Productivity tax cuts and federal budget cuts are, nearly everyone agrees, essential to restoring America's competitive edge. But both must be crafted with care to avoid unintended effects.

The Reagan administration's tax and budget proposal phases investment stimulus in over five years. Yet, if we are to achieve the productivity improvements necessary for economic recovery, some accelerated depreciation allowance and investment tax credits must be put on line immediately and must be better targeted. The administration's depreciation plan, for example, favors "bricks and mortar" industries, like the steel industry, over high-technology firms where America's leadership is fast eroding.

The major effect of the Reagan-Kemp-Roth individual tax cut is its unconscionable stimulus of aggregate demand, i.e., inflation. Amid a budgetary situation already threatening steep deficits, amid the need for more defense spending and amid the added jolt of oil and gas deregulation, this cut will be wildly inflationary with no productivity payoff. The $200 to $300 tax cut the average family would receive wouldn't even begin to keep up with inflation or pay the deregulated fuel bill or -- much less -- flow into needed savings and investments.

A better approach to tax cuts is to stimulate personal savings and business savings solely. For example, allowing taxpayers each year to exempt from taxation $2,000 in savings and investment accounts -- until withdrawn -- would provide a needed push on the supply side. And it would allow millions of Americans to participate in rebuilding our economy. The people aren't looking for a bonanza, they're looking for a future. They would much rather see interest rates drop, renewing those deferred dreams of owning a home, than have tax-returned depreciated dollars, deeper deficits and tighter credit.

This brings us to the budget. The deficit for the New Frontier, the Great Society and and the war in Vietnam, between 1960 and 1970, was only $57 billion. The cumulative deficit from 1970 through 1980 was over $400 billion. And Reagan's 1982 budget has at minimum a $45 billion deficit. Now I don't pretend that, in a world with an OPEC, government spending is the only cause of inflation. But it is part of the problem. In November's wake, the call for fiscal responsibility has been answered, and Congress will accord Mr. Reagan the bulk of the budget cuts he has requested. And Congress, additionally, must face up to the problems created by the indexing of federal benefit programs.

Making cuts won't be easy. Every program has a sponsor and a constituency. Additionally, Democrats, by nature, believe in governent programs. I believe in them. The tragedy of the past four years is that if we Democrats had given the kind of effective administration and management we promised in 1976, we would be running those programs and not worrying about losing them today.

Yet we need not practice the false economies inherent in some of the administration's proposed cuts. For example, child-nutrition and feeding programs for women, infants and children are long-term investments. It's a lot cheaper to nourish infant brain cells in the womb and during life's early years than it is to pay medical, special-education and welfare costs five, 15 or 30 years hence. As Democrats we will do our best to preserve such high pay-out, workable initiatives. Promotion of the general welfare, no less than efficient and effective management, is a fundamental duty of modern democracy.

To be successful, any program must be balanced. All we need to do is place monetary and fiscal policy on an equal basis -- both sharing the burden in the fight against inflation. This requires no Moses or Gilder to lead us to a Promised Land.