THERE IS REALLY only one sensible way to deal with the huge budget deficits that hang over the American government and economy like an undetonated bomb, and that is to raise taxes on American corporations -- not in any radical way, but just to something like the levels of taxation that prevailed during the last great American boom, in the 1960s.

The facts are simple: In the '60s, when the economy and capital investment were both growing at record rates, taxes paid by American corporations covered the cost of about one fourth of all government spending other than Social Security (which is self-financed by its own tax). By last year corporate taxes financed just 8.8 percent of government spending on all programs other than Social Security. Ironically, some of our most dynamic firms still pay significant taxes. IBM, for instance, pays a tax rate of close to 30 percent on its profits. But many other corporate giants now pay no corporate income tax at all, thanks to loopholes and incentives enacted since 1970.

If every corporation again paid taxes at the level they paid in the '60s, the budget deficit would instantly be cut in half. We could expect interest rates to fall, the dollar to return to a more sensible value, and the economy to prosper without the dangerous imbalances that now threaten our future.

Is this politically impossible? No. Despite President Reagan's attempts to make any tax increase sound like sedition, even the most antitax of America's politicians agree that something needs to be done about corporate taxes. Three weeks ago, Rep. Jack Kemp (R-N.Y.) got big cheers from the participants at the 12th annual Conservative Political Action Conference when he said: "There is no reason conservatives should support tax breaks and subsidies for corporations. There's no reason for corporations to be subsidized by government."

But today they are subsidized to a degree most citizens don't realize. For every dollar corporations paid last year in taxes, loopholes allowed firms to avoid $1.42. In other words, the current corporate tax provides 40 percent more in subsidies than in revenues -- $90-100 billion in subsidies in the current fiscal year.

Even the Reagan administration has figured out the problem. In late February, newly appointed Treasury secretary, James Baker, told the House Ways and Means Committee that "there's no way to make the tax system fair to individuals without raising business taxes. It's that simple." And most important, at a recent press conference, President Reagan himself indicated a willingness to raise corporate taxes, at least on those corporations "who are not now paying taxes at all or paying very low taxes."

Last October, Citizens for Tax Justice, a coalition of citizens' groups and labor unions, released a study documenting just how many corporations fit into the category the president thinks should be paying more in taxes. Of the 250 large, profitable companies we surveyed, more than half enjoyed at least one year between 1981 and 1983 in which they either paid zero in federal income taxes or actually received cash rebates from the Treasury.

A quarter of the firms paid a total of nothing or less over the full three years. The overall tax rate for the 250 corporations was only 14 percent, and virtually all of that was paid by just a handful of the companies. The 200 lowest-taxed firms paid a mere 4 percent of their profits in federal income taxes.

Topping the list of corporate freeloaders was General Electric, which paid not a penny in taxes on its $6.5 billion in domestic profits in 1981-1983. Instead, GE received $283 million in outright tax reunds -- checks written by the Treasury to the company rather than the other way around.

Next came Boeing, with $267 million in tax rebates on top of $1.5 billion in earnings. Boeing's case typifies the defense industry's disdain for helping pay for the arms buildup from which it is profiting so handsomely. Seven of the top 11 defense contractors -- all of them highly profitable firms -- including the much-criticized General Dynamics, paid zero in taxes or got money back from the government over the three years.

W.R. Grace & Co., despite its $684 million in profits, made $12.5 million off the tax system by selling its excess tax breaks -- an example of government waste that went unmentioned in the Grace Commission's report.

It is conventional wisdom that "out-of-control" federal spending is the source of the budget deficit. But while a few areas of spending, notably defense, have been increasing rapidly in recent years, corporate nonpayment of taxes is by far the most critical factor in the deficit calculus.

A look back to the 1960s helps explain what has happened. Supposedly the period when spending got out of hand, the '60s actually were distinguished by being the only decade in this century that both began and ended with the budget in balance.

How was this feat achieved? Well, it certainly wasn't because we spent a lot less of our money on government programs in the old days. In 1960, for example, before the advent of the New Frontier and the Great Society, federal spending for everything except Social Security and interest on the national debt amounted to 14.9 percent of the gross national product. In 1984, that share had hardly changed -- totalling 15 percent of the GNP.

And we can't blame our current horrendous deficits on Social Security. Although it has grown since the '60s, Social Security payroll taxes take in more than the program spends, and the Social Security surplus is expected to get larger over the next decade.

Here's the crucial difference: In 1960, corporate income taxes paid for 26.3 percent of federal spending other than Social Security. But by fiscal 1984, the corporate share had plummeted to only 8.8 percent. As a percentage of GNP, corporate income taxes fell from 4.3 percent in 1960 to 1.6 percent in 1984.

The loopholes that make possible corporate tax avoidance have also fostered the creation of tax shelters that have enabled wealthy individuals to escape paying billions in federal taxes. In a study published by Public Citizen, the Ralph Nader organization, Richard Meyer estimates that such tax shelters are now costing the Treasury more than $24 billion annually, a number that is growing rapdily, despite supply-siders' claims that the 1981 cuts in tax rates for the rich would "eliminate" shelters.

Moreover, the enormous amount the federal government now pays in interest -- up from 1.4 percent of the GNP in 1960 to 3.1 percent in 1984 -- has its roots in government borrowing to fund corporate tax reductions over the past 15 years. In sum, had corporate tax payments not fallen off since the 1960s, we would have no deficit today.

Individual citizens have a right to be angry at the tax system. In 1960, their taxes produced less than twice as much revenue as the corporate income tax. By 1984 individuals were paying more than five times as much as corporations.

What exactly are these loopholes that are wreaking such havoc on the tax laws and the nation's finances? There are many, but two in particular dominate. The first is the Accelerated Cost Recovery System, enacted in 1981 at the behest of the Reagan administration, which allows companies and tax shelter investors to "depreciate" machinery and buildings far, far faster than they actually wear out. Accelerated depreciation permits a company buying a new machine tool costing $100,000, for example, to deduct its full cost from its taxable profits over 4 1/2 years. But the average machine tool lasts 10 years or more.

The second megaloophole is the investment tax credit, which provides 10 cents in tax reduction for every dollar spent on equipment. In other words, that same hypothetical company could cut its tax payment by an additional $10,000 in the year it bought that new machine tool.

Without these two loopholes, General Electric, for example, would have paid close to $1 billion in taxes in 1983, instead of receiving a refund. Altogether, the cost of accelerated depreciation and the investment credit comes to a staggering $65 billion in the upcoming fiscal year, and is expected to exceed $121 billion annually by 1990.

It doesn't take a wild-eyed radical to see the importance of these loopholes. President Reagan's own Treasury Department understood their significance in the "tax simplification" plan it advanced last November. Drafters of the Treasury plan recognized that to make taxes simpler, fairer and lower for individuals, they had to recoup this money now given away to corporations.

Of the $767 billion that Treasury's 108 separate reform provisions would raise over five years, $371 billion comes from repealing the Accelerated Cost Recovery System and the investment tax credit. Another $149 billion would come from eliminating special breaks for oil companies, defense contractors, financial institutions and companies that moved their plants abroad. Thus two thirds of Treasury's reform program centers on closing corporate and tax-shelter loopholes.

Unfortunately, the Treasury plan would use the new revenues raised by a more comprehensive corporate tax simply to lower tax rates for companies and individuals. Treasury would shift $40 billion in taxes from individuals to corporations by 1990, but overall, in the jargon of the tax business, the proposal is "revenue neutral" -- it does nothing to give the Treasury more money to close the yawning budget deficits.

But a reform program that does nothing to reduce the deficit makes no sense. Eventually, it would have to be followed by higher rates or new taxes -- perhaps the national sales tax or "value added tax" backed by some corporate lobbyists. But such taxes are unfair; Treasury says that a 10 percent national sales tax would add about 50 percent to the income tax bills paid by families earning $40,000, and could triple taxes for families making $10-15,000. Wealthy indviduals would face only an 8 percent tax hike, and corporations would be exempted entirely from such a sales tax.

There is a better way. Rather than use all the money raised by tax reform to cut tax rates and end up with corporations paying only 12 or 13 percent of the federal tax burden, as under Treasury's plan, we ought to tie tax reform and deficit reduction together. If, for example, Congress were to adopt Treasury's entire reform package except for Treasury's corporate rate reductions and another proposal for dividend tax relief, the pogram would raise $280 billion over five years. Individuals would still get tax cuts, but by 1990 the deficit would be $100 billion a year less.

Such a change would require corporations to bear about 19 percent of the federal tax burden. This is not so onerous. In the booming '60s our corporations paid considerably more than that, and our successful competitors in Japan raise nearly 30 percent of their national revenues from corporate income taxes.

Corporate lobbyists argue that raising corporate taxes will only result in higher prices for consumers, since "companies don't pay taxes, people do," in one of the lobbyists' favorite phrases. But this claim is not defensible. Consider one example: the profitable Whirlpool Corp. paid almost 46 percent of its profits in taxes in the '81-'83 period, while its competitor, General Electric, paid no taxes at all, and actually got hundreds of millions in tax refunds from the Treasury. But Whirlpool washing machines -- higher rated than GE's by consumer testing organizations -- are actually cheaper than GE's.

Another example: In 1983, Exxon paid 34 percent of its profits in taxes; Mobil paid 6 percent; Texaco got a tax refund. Has anyone noticed dramatic differences in the price of the gasoline each sells at the pump?

If corporations can easily pass on taxes to their customers, you wouldn't think they'd mind paying taxes so much. But even the modest increase in corporate taxes proposed by the Treasury Department has the loophole lobbyists screaming like stuck pigs. They claim it would hurt the economy to close loopholes and ask corporate tax-avoiders like General Electric to pay their fair share of the costs of government. In fact, however, tax reform would help the economy immensely.

The evidence is overwhelming that "tax incentives" have been a colossal failure as an economic strategy. The lobbyists promised that the loopholes would increase business investment and produce a healthier economy. But that did not happen.

"The taxation of capital and business income in the United States is deeply flawed," the Treasury tax plan states. "It is best characterized as irrational . . . . The tax law provides subsidies to particular forms of investment that are unfair and that seriously distort choices in the use of the nation's scarce capital."

Proponents of tax breaks for business investment have argued that these incentives were needed to encourage our companies to make the investments needed to compete effectively against the Japanese and other foreign competitors. But as the Treasury points out, the incentives actually encouraged unproductive activities at the expense of productive investment.

In fact, tax incentives "work" only in the sense that they encourage investments that make no economic sense. The glut of office construction in many of the nation's cities is one example of the kind of waste that tax incentives create. So is the wild proliferation of tax shelters in everything from llamas to foreign stamps to embryonic cattle breeding to used shopping centers and even billboards.

Despite the enormous expansion in corporate loopholes in the 1981 Reagan tax bill, after it took effect, total investment in plant and equipment (measured in constant dollars) declined for three straight years. Instead of an investment-led boom promised by the tax cut's proponents, we got the worst recession since the 1930s. Investment boomed in the recovery year of 1984 -- but in response to surging consumer demand, not to the incentives contained in the 1981 tax bill. Overall, the increase in business investment in Reagan's first term was considerably less than during Jimmy Carter's presidency.

Most tellingly, the companies in our Citizens for Tax Justice study enjoying the largest "incentives," such as G.E., Boeing and W.R. Grace, cut their investment the most between 1981 and 1983. The companies paying the highest taxes bucked the national trend and actually increased their investment. For example, Whirlpool -- while paying 46 percent of profits in taxes -- increased its investments by 7 percent; IBM, despite a 28 percent tax rate, increased investment by 15?? percent.

The Treasury's tax-reform plan contains another overdue change -- an end to the tax break for "capital gains," or profits from the sale of investments held for more than six months. Here again the loophole lobbyists make eloquent but false claims for the "success" of a tax break that actually had no positive consequences, but did spur tax shelters and undermine tax fairness.

The lobbyists insist that 1978's reduction in the top capital gains tax rate from 35 to 28 percent was responsible for the boom in venture capital that began in 1980. "The problem with this argument," Michael Barker pointed out recently in the newsletter Politics & Markets, "is that there is nothing to it -- no evidence that it is true, and considerable evidence that it is not." The key factor behind the increase in venture capital, Barker notes, was a change in the rules governing pension funds, allowing them for the first time to get heavily into the venture-capital market, where investors can put money into new and often risky business ventures.

Barker's conclusion is borne out by data recently published in Venture Capital Journal, an expensive publication for the finance industry, showing that 87 percent of the increase in venture capital between 1978 and 1984 was supplied by pension funds, other tax-exempt entities and quasi-tax-exempts, such as life-insurance companies and banks. In other words, the venture-capital boom was overwhelmingly dominated by organizations for which tax "incentives" are irrelevant, since they don't pay taxes anyway.

Even the corporate lobbyists' computer models are betraying them. Recently, the National Association of Manufacturers commissioned Wharton Econometrics to analyze Treasury's tax program on its model of the economy. Wharton's computer model is programmed to conclude that tax incentives produce higher investment, so it predicted that the Treasury reform would reduce "capital formation." But the model also concluded that enactment of Treasury's reforms would lead to greater employment, increased consumer spending, a reduced federal deficit and a higher GNP.

The power of the case for repealing corporate loopholes appears to be sinking in even for President Reagan, although it has taken a while. When he first looked at Treasury's proposals, the president was quite cool to the idea that virtually everything he had ever stood for when it came to taxes was wrong. In his State of the Union address, the president praised the "principles" of Treasury's plan, but explained that he favored closing loopholes "while maintaining incentives."

Compounding the confusion, Reagan went on to repeat his past calls for still more tax loopholes. A week later, the president told The Wall Street Journal that the basic thrust of Treasury's reform plan -- raising corporate taxes and cutting taxes for individuals -- was a "detail" he wasn't familiar with.

Since then, however, the president has made a breakthrough. By admitting the possibility of raising taxes on those corporations "who are not now paying taxes at all or paying very low taxes," he has made it clear that his 1984 pledge of no tax increases applied only to individuals. The door is now open for combining tax reform with deficit reduction. If Congress is at all concerned with cutting the deficit and making the tax system fair, it should rush in.