THE REAGAN ADMINISTRATION lost only one important battle in its first-year attack on the federal budget. The drubbing it took over its Social Security proposals, however, was more than a failure in public relations. It was the first collision between the view of the federal budget that guided the president's early strategy and the reality of what is bought with the federal dollar.

Let's look for a minute at how the federal budget is distributed. The government will be spending roughly $720 billion this fiscal year, about $270 billion of which will go for defense and interest on the national debt. Almost four out of five of the remaining dollars will go for "entitlements"--benefits more or less guaranteed by law to certain kinds of people. The remainder is the so-called controllable budget, the programs that bore the brunt of last year's cuts. They include things like highways, veteran's hospitals and medical research, all bitterly defended by a variety of interests.

That's why the budget-cutting crusade ran out of steam last fall. It's also why the administration is up against the great fact of the entitlements that go now and in the future to nearly every American. Just as most Americans are middle class, most of these benefits go to the middle class--a fact that, far more than the current recession or any concern for the vulnerable poor, explains the wavering of many in Congress. In the main, the entitlement budget is a vast insurance fund. Over half of the roughly $350 billion that will be spent on entitlements this year is cash and medical insurance for Social Security recipients. If you throw in other pension programs for veterans, civil servants, career military and coal miners you have accounted for over 70 percent of entitlement benefits.

The remaining entitlements are a collection of programs some of which, like unemployment insurance (currently the largest non-pension entitlement) and student loans, also have primarily middle-class beneficiaries. The rest are directed to the poor. Contrary to most public perception and public speechmaking, the programs for the poor have lagged far behind those for the middle class in growth. While many of the pension programs are five or six times larger than they were a decade ago, welfare for families--the much-despised AFDC program--hasn't even doubled, and is now close to the bottom of the list in terms of cost. The largest program for the poor is Medicaid; even that program spends almost half its money not on the chronically poor but on people--mostly the elderly and severely disabled--who have exhausted their normally higher incomes on hospital and nursing home care.

These numbers tell you something very important about what the administration faces as it tries to solve its budgetary dilemma. Government has become expensive not because of the shenanigans of welfare queens or spendthrift bureaucrats, but because the nation has changed fundamentally its conception of how it should care for its aged and incapacitated. Until the time of Franklin D. Roosevelt, most people depended on their savings and the tolerance of their relatives for care in their old age. Fewer lived very long or very well. The New Deal programs changed all that in a way that a majority of people now seem to feel is good either for themselves or for their parents.

It's not cheap to buy the kind of protection that government entitlements now provide--protection against the danger of outliving one's resources, incurring devastating medical expenses or seeing savings eroded by economic downturn or inflation. The choice that the country must now make--and that the administration must present to it squarely--is whether those protections are worth their large and growing cost. If the answer is yes, then the next step must be to see that the taxes needed are raised to pay for them--and a tax on cigarettes isn't going to do the job.