."

The big winners under this new scheme are the House and Senate appropriations committees. No longer will their spending programs be threatened with across-the-board cuts, a "sequester" in budget-speak, because of poorer-than-projected economic performance.

"Congress will be able to proceed with its budget and appropriations processes each year with greater assurance that, as long as congressional action comports with the agreement, no sequesters should occur," said Senate Appropriations Committee Chairman Robert C. Byrd (D-W.Va.).

As under current law, the administration will continue to be final arbiter of compliance with the law. Democratic congressional negotiators had sought to include the nonpartisan Congressional Budget Office in the process, but could not overcome constitutional impediments.

"The fellow who is going to oversee all the enforcement . . . is the same guy, Richard G. Darman, who told us less than a year ago that we would have $100 billion deficit," Hollings said. "The director of the OMB, armed with his fairy dust economic and technical misestimates . . . will now be in the driver's seat."