The State Department's plan to cope with budget restrictions by eliminating about 1,270 jobs has sent morale plummeting and is causing angry demands from department employes that the Reagan administration "cut things, not people."

"Things, not people" has been the most frequently heard phrase in Foggy Bottom since early this month, when details became known about how the department intends to absorb an $84 million shortfall in the operating budget it expects to receive from Congress for fiscal 1988. Secretary of State George P. Shultz announced Sept. 18 that considerable belt-tightening would be required, but he was vague and did not say that large-scale firings and forced retirements were being planned.

According to department officials, the realization that State plans to eliminate about 8 percent of its 15,800 Foreign Service and Civil Service personnel has caused the biggest blow to morale since the late 1940s and early 1950s, when many of its employes were targets of anticommunist witch hunts.

Now, staff meetings, incoming cables and corridor conversations echo with bitter complaints that the department is sacrificing its only real asset -- the talents of its people -- in a way that will make it incapable of properly performing many of its assigned foreign policy functions.

In a recent cable to embassies, Ronald I. Spiers, undersecretary for management, sought to address that point, noting that the department has dealt with shrinking appropriations since 1986 by "reducing expenditures for things such as equipment, supplies and vehicles." But, he added, "We have reached a point where such 'thinning-the-soup measures' will no longer suffice."

Such explanations have not stilled complaints that many expensive programs and equipment acquisitions have been spared from cuts because they are pet projects of Congress or the department's top management. Among rank-and-file diplomats and other employes, there seems to be almost universal agreement that if the department wants to make meaningful budget cuts, it should postpone plans for improving security at overseas embassies through a massive rebuilding program, erecting a new campus for the Foreign Service Institute in Northern Virginia, replacing its computers with newer models and acquiring an official residence for the secretary of state.

Fueling this attitude is anger over what many employes believe was the excessive secrecy and lack of consultation with which the master plan for cutbacks was drafted under the guidance of Deputy Secretary John C. Whitehead and three other senior department officials. They, in turn, delegated the task of identifying areas where savings could be effected to the department's comptroller, Roger B. Feldman, and his staff.

Among those left out of the policy steering group was George S. Vest, director general of the Foreign Service and director of personnel. Also excluded were all of the assistant secretaries heading the department's various operating bureaus. They were not informed of the plan's contents until half an hour before Shultz's Sept. 18 appearance before department employes.

The result, as one senior official said privately, "was about what you would expect from a group of accountants and systems analysts who are adept at numbers crunching but who don't understand the realities of what the State Department is supposed to do and what it needs and doesn't need to do it."

Opposition to the proposed cuts throughout the department's senior and middle-management ranks has been so vehement that Shultz and Whitehead were forced to defer implementation of their plan to give key assistant secretaries a chance to come up with alternative proposals. Their deadline is this week, and their recommendations could result in some modifications of the plan.

"Most people here are so fed up with being kicked around that if the department were to make its planned early-retirement offer available to everyone, almost the entire building would be disposed to accept," said Evangeline Monroe, vice president of the American Foreign Service Association, the professional organization and bargaining agent for the Foreign Service.

"But," she added, "when people stop and think, they realize that even that isn't an agreeable way out, because in most cases the annuity isn't enough to live on. So, despite all the discouragement, I believe the dominant attitude is that we should try to ride the crisis out and preserve as much of the institution as possible for the future."

Many believe that State should abandon its traditional diffidence in dealing with Congress and, as one official put it, "wave the bloody shirt to make clear to all the world that the United States wants to be a superpower on the cheap." He and other officials cited efforts by interest groups and their allies in Congress to exempt one or another of the 13 overseas consulates tentatively slated for closure.

One of these posts is Porto Alegre, Brazil, which the Bureau of Inter-American Affairs wants to retain. As an alternative, the bureau is willing to close the border consulate at Matamoros, Mexico. However, it has been constrained from pushing that idea because some members of the Texas congressional delegation have a strong political interest in keeping Matamoros open.

While some urge confrontation, indications are that such tactics only stir anger on Capitol Hill. Congress has made clear that as long as the administration insists on cutting politically popular domestic programs, it will not put up more money for foreign affairs programs that lack a clear-cut constituency.

Issues causing the most controversy include:Embassy Security: This big-ticket program resulted from the administration's priority on combating terrorism and congressional concern over attacks against U.S. embassies in the Middle East. But it also causes the most resentment among Foreign Service professionals, who regard it as departmental empire-building and largely unnecessary.

"The bloated and hugely expensive security program should not be exempt from its full share of the reductions," an official assigned to the Madrid embassy said in a message to AFSA. Another from Ankara characterized plans to build a more secure embassy there "as egregiously unnecessary and an utter waste of public funds . . . an example of throwing money at a problem that does very little to protect diplomats and their families."

"The very people who are supposed to be the beneficiaries of this program are its worst critics," said one senior official here. "The attitude of almost everyone who has served in an overseas post is that while some modest measures are possible, you can't rebuild an embassy into an impregnable fortress. If the host government isn't willing to provide adequate protection, there's no real defense against an outside attack. So if you want to be a diplomat, you have to realize that and accept the risks. Otherwise you should get into another line of work."

However, money for the embassy-security program has been sheltered in a special appropriation separate from normal department operating funds, and Shultz and congressional leaders have made clear that they will not permit diversion of these funds to pay for other departmental operations. Consolidating Activities: The original plan calls for achieving personnel reductions by consolidating offices to eliminate "overlapping and duplicative activities." In one case -- the proposed elimination of the Latin America bureau's public diplomacy office -- the idea has been greeted with enthusiasm because career officers were uncomfortable with the notoriety the office achieved because of its role in promoting the Nicaraguan contras.

But in at least one other area -- the proposed elimination of each geographic bureau's specialists in economic and politico-military affairs on grounds that separate bureaus deal with these subjects -- the plan has caused great concern. That is especially true in the economic area, where many officials fear disproportionate personnel cuts that would paralyze the department's ability to make effective analyses and policy recommendations.

"Isn't this the worst possible area to cut back?" asked one officer in a cable from Europe. "Is there no realization by State Department management that the U.S. budget crisis has international as well as domestic causes and that how we resolve our budget crisis and our trade deficit will impact on our relations with the rest of the world?" Deputy assistant secretaries: Of potentially great impact for the department's forthcoming leadership generation is the plan's call for limiting each bureau to a maximum of three deputy assistant secretaries. Some of the busier geographic bureaus now have as many as six. These positions constitute the first rung on the department's senior management ladder and are regarded as the prelude to an ambassadorship or policymaking position.

The administration's tendency to give a larger than normal share of ambassadorships to political appointees rather than career officers has made the competition for deputy assistant positions especially keen. As a result, many officials fear that limiting the number so sharply will create a demoralizing new clog in promotion channels.