The Labor Department said yesterday about 1 million people would be denied benefits in whole or part next year by the budget cuts and rules changes that President Reagan has proposed in the unemployment compensation program.

But Secretary of Labor Raymond J. Donovan and deputy assistant secretary Lawrence E. Weatherford defended the Reagan recommendations, telling the House public assistance subcommittee they would help rid the program of those who, in Weatherford's words, "are prepared to ride the system until all benefits are exhausted and only then look for work."

Donovan estimated that in fiscal 1982, without the Reagan revisions, the program will pay $18.1 billion to 9.6 million recipients. He said about $1.4 billion of this could be saved if Reagan's proposals are adopted.

Reagan would lift unemployment levels above which the government pays an extra 13 weeks of benefits to those who have used up their basic 26 weeks and are still without work; require workers to take almost any available job or lose benefits after 13 weeks, instead of allowing them to turn down jobs paying less than their old ones, as they now can, and deny benefits to those who voluntarily leave the armed forces and are unable to find a job afterwards.

Weatherford estimated that the most important of these changes would knock off the rolls about 35,000 servicemen who refuse to reenlist and 570,000 others who would lose extended benefits. But aides said later that, under other provisions, another 485,000 could also lose some or all benefits.

The National Association of Manufacturers and the Chamber of Commerce endorsed the Reagan Recommendations, but Bert Seidman of the AFL-CIO said, "In making these proposals the administration has pledged to maintain a 'social safety net' of protection for the needy. In fact, its proposals would place gaping holes in the safety net."

Subcommittee Chairman Fortney H. (Pete) Stark (D-Calif.) and several members indicated they dislike the proposal involving ex-servicemen.

More generally, Stark said there is support in the subcommittee for an alternative way to save money -- taxing unemployment benefits to the extent they push all sources over $15,000 a year, or a family's income over $20,000. Cutoffs now are $5,000 higher.

Republicans L.A. (Skip) Bafalis (Fla.) and John H. Rousselot (Calif.) both endorsed the tax idea, which Bafalis said would give the government an extra $1 billion annually.

Donovan said "philosophically I wouldn't object" but stopped short of endorsing the proposal. A union spokesman said privately that labor could not endorse the tax idea, but probably would prefer it to the administration's proposed eligibility cuts.