When Congress gave federal employees a 2 percent pay increase this year, it counted it as a pay cut - and gave itself credit for reducing the deficit by $2.4 billion.

Members of the blue-ribbon commission on federal deficits were astounded this week by an explantion of Washington's bookkeeping magic."I don't understand this at all, and I don't understand how anybody else does," commission co-chairman Robert Strauss complained when told how a pay hike had become a pay cut.

One commission member says "truth in budgeting" may be a first step to true cuts.

Congress and a reluctant president Reagan created the National Economic Commission last year to come up with a solution for the last eight years' federal deficits.

The commission - which includes Chrysler Chairman Lee Iacocca, investment banker Felix Rohatyn, labor leader Lane Kiekland and other political and business leaders - plans to report in December.

Its initial public meeting last week was devoted to budget officials' explanation of how Congress looks the other way while the budget grows by leaps and bounds.

A basic problem is that new spending is either ignored or counted a spending cuts under the goverment's bookkeeping, Here's how it works: Congress' starting point for each year's budget is something called the "base budget." It's the previous year's spending... PLUS across-the-board increases for inflation... PLUS new spending that kicks in from laws passed the previous year, or maybe even several years back (which is the way a lot of new spending slips in).

None of this is counted a spending increases - even though billions of dollars in new money is being spent.

In fact, any trimming from the base budget goes on the books as a spending cut. That's how the government has managed to "cut" the budget every year while it grows bigger year by year.

-Congress claimed a $1.7 billion savings by limiting an increases given to hospital from Medicare. But even so, the increase was more than increases hospitals usually get, "They're claiming a big savings, but they're paying hospitals a lot more," said a budget official.

-Federal employeed got a 2 percent salary increase this year, but had they received a ful inflation increase, it would have been about 4 percent. This pay raise counts as a pay cut.

Medicare payments were mailed a few days late at the end of the year, pushing the spending into the following year. Presto - a $1.1 billion "savings."

Some members of the commission were incredulous when they heard how Washington handles money.

"Spending could go up 30 percent a year, and yet if it's (in the base budget), there would be no spending increase?" asked co-chairman Strauss.

"That's correct," said Timothy Muris, a former associate director of the White House Office of Management and Budget.

Strauss looked dumbfounded. "I've never understood that. You've taught me something."

"If somebody with your knowledge and expertise in Washington doesn't understand it, that shows we've got a problem here," Muris said.

AFL-CIO President Kirkland described the federal governments's budgeting as "a Seventh Avenue marketing concept. It's a 20 percent cut from a 50 percent markup."

Rohatyn challenged this kind of bookkeeping. "If you were a public accountant, would you certify these numbers?"

Muris said it's "no accident we have a system biased toward increased spending." Medicare spending has tripled in the 1980's, he said, yet the common belief is that it has been cut. "Nobody has suggested cutting it, we're talking about limiting its growth from 12 to 8 percent a year."

Sen. Pete Domenici, R_N_M., a former Senate Budget Committee chairman, said, however, that the intention is not "to hide anything," but acknowledged that "it works both ways... If we had started without those (baseline) increases, maybe you wouldn't have heard so much noise (from big spenders) about cuts."

Commission member Donald Rumsfeld, President Ford's defense secretary, said that budget succeeds in one thing: It protects the politicians, "By its very complexity, the system prevents the American people from holding anyone accountable."

Big federal deficits began in 1981 when the government cut taxes more than spending by $100 billion, according to Carol Cox, director of the Committee for a Responsible Federal Budget. "And then the 1981 recession doubled it," she said.

Since then, Congress has raised taxes and cut spending enough to trim annual deficits by $150 billion, but interest payments on the debt are growing almost as fast now as Congress cuts.

What caused the deficit, Cox said, "depends on you political philosopy. If you are a conservative, you go back to the 1960s and point to the rapid expansion of social services. If you are a liberal, you go back to 1981 and say it's that darned President Reagan's defense buildup."

The commission's report will offer the next president and Congress a way out of deficits, supposedly the same as a similar commission in 1983 prevented the Social Security system from going bankrupt. Strauss says the commission will focus on spending cuts befoe looking at possible tax increases.