THE ENACTMENT of President Reagan's economic policy marked the end of an era: No longer can public expenditures be justified simply by laudable social goals. But most Americans still favor the purposes behind social security, unemployment insurance and Medicare, not to mention free public education or municipal police and fire protection. Can the richest society on earth be too poor to pay its policemen and schoolteachers?

The problem can be explained simply. Government services, especially at the local level, rely heavily on labor. And since the Great Depression, labor has risen in cost much faster than consumer goods. We need new ways to meet human needs in public services. Before designing an economy that can put three cars in every garage, shouldn't we be proud of our streets, schools, parks and public transportation systems?

I therefore propose that we introduce -- on a voluntary basis -- individual labor as a means of paying local taxes. For want of a better term, let's call it "taxwork." But to avoid gross abuses, only local governments could increase their total expenditures in response to increased productivity. This could be assured by a freeze on federal and state budgets at their current percentage of the gross national product.

The details of my proposal are simple. Any individual taxpayer (or member of his family) would be allowed to pay part or all of his local taxes by working at an approved public project. Each community choosing to adopt this device would determine the projects to be undertaken as well as the rate of tax credit per hour of labor (though not less than the minimum wage). Federal or state governments would be forbidden to use this new source of tax revenues.

Labor would be credited at the same rate for all participants. Not only is this simple and fair, symbolizing equality before the law; it is also practical, since it encourages participation by those who cannot otherwise provide equivalent contributions to family income.

An example will be useful. Assume that a homeowner has an annual local property tax of $2,000 a year. His town or city credits voluntary labor at the rate of $4 an hour. By devoting 250 hours a year (approximately five hours a week), he "pays" half of his property tax. If his wife -- or one of their children -- contributes an equal amount of labor, the household would pay no tax at all.

On the surface, this taxwork proposal would be a minor change. But as the deduction for interest expense illustrates, such provisions of the tax law can have a large effect on politics, economics and culture.

From the taxpayer's perspective, the taxwork option is obviously a means of increasing disposable income. Although the rate of pay would be less than many receive on regular jobs, participants would also benefit as citizens from the product of their own voluntary taxwork. Even if not interesting for the very rich or very poor, many with average incomes could gain.

As taxpayers used labor instead of money to support local government, the individuals' "savings" would either be invested or spent on consumer goods. In either case, the result would be increased employment in the private sector and better business, without the inflation generated by public deficits or higher wages in the labor market.

For local governments, the proposal would make it possible to respond to unmet needs wherever the community was willing to try the experiment. As it is, many of our cities have been close to bankruptcy. If this new source of public revenue were successful, municipal governments could maintain or even increase budgets.

Consider some of the projects that might be suited to tax payment through voluntary labor. Our cities are a national disgrace. Streets are filthy and littered: They can be cleaned with brooms and shovels. Crosswalks and street markings need regular painting; potholes and frost heaves need more rapid repair; snow removal often leaves sidewalks and street corners impassable. Rundown public housing and old school buildings could be renovated by workers who, as it is, add to their incomes by quasilegal "moonlighting."

Our aged are often abandoned, living more or less in isolation. Local communities could provide "meals on wheels" through voluntary labor. Our first-graders are often herded, 35 to 40 to a classroom. Local citizens could provide assistance to teachers, effectively cutting this ratio in half. Our ill are confined to hospitals or nursing homes at exorbitant cost. Cities and towns could lower the cost of these needs by combining voluntary manpower with professional skills to improve in-patient services or expand visiting nurse-homemaker programs.

It can be expected that most taxes would still be paid in money. But since new obligations could only be incurred at the local level, where labor-payments were an option, voluntary taxwork would be a means of restoring public programs that are now impossible to finance; more important, it would shift the focus of public life back toward the local community.

The basic principle is fully in accord with our national tradition of voluntary self-help. New England towns once depended on this procedure. As Rousseau put it long ago, "In a truly free State the citizens do everything with their hands and nothing with money ... I believe that community labor is less contrary to freedom than taxes."

Workfare, instead of welfare, has been proposed as a means of providing income for the poor. Why should laboring for the community be treated only as a stigma for the unfortunate? Both taxwork (work credits for the middle class) and workfare (cash payments for the poor) could be part of a single system of local services.

The proposal obviously raises many problems. But it is hard to believe that we lack the ingenuity to solve them. Since the option of working would be voluntary, no one would have to participate. New programs -- or better ways of implementing old ones -- would only develop as citizens in each city and town felt it desirable.

For once, governmental services would be visibly close to the people. Since the federal and state governments would be forbidden to use labor in this way, or to expand their share of the GNP, increased productivity resulting from a longer work week would be channeled to local needs, where citizen wishes are most likely to be reflected.

A city introducing voluntary taxwork could not set the hourly rate too high (for then it would bankrupt itself) nor too low (nobody would volunteer). But because the proposal would depend on local initiative and experimentation, popular attitudes would be reflected in the tax credit rate and the projects chosen.

There would obviously be a bookkeeping problem, although computers could radically simplify the accounting. Some will cheat (as in any system), but widespread loafing would be impossible without visible effects on public services. While false records or poor work would ruin this scheme if tried at the state or federal level, locally every citizen would be a potential inspector.

Municipal and civil service employes will need to have their jobs protected. It does not follow, however, that existing payrolls would be cut due to this proposal. Voluntary labor requires organization and supervision, and many jobs can't be done by amateurs. Besides, the alternative is bleak: Cities and towns are finding it increasingly difficult to pay their employes without new sources of revenue -- and voters are everywhere refusing to increase conventional taxes.

Economically, the proposal suggests a way to lengthen the work week on a voluntary basis. Unlike most other responses to "stagflation," it generates both new productivity and new purchasing power without being inflationary or requiring central control of the economy.

Politically, the proposal is neither ss"conservative" nor "liberal"; it is simply different. The very process of discussing and enacting the rules for voluntary taxwork would reinvigorate local government. Communities would be compelled to discuss existing programs in a new way. Unmet needs in social services, health, public transportation and education could be considered without further expansion of the federal bureaucracy.

Finally, but most important of all, this proposal gives citizens an opportunity to DO something concretely toward the public good. It reverses the trend toward civic passivity. It could develop pride in communities through which we now drive with car windows rolled up and doors locked.

There is no excuse for the cities of the richest country in the world to be both bankrupt and seedy. There is no reason for needed human services to go unprovided while taxpayers revolt. And there is no necessity that the word "government" be a synonym for an unresponsive federal bureaucracy, devoted to paperwork rather than direct public service.

In the last analysis, allowing tax credit for labor could give us confidence again in our ability to solve our own problems. Nostalgia -- whether for the activism of FDR or the optimism of Eisenhower -- won't provide the necessary focus for public purpose, self-confidence and virtue