OBSERVERS may be forgiven some confusion in recent days about the budget status of their beloved Smithsonian Institution. Will it get the big budget increase that was planned -- or take a crippling 32-percent cut, as rumored? Or is this all political maneuvering? The last is the likeliest answer. Having weathered the deep cuts and tax losses that all cultural institutions took in the Reagan years, as well as the effects of an across-the-board mandated staff salary hike -- money that had to come out of other programs -- the Smithsonian this year has been poised finally to receive a substantial funding increase, enough to start repairing the ravages and catching up on the deferred projects of the past few years. The administration's own budget request for it was up 15 percent, from $266 million in fiscal 1990 to $307.7 million, and Hill committees responded to plaintive testimony from museum officials by adding $6 million more. Officials say even this generous increase won't really balance the books or avert radical cutbacks. A big reason is the weighty and costly new mandates that Congress recently handed the institution: the much-needed American Indian Museum on the Mall and an analogous, still undefined African American "presence."

What has all this to do with the threat, telegraphed recently to the Smithsonian and other government agencies by the Office of Management and Budget, that sequestration under Gramm-Rudman could deal the place a 32-percent budget cut? Not much. Sequestration is the budget's fail-safe intimidating consequence for a reason: it would fall on everybody without regard for mission or need. The ugly consequences of that act are supposed to drive paralyzed legislators to the kind of decisive action they so detest. As in the apocryphal Washington Monument ploy, where the Parks Authority reacts to the threat of budget cuts by declaring it will have to close the monument to the public if it loses a penny of funding, the prospective defundees are supposed to respond with cries of panic and mayhem and inspire Congress to cut elsewhere.

The Smithsonian, to its credit, is only half-playing the game this time. Its spokesmen, from Secretary Robert McC. Adams on down, respond wanly that they certainly hope a 32-percent cut won't happen but that the threat of it certainly is bad for morale. Meanwhile they have other problems, whether at $266 million or $313 million or wherever: these differ in degree but not in kind from those of most museums, universities and other nonprofits. Plainly put, it's starting to look as if the 1990s will be a truly grim era for these endeavors. The costs loom from deferred maintenance; the tax laws encouraging art donations to museums have been changed; the insurance rates for museum security have gone skyward. To top it off, the Smithsonian's trust funds dived with the stock market in 1987, increasing the percentage of costs that must be met directly by appropriations.

Whether these problems add up to a Smithsonian "crisis" will mostly be a question of management. On the other hand, that the federal budget is in "crisis" is not exactly news. Yes, sequestration or Gramm-Rudman-inspired cuts would destroy many of the agencies they fell on. That's the trouble with having a budget that won't balance.