CONGRESS IS MAKING steady progress with its budget, and, within the usual limitations, the work is coming along rather successfully. The result is going to be quite an improvement over the version President Reagan offered in February. The House has now passed its own budget resolution with a decisive majority. There are some significant differences with the Senate's resolution two weeks ago, but they all lie within the normal range of compromise. The possibility of deadlock and paralysis, dangerously real at the beginning of this year, has faded. That disaster didn't happen.

The House has voted to give the usual inflation adjustment to Social Security benefits but not to the defense appropriations. The Senate wants to do the opposite, and that will be the principal dispute in the conference. The likeliest outcome will be inflation adjustments for both and another struggle to squeeze out other savings somewhere else. While the conference will be interesting, the basic question about defense spending has already been settled. The very fast run-up of the past four years is now going to be brought under tighter control. The issue now is whether the appropriations for next year will be increased 4 percent for inflation. President Reagan had asked for another 7 percent after inflation, and both houses have now voted that down. As for Social Security benefits, it is a great deal fairer to tax a larger share of them than to fiddle with the annual inflation adjustments. The income tax makes allowance for individual circumstances in a way that freezes do not. But there you come to the fundamental defect of both the House and Senate budgets. Both decline to go anywhere near the idea of taxes. President Reagan has won that one. The country would be better off if he had not.

The idea that the federal government can reduce its budget deficits steadily and substantially over the next several years without a tax increase is unfortunately incorrect. The current year's deficit is probably going to be about $30 billion larger than last year's $185 billion. Mr. Reagan set himself the target of getting it down to $180 billion next year. Both House and Senate have tried to do a little better and -- with a lot of bending and stretching -- to get it down closer to $170 billion. But the House resolution in particular contains a number of cuts and savings that haven't yet been precisely defined.

Congress has addressed one of the two crucial issues in budget policy -- unmanageable increases in defense spending. The second one, taxation to pay the government's bills, is apparently going to have to wait until some other year.