The stock market drops 23 percent in one panicky day -- almost twice as far as on 1929's infamous ''Black Tuesday.'' President Reagan says he doesn't understand it because ''all the business indices are up -- there's nothing wrong with the economy.'' (Shades of Herbert Hoover!)

But most experts seem to agree that the basic reason for the loss of confidence is Mr. Reagan's huge budget deficits and the resulting trade deficits. They hope he and Congress will agree on some way to break the deadlock. Here's a way to increase tax revenue (and recover some of Mr. Reagan's tax benefits for the rich) without the ''disincentive effect'' of raising marginal income tax rates:

At least since Thorstein Veblen's 1899 "The Theory of the Leisure Class," it has been observed that while the rich may save and invest more than the not-so-rich (as Mr. Reagan's ''supply-siders'' claim), they also spend a lot more. And much of what they spend is mainly for the purpose of showing other people that they have what it takes. Imelda Marcos comes to mind, as do Johnny Carson's ex-wife, who asked for $88,000 a month for personal expenses, and the men who ''routinely'' spend $20,000 a year on clothes. Why not make use of this for federal deficit cutting?

Why not enact a steeply progressive sales tax (or value-added tax) on luxury expenditures? Then the billionaires and millionaires could make a more equitable contribution to reducing the deficit and at the same time increase their ability to show that they have what it takes.

Suppose there were a 100 percent tax rate on multimillion-dollar mansions, $400,000 necklaces, $300,000 ocean cruises, $200,000 limousines and sports cars, $85,000 fur coats, $10,000 diamond earrings, $3,000 designer dresses, $2,500 Concorde flight tickets, $2,000 puppies, $500-a-night hotel rooms, $250 dinners for two, $200 toys, etc. The tax rate would then be graduated down to, say, 20 percent on kids' designer jeans.

In the present two-tier U.S. economy, such a tax should generate a lot of revenue without hurting anyone who doesn't deserve it. It would merely make it a little more expensive to be pretentious and wasteful. JOHN S. ATLEE Silver Spring