A BUDGET DEAL is dead, so goes the conventional wisdom. It is too close to an election for congressional leaders to agree to painful budget cuts and tax increases. The already weak economy has been dealt a further serious blow by soaring oil prices thanks to Saddam Hussein. A deficit cut would throw us into a recession.

As is frequently the case with the conventional wisdom, it is wrong. Here's why:

President Bush wants a budget deal. To his credit, the president raised the political stakes on the somnolent deficit issue when he convened the budget summit in May. Bush could probably have sidestepped the issue for another year or two, but he chose not to. As further evidence of his commitment, one need only note the feathers on his no-tax lips from the crow which Democratic negotiators forced him to eat in finally acknowledging the need for "increased tax revenues."

Virtually the entire congressional leadership wants a budget deal. On the Democratic side, House Speaker Thomas Foley (Wash.), House Majority Leader Richard Gephardt (Mo.) and Senate Majority leader George Mitchell (Maine) are no less determined than their Republican counterparts, House Minority leader Robert Michel (Ill.) and Senate Minority Leader Robert Dole (Kan.). The major tax writers, Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) and Senate Finance Committee Chairman Lloyd Bentsen (D-Tex.), are also on board -- Rostenkowski helped get the ball rolling this year by being first to put a plan on the table. I cannot think of an instance in the last 10 years when the president and the leadership were committed to a common purpose and failed to pull it off. A meeting at Andrews Air Force Base in September will serve to increase press attention to the process and heighten the risk of failure for all participants.

The Iraqi crisis strengthens the president's hand, not weakens it. Neither party's leadership can want its members to be standing for reelection while the commander-in-chief fires away at them for letting the country down in a time of crisis. A warlike crisis makes it easier to sell the idea of having to raise taxes and cut spending. The Mideast situation could moderate cuts in defense spending, thus putting pressure on other politically sensitive areas of the budget, but it would not totally reshape the framework of a deal. If a lame-duck session were planned, a deal could be cut before the elections, with the vote taken after. We should remember that a major tax increase was enacted in September 1982, right before an election and minor tax increases were passed in 1984, 1986 and 1988.

A multi-year, meaningful budget deal remains in the national interest. Congressional Democrats believe that. They understand its impact on national saving, interest rates and U.S. competitiveness. Sure, they are bitter about the politics of taxes as practiced by Ronald Reagan in 1984 and by George Bush in 1988. Bob Dole has a right to be bitter as well. The Bush forces knocked him out of the race in New Hampshire on the tax issue. But while big-time politicians may enjoy some partisan hardball, in the end they are in their business because they take policy making seriously. And they get down to serious business when the political timing is right. And now it is.

Rather than removing a centerpiece of a potential budget package, an energy tax, the Iraqi crisis should increase the leverage for such a measure. Oil prices will not stay at $32 a barrel forever. The world has plenty of oil over the near term. Over time, the world oil price will fall again. As it does, we should impose a tax that grows as the price falls. We, not OPEC, would fix the price of oil to U.S. consumers. When the world price was below a fixed level, say $25 a barrel, the federal government would collect the difference in taxes. If the price exceeded $25, no tax would apply. Very significant revenues could be raised. And we would put ourselves on a sensible oil diet the right way -- through the price mechanism rather than through a fad diet of regulatory spaghetti. Let's stop kidding ourselves: The only way to really encourage long-term conservation is to raise the price of oil. Because vehicles are so efficient, and gas is now so cheap, for example, it actually costs less to drive a mile than ever before. Passing laws telling car companies to sell more fule-efficient cars won't have much impact if cheap fuel keeps telling motorists to drive more and to buy bigger, more powerful models.

We've got to do something to get the Federal Reserve off the hook it's on. The Fed has been hanging tough on monetary policy in order to force fiscal action. As the economy weakens, it would have been forced to ease, even without a budget breakthrough. Soaring oil prices, with the promise of a new boost to inflation, reduce the Fed's maneuverability, however. A budget deal, with its promise of fiscal restraint, would provide the monetary authorities with needed cover. And the ailing financial, housing and durable goods sectors would certainly get a boost from a one to two percent drop in interest rates -- the response that, as Fed chairman Alan Greenspan informally indicated to the ill-fated 1988 National Economic Commission, might be expected from a convincing budget deal.

A budget deal can be tailored to the current economic situation. Because of the negative impact of rising oil prices, some will argue that a $50 billion federal budget cut in a single year would tip the economy into a deep recession. Whether that's true would depend upon how quickly the Fed reacted. But in any case there is nothing magic about a $50 billion cut in the first year. Financial markets are looking for a big multi-year deal which could be lighter on the front end as long as the back end is secure.

For years some Democrats have argued that the deficit is a good political issue and that it shouldn't be given away. I have yet to see any political good it has done for Democrats. All that the budget fight has done is to get the Democrats in trouble for trying to be responsible on taxes, while limiting their ability to address important national priorities. As for Republicans, a budget deal might lose them the political advantage of being the "no tax" party. But what are they going to do when the president of United States, the head of their party, orders them to get on board? Disinvite him to their next fundraiser? In the end, a majority of both parties in both houses of Congress should and will vote for a budget deal.

Robert Liberatore, an executive of the Chrysler Corp., was staff director to former Senate Majority Leader Robert Byrd.