THIS WEEK, 36 men and women start making decisions that will shape the American way of life for decades to come. That is to say, the House Ways and Means Committee takes on the issue known as tax reform.

It is difficult to overstate what is at stake in this exercise. Even if this attempt fails, the law that remains will represent conscious choices on the part of Congress to benefit some Americans and penalize others. The Internal Revenue Code, thought of as a device to generate money to run the government, is in fact the nation's most powerful social-policy engine. Taxing some activities and exempting others, the code determines how businesses from a general store to General Motors, as well as private citizens, decide to spend -- or not spend -- their money, shaping the American economy. Unlike most government programs, it touches the life of every single American.

The system also is widely judged to be in serious trouble. Even those it favors most concede that the 72-year-old code has grown so overloaded with breaks for particular industries, regions and groups of people that it works at cross-purposes, stimulating investments Congress never intended, at great cost to the federal Treasury and the economy as a whole.

Under the circumstances, it is hardly surprising that President Reagan and many in the Congress argue that the system should be overhauled. But it is important also to recognize that this process means restructuring the most basic of American institutions. Norman Ornstein, a political scientist at the American Enterprise Institute, ranks the potential social impact of tax overhaul with the upheavals of the New Deal, the civil rights movement, the Great Society and Reagan's 1981 assault on centralized govrnment.

"You're talking about a fundamental change in American society that happens less than once in a generation," Ornstein said. "Congress rarely overcomes all the biases built into the system and takes on the status quo."

Says Democratic Wisconsin Gov. Anthony S. Earl, who has succeeded in simplifying taxes in his state: "Tax reform is one of those great notions everybody subscribes to, like life after death. The problem is, nobody wants to take the risk to try either."

Tax reform can happen, but only if the vast majority of Americans become convinced that the current code is stacked against them -- that it serves the wealthy and large corporations at the expense of middle America.

Just as the current code produces behavior Congress never envisioned, the process of revamping it is certain to exact costs no one now foresees. Already, it is clear that any overhaul of the tax code on the order now being contemplated will reshape not only the economy, but also how Congress and the executive gvern, how elected representatives make choices, how government at all levels is financed, how members of Congress raise money for their campaigns and much more. Congress cannot effectively refashion the tax system without confronting political considerations along with the more obvious economic ones:

For those who believe in an activist federal government, the current Internal Revenue Code is the Last Tango in Washington.

The bloated federal deficit has made new spending intiatives politically impossible, and President Reagan's campaign against regulation has largely closed that avenue of policymaking. As such, the tax code has been for several years the only channel of activist government still open to traffic. A sweeping tax overhaul would effectively shut it down.

Since the 1960s, administrations have looked to tax breaks to stimulate investment in low-income housing, urban redevelopment, alternative energy sources and much more. Even Reagan, who officially opposes the proliferation of tax incentives, advocates new ones to finance his initiatives in such diverse areas as urban policy (enterprise zones), education (tuition tax credits) and retirement security (Individual Retirement Accounts for nonworking spouses).

The Reagan tax proposal that the committee will take up this week itself is witness to the difficulty of extricating social policymaking from the code.

It is chock-full of loopholes, from the fast write-off of intangible drilling costs for oil producers to tax-free housing allowances for ministers -- both slated for elimination in the Treasury Department's original proposal but restored in the president's.

In the last decade, the amount of money lost to the Treasury in tax breaks has doubled as a percentage of the gross national product. Treasury predicts that the tax system will collect $433 billion this year from individuals and corporations, but at the same time, because of seven decades of accumulated tax breaks, it will forego collecting an additional $400 billion. In other words, for every $1 the government collects in taxes, it will pass up another 92 cents in tax breaks.

If Congress forfeits this admittedly flawed policy making tool of stimulating favored behavior with tax breaks, it has no assurance in these deficit-conscious times that programs subsidized through the tax code, such as low-income housing and historic preservation, will be absorbed into the budget. In fact, Reagan and Ways and Means Chairman Dan Rostenkowski (D-Ill.) have insisted that all money saved from closing loopholes go toward reducing tax rates rather than to new spending initiatives.

So rather than removing hidden subsidies from the code and selecting which to support directly through appropriations, lawmakers would simply bid many programs farewell until more flush fiscal times -- significantly shrinking the federl role in policymaking.

Voting for tax overhaul means asking a member of Congress to embrace an idea largely on faith, without knowing the answer to the most basic question in lawmaking: Will this help or hurt my district? Moreover, the most vocal responses to that question will be coming from those losing tax advantages, while the potential winners will be difficult to identify.

Even the most ardent proponents of overhaul admit that the current system has so many cross-cutting incentives that no one knows exactly how the economy would look without it -- which interests would flourish and which would suffer. It is clear that certain industries now favored by tax breaks, such as timber and real estate, would be harmed under the president's proposal. But some companies within those industries would likely reorganize and prosper.

Every congressional district will have some losers in it, many of them powerful and well-financed. Throughout the summer-long hearings on the president's proposal, for example, the Ways and Means Committee heard a succession of spokesmen from heavy manufacturing industries warn that without the investment tax credit and accelerated depreciation, they would lose ground to international competition.

Equally dire warnings came from governors and mayors concerned about losing the federal deduction for state and local taxes, not to mention restaurateurs worried about losing the deductibility of three-martini lunches and tourism officials worried about losing the write-off of sports tickets as business expenses.

Members of Congress thus would be faced with creating individual and corporate losers in their districts without a guaranteed, counterbalancing set of winners. Although 78 percent of individual taxpayers are projected to receive a tax cut or no change under the Reagan plan, many members say they fear that the cut in the vast middle-income range will not be lare enough to make people embrace the overall package.

Taxpayers generally deem the current code grossly unfair and in need of restructuring, but polls indicate that many doubt they would be better off with a different system. "There's always a fear that people will cling to the evils they know," said John Shannon, executive director of research for the Advisory Commission on Intergovernmental Relations, which polls public attitudes toward taxes.

Congress will have to write not one, but two politically wrenching revisions of the tax code: first, the "ideal" tax code that would come into effect some years down the road, and second, the rules for the intervening years that would allow a gradual transition into the new system.

So many businesses and lifestyles are organized around existing tax provisions that sudden change would cause drastic dislocations. By allowing a transition, the government will not realize much new tax revenue at first from closing loopholes. This could cut into the revenue needed for rate reductions, the main attraction of the overhaul to voters.

Tax policymakers suggest taxing the "windfall gain" of winners during the transition period, and using the money to reduce rates and also to cushion the "windfall losses" of those falling out of favor. This yields another set of political pressures: winners angered by minimized winnings, losers still chafing over what they've lost, cushion or no cushion.

Tax reform would require members of the congressional tax-writing committees to bite many of the hands that feed them.

Both Ways and Means and Senate Finance Committee members are among the leading recipients of contributions from political action committees. They raised a total of $3,736,054 in PAC money in the first six months of 1985, or more than three times their total for the first half of 1983, according to Common Cause. Much of the money came from real estate, insurance, banking and energy interests -- industries with tax advantages targeted for repeal or reduction under the president's proposal.

Senate Finance chairman Bob Packwood (R-Ore.) received $691,015 in the first half of the year. Senate Majority Leader Robert J. Dole (R-Kan.), another committee member up for re-election, received $474,550. Rep. Sam M. Gibbons (D-Fla.), the leading recipient of PAC contributions on Ways and Means, raised $156,745.

The going admission price for fund-raisers given by members of these committees is twice those of their counterparts on most panels, and members say candidly that the high stakes of the pending tax bill are the main reason.

The final obstacle to meaningful tax reform is that the 99th Congress has no assurance that the 100th, the 101st and their successors will keep hands off of its handiwork.

What is to stop the congressional challengers of 196 from running against incumbents by promising to restore tax benefits for the local flyswatter industry? What would keep a future Congress from re-inserting popular deductions, credits and exemptions into a freshly purged code? Evidence of this possibility lies in the history of the investment tax credit, which Congress has seen fit to impose, expand, contract and repeal more than half a dozen times since the early 1960s.

"Even assuming that they do it perfectly, which they won't, the world will change seven, eight or nine months down the road and the government will respond," said Sheldon S. Cohen, Internal Revenue Commissioner under Presidents Kennedy and Johnson and a respected observer of tax policymaking.

If these imperatives drive political decisions, only a one-term visionary or a fool would vote for a change as sweeping as tax overhaul. How, then, did we get the New Deal, the Great Society, and the "Reagan revolution" of 1981? And if those were possible, why not a new tax system?

The earlier upheavals had three key features in common, according to Ornstein: each followed a decade of fevered public debate, a crisis demanding immediate attention and a landslide election that carried a mandate for sweeping change.

He observed that it took a Great Depression and the election of Franklin Delano Roosevelt to bring on the spending programs of the New Deal, while Medicare, the federal health insurance program created in the 1960s, had been debated as early as the 1930s. Another landmark of the Great Society, the Voting Rights Act, followed a decade of civil rights ferment and was propelled into law largely by the televised film footage of Southern law enforcement officers brutalizing black Americans.

"You look at tax reform now and those three conditions just aren't present," Ornstein said.

However, painful tax initiatives have been enacted recently by state and local governments despite the obstacles. Republican Tennessee Gov. Lamar Alexander raised state gasoline and sales taxes -- a move that may have appeared on the surface to go against public sentiment opposing new taxes. Instead, Alexander and the legislature have won praise for their action, carried out in the name of raising of badly needed money for roads and schools.

And Wisconsin's Gov. Earl pushed an ambitious state tax revision through his legislature this year, wiping out more than a dozen popular deductions and using the extra revenue to reduce rates.

How did they do it?

"You need a compelling argument that affects ordinary people in everyday terms," Alexander said. "It either has to be a great benefit to be gained or a great danger that's looming. Better schools and better roads in Tennessee were enough of a compelling reason that we could double the gas tax and raise the sales tax."

Earl said his effort succeeded largely because the proposal he took to the legislature made no concessions to any interest group. "The way to pass it," he said, "has got to be to persuade people -- Congress and the public -- that nobody's exempt." He also emphasized that his state had a budget surplus, which was combined with the overhaul to cut taxes -- a sweetener that helped overcome public jitters about changing a familiar institution.

All the jitters notwithstanding, there are indications that Americans are losing patience with the current system. Recent widely publicized studies have revealed that assorted tax breaks allowed 50 large, profitable companies to escape all federal tax liability from 1981-84, and made it possible for 30,000 households with incomes of $250,000 or more to pay less than 5 percent of their income in taxes.

Surveys by the Advisory Commission on Intergovernmental Relations show that Americans rank the federal income tax as the least popular of all types of taxes, while 13 years ago they called it the most fair. And the Internal Revenue Service says noncompliance is increasing, fed by anger over perceived unfairness.

This sentiment has not yet translated into fervent public support for the Reagan plan or its congressional counterparts. Perhaps the explanation is that taxpayers, like legislators, have a vested interest in the current system. Even the men and women of the Great Middle, often invoked as the beneficiaries of tax-overhaul, enjoy numerous valuable deductions and exemptions. However loudly they complain, they like having a tax code that serves social purposes -- their own.

Sen. Bill Bradley (D-N.J.), who designed a tax-overhaul plan similar to Reagan's more than two years ago, says this tendency toward self-interest is not necessarily insurmountable.

"The nature of the legislative process is that you seek to pacify a narrow group. Your job as a legislator is to put together those beads on a chain so that you get re-elected and people are satisfied. The problem is when those narrow interests conflict with larger interests and conflict among themselves. The legislator has to make a choice. But I also believe there is a big payoff out there for someone who says: This is in the interest of most of the people."