(FORTUNE Magazine) – AMID THE DIN of congressional budget making, a startling development has slipped by virtually unnoticed. Gramm-Rudman-Hollings, Congress's new law aimed at eliminating federal deficits, is beginning to work. Much political wrangling still lies ahead, and the Supreme Court could yet strike down at least part of the law. Nevertheless, the early experience is promising. Says Alice Rivlin, former director of the Congressional Budget Office (CBO) and now director of economic studies at the Brookings Institution: ''The deficit path is declining not because of some magic of economic forecasting, but because of Gramm-Rudman, and because of the outlook for slower growth in defense spending.'' Less than a year ago the Office of Management and Budget and the CBO were predicting $200-billion-plus deficits as far as the eye can see. But now both OMB and CBO are projecting declining deficits through the end of the decade. What happened? Mostly, Congress cut spending. Last year the legislators pared $10.5 billion from the fiscal 1986 budget. On March 1, since the deficit was still above target, Gramm-Rudman automatically sliced another $11.4 billion. CBO estimates that the two rounds of 1986 cuts will save $293.4 billion over five years. In addition, CBO forecasts no growth in defense spending above inflation through the rest of the decade. Both OMB and CBO also foresee lower interest costs, resulting in part from lower deficits. To Congress's surprise, Gramm-Rudman's automatic spending cuts were achieved with relatively little political pain. Sure, federal bureaucrats resorted to their old ''Washington Monument'' tactics, the game in which an agency threatens to shut down a popular government service when asked to cut its budget. The Library of Congress pared its evening hours. The Geological Survey cut its patrol flights over Mount St. Helens. And allies of the Customs Service warned that Gramm-Rudman would hamstring the agency's ability to police drug trafficking. Still, the cuts went through on schedule with relatively little outcry. Observes Ronald Utt, an economist at the U.S. Chamber of Commerce: ''Even Congress has been surprised by the lack of outrage.'' Most important, Gramm-Rudman has changed the rules of the congressional budget game. In the past, Congress would pass a budget, then proceed merrily to bust it. In 1980 Congress missed its target by $48 billion; in 1985 it spent $5 billion more than it had budgeted. Under the new rules, however, once Congress has hit its deficit ceiling, which it has for fiscal 1986, further spending must be offset by cuts or taxes. In the first major test of these new rules, the Senate recently refused to consider a $919-million amendment to . emergency farm-credit legislation because the measure did not provide offsetting savings. Says Senate Budget Committee Chairman Pete Domenici: ''That would never have happened in years past.'' Similarly, Ronald Reagan's recent plea for $100 million for the Nicaraguan freedom fighters was sent to the Hill as a request to reprogram existing funds, rather than appropriate new ones. Gramm-Rudman's toughest test will come over the fiscal 1987 budget, now being debated. The good news is that Gramm-Rudman has already forced the President and Congress to agree on a deficit goal, $144 billion, and on what will be needed to reach it, some $38 billion in budget savings. Gramm-Rudman's faster deadlines have also speeded up the budget process in the Senate, which is now about a month ahead of last year's schedule. The bad news is that there is still no compromise in sight. The Senate has moved toward a balanced package of defense and nondefense cuts and tax increases. But the President remains adamantly against defense cuts and major tax hikes. And without presidential cover, the Democratic House is stalling on tax increases. Adding to the uncertainty is the growing feeling that the Supreme Court will declare Gramm-Rudman's automatic mechanism unconstitutional sometime before the Court's summer recess. If it does, Congress would be required, just weeks before the midterm elections, to pass a joint resolution implementing the automatic cuts. To avoid that politically risky course, oddsmakers are betting, Congress and the President will, after much thrashing around, agree to a combination of tax hikes and spending cuts, including defense, to reach Gramm-Rudman's deficit target. If it turns out that way, the new law will deserve three cheers.