The Balanced Budget and Emergency Deficit Control Act of 1985, better known as "Gramm-Rudman Hollings," created a series of deficit targets meant to balance the federal budget by 1991. If these targets were not met, a series of across-the-board spending cuts (sequestration) would automatically ensue. The legislation was sponsored by Senator Phil Gramm (R-TX), Senator Warran Rudman (R-NH), and Senator Ernest Hollings (D-SC) and was signed into law by President Reagan in December 1985.
The Balanced Budget and Emergency Deficit Control Act of 1985 (Graham-Rudman-Hollings) was an amendment to a bill that allowed the debt ceiling to be raised to over $2 billion. It created a five-year deficit reduction plan, with decreasing deficit targets each year, until the budget would be balanced in fiscal year 1991. If deficit goals were not met in any given year, a process of automatic spending cuts termed "sequestration" would take place. Fifty percent of the cuts would come from domestic discretionary spending and fifty percent from defense. Social Security, Medicare, several anti-poverty programs, and interest on the debt were exempted from a potential sequester.
Gramm-Rudman-Hollings garnered bipartisan support and was signed into law by President Reagan in December 1985. Most Republicans in the House and Senate voted for it, while the Democratic vote was split nearly evenly in both chambers. Those in favor of the bill argued that the budget deficit, which had greatly increased since 1981, required dedicated measures to reign in federal spending. Democrats who voted "no" argued that budget cuts were likely to impact domestic programs while leaving military spending largely intact. Nevertheless, the Reagan administration opposed the mandated fifty percent cuts in defense spending in a potential sequester and provided only lukewarm support for the measure.
In 1986 the Supreme Court ruled the Act unconstitutional on the grounds that the sequestration process gave Congress undue budgetary power. In 1987 the Act was passed again (see Gramm-Rudman-Hollings II), with a new sequestration process and deficit numbers; the revised legislation also pushed back the date at the budget was to be balanced to 1993. ...more here