THE FEDERAL budget is increasingly a transfer between generations. Payments to the elderly or on their behalf now constitute more than a fourth of total spending and nearly half of spending other than for interest and defense. The share is rising, yet scarcely a word was said about this when the budget was presented; when discussed at all, the issue was discussed in code.

Director Richard Darman complained in his introduction to the budget that it was being "taken over by so-called 'mandatory' or 'entitlement' programs" not subject to the annual appropriations process. These have grown, he wrote, from 28 percent of spending in the Kennedy administration to 52 percent today, while "within the 'mandatory' total, funding for the non-poor has increased far more than for the poor." To reduce cost -- and to try to throw the Democrats on the defensive on the fairness issue -- the administration proposed reforms.

The reforms are mostly good ideas that ought to be adopted, but not misunderstood. Their importance is not substantive or fiscal, but illustrative and political. The proposals in themselves do not seriously address either the budget growth or the budget fairness problems in whose names they were brought up.

The growth issue is partly demographic, partly a matter of social choice. Three-fifths of all the "mandatory" spending Mr. Darman lamented is aid to the elderly, mainly through Social Security and Medicare. These two programs dominate the budget; they have been the great (though not the only) engines of growth in the last 30 years. Medicare, which in not too many years could pass even Social Security as the costliest domestic program, did not even exist when John F. Kennedy was president.

The administration, we think to its credit, does try (again) to staunch the cost of Medicare in the budget. Atop some further spending cuts the president proposes, as reform, an increase in the premiums of upper-income beneficiaries. A progressive premium is a good idea, and Congress, you recall, voted for one in catastrophic health insurance, only to turn around and flee. This one wouldn't raise much money as proposed but could establish an important principle. Question: How hard will the president press?

Most of the other fairness steps the president suggested -- in farm supports, school lunches, benefits for veterans' widows -- are peripheral so far as the great problem of entitlements is concerned. Yes, the programs could stand to be dressed up, but no, they're not the reason for a bursting budget. And the college student aid program also on his list is already one of the most progressive that the government maintains (though it too can be improved).

What should the administration really do if it wants to cut the cost and increase the fairness of benefits? First, it (and Congress) should address Social Security; a larger share of benefits should be subject to the income tax. Second, it should address tax benefits as well as those on the spending side. If Medicare benefits should be phased down with rising income, as the progressive premium would help to do, why not also the housing subsidy that goes to higher income families through the mortgage interest deduction? A little of this, but only a little, was done in last year's tax bill.

The president and budget director have opened up an interesting issue. If they or anyone else is serious about it, there's a lot to do.