About 700 Montgomery County citizens turned out last night to ask the House Budget Committee chairman where their taxes are going.

Rep. William Gray III (D-Pa.), accompanied by Sen. Gary Hart (D-Colo.) and Democratic Rep. Michael D. Barnes of Montgomery County, seized the opportunity to attack President Reagan's budget proposals and, to great applause, assailed defense spending.

The three blamed Reagan for allowing the country's deficit to skyrocket. "We have borrowed money, and we have taken the money we have borrowed, and we have spent it," said Gray. At this rate, he added, "we will inevitably plunge into another recession."

One member of the audience at the Walt Whitman High School in Bethesda asked the congressmen why the economy seemed so healthy, despite these deficits. "We are financing this recovery with money borrowed from our children and from foreign interests," Hart replied.

Another in the crowd, Dorothy Barthelmes of Bethesda, said before the meeting that she came as a Barnes supporter and someone concerned about the federal deficit. She said taxes should be raised and defense spending cut. "We have got to stop wasting money on things like the MX," she said.

And while taxes, Social Security and veto powers were discussed, it was to defense spending that the speakers and the audience repeatedly returned. Hart called military waste "an imminent national scandal." Barnes received loud applause when he declared: "When you are looking for savings in the federal budget you have to look at the Defense Department."

About a dozen members of the county's Young Republican Club stood outside the auditorium as the meeting began, bearing placards warning Barnes that "we are watching." Barnes represents "higher taxes and higher spending and gutting defense," said Andy Clarkson, political action director of the club.

He said he believed that county residents, a majority of whom supported Reagan in last year's election, didn't understand Barnes' policies because he won 72 percent of the vote in winning reelection.