I couldn't disagree more with "Bad Idea From the Veep" {editorial, Oct. 19}, in which The Post opposed reinstatement of reduced capital gains tax rates. I can find no evidence to support its claim that reduced capital gains tax rates would "cost the Treasury a lot of money it cannot afford."

History has shown that reducing tax rates on capital gains results in increased tax revenues. Capital gains occur when there is a voluntary act: an individual elects to sell an asset. Clearly a high tax rate inhibits such sales. The fact that low rates encourage sales was proven at the end of last year, when the lower rates of the old law created a flurry of transactions and an enormous windfall for the Treasury.

The downside risk associated with selling an asset is reduced by higher tax rates. Selling, taking your profit and investing elsewhere is made less attractive by higher rates. More important, investing itself is made less attractive, particularly in high-risk ventures that are at the leading edge of the economy.

Thanks to the effort of the late congressman Bill Steiger, reduced capital gains tax rates were enacted in 1978; they were lowered again in 1981. Although capital gains tax rates declined between 1978 and 1985 from 50 percent to 20 percent, revenues to the Treasury were 184 percent higher in 1985 than in 1978. Inflation and GNP growth cannot, by themselves, explain this substantial increase in federal revenues, particularly when one factors in the recession of the early 1980s.

Studies completed by Martin Feldstein and Lawrence Lindsey indicate that reducing capital gains tax rates to 15 percent will generate additional revenues of $8 billion in Fiscal Year '88, $11 billion in FY89 and $12 billion in FY90. Four recent academic and governmental studies suggest that maximum capital gains revenues are produced when the rate lies somewhere between 9 percent and 21 percent, far lower than the rates under the Tax Reform Act of 1986.

Increased rates, on the other hand, cost the government money and contribute to the deficit. The increased rates under the Tax Reform Act are projected to cause revenue losses in the range of $27 billion to $105 billion over the FY87-91 period.

From the standpoint of tax equity, what is fair about increasing the marginal tax on capital gains from 20 percent to 33 percent? Not only is such an increase economically unwise, but it hits not only the rich, as the editorial says, but middle-income earners often even harder. What becomes of the millions of small-business men and farmers, or the people who buy a few rental units to provide for their retirement? One sale and one gain is often the product of years and years, even a lifetime of work. Much of that gain is inflationary. Much of it is accumulated surplus already subjected to the income tax.

Furthermore, the editorial failed to address the international pressure that exists for reducing capital gains tax rates. Eleven industrialized countries impose no such tax at all, and most others have rates lower than ours. In the competition of the capital market these are meaningful statistics.

Last February I introduced legislation to reinstate the capital gains exclusion for individuals. For assets held at least one year but less than three years, 40 percent of the gain would be excluded from taxes. For assets held three years or more, the exclusion would be 60 percent. Instead of 33 percent under the Tax Reform Act, the maximum federal capital gains tax for each category would become 19.8 percent and 13.2 percent. While these rates would still be high internationally, they surely would be much more attractive to investors who make the investments that strengthen our economy and make it grow.

With Congress wrestling with budget deficits, now is the time to roll back the tax increase for capital gains. Lowered capital gains tax rates will produce more dollars and stimulate new economic activity which will, in turn, result in even more tax revenues.

RUDY BOSCHWITZ U.S. Senator (R-Minn.) Washington