The most pragmatic men develop irrational obsessions, and George Bush -- whose pragmatism runs deep -- has become obsessed with a cut in the capital-gains tax. There's no other explanation for how such a trivial matter could have become such a major obstacle to a budget agreement. Bush's enthusiasm simply hasn't made ordinary sense. If enacted, the tax cut wouldn't much help the economy or win Republicans many new votes.

Even lobbyists who favor the tax cut concede that, without Bush's stubbornness, the proposal would have died. "The reason it's on the {negotiating} table is 70 percent because George Bush wants it on the table," said Mark Bloomfield of the American Council for Capital Formation. Senate Minority Leader Bob Dole, Republican of Kansas, even suggested separating the capital-gains proposal from the main budget package. Privately, many other Republicans are groaning. Well they should.

Bush's position cast Republicans -- misleadingly -- as the main obstructionists in the budget talks. But capital gains aside, the Republicans have done the most to reach a sensible agreement. Bush has acceded to higher taxes and lower defense spending (helped, of course, by Mikhail Gorbachev). The White House has also insisted on tough enforcement provisions to control future spending. Meanwhile, the Democrats have dragged their feet on domestic spending cuts and effective enforcement mechanisms.

Capital gains are profits from the sale of stocks, real estate and other assets held more than a year. These profits are now taxed like other income (wages, for example) at a top statutory rate of 28 percent. In January, the White House urged a top rate of 19.6 percent for assets held for more than three years. The most recent proposal is to cut the top rate to 15 percent. Capital gains are rare for most people. In 1988, Americans filed 109.8 million tax returns. Only 7.8 million returns accounted for all $159 billion of capital gains. Taxpayers with incomes exceeding $200,000 reported $99 billion; those with incomes between $100,000 and $200,000 had $21 billion.

Bush has been practicing the politics of denial for so long that he's now convinced these facts aren't facts. "This is not a tax break for the rich," he said routinely last week. Huh? It's true that over any long period, many middle-income Americans have one-time capital gains. Between 1979 and 1983, for example, 45 percent of the taxpayers reporting gains had incomes of less than $50,000. But the value of these gains was only 20 percent of the total; taxpayers with incomes exceeding $100,000 still had 60 percent of the profits.

The politics of this are mystifying. Sure, farmers and small-business owners who are selling their properties would benefit immediately. But most farmers and small proprietors have more pressing worries. A lower tax rate would also probably stimulate stock trading, helping stockbrokers. But they're not exactly a huge constituency. In 1989, the entire securities industry employed 228,000. As for the rich and upper-middle class, they already vote heavily Republican, and if they didn't, a capital-gains cut wouldn't convert them.

The reason is that they would pay for it. In the budget talks, Republicans have accepted estimates that a capital-gains cut would lower tax revenues. To offset the loss, the Republicans have agreed to raise taxes on high-income people. The most likely possibility is some limitation on itemized deductions. That would probably hit taxpayers with more than $125,000 or $150,000 of income. So the merely well-to-do would end up subsidizing a tax break used most extensively by the truly wealthy.

The real mystery is how Bush became so attached to this albatross. The Tax Reform Act of 1986 abolished the preferential rate for capital gains (the top rate had been 20 percent), and Bush proposed a new 15 percent rate in 1987 when he was seeking the Republican nomination. As an ex-independent oilman, Bush probably believes his own rhetoric. But he also has been ill served by his staff, who have told the boss what he wants to hear. They have exaggerated the economic benefits of a tax cut.

The theory is that if people are allowed to keep more of their investment profits, there will be more inducement to save. Higher savings and investment will then increase economic growth. Michael Boskin, chairman of the Council of Economic Advisers, estimates that the Bush proposal would raise gross national product by 0.6 percent after a decade -- about $32 billion in today's dollars. Many economists consider Boskin's estimate wildly optimistic, but even it implies an increase in the economy's annual growth rate of less than 0.06 percentage points.

In truth, economists can't predict changes this tiny. Forecasts like Boskin's are mainly fiction. Recall that the administration massively underpredicted the cost of the savings and loan debacle a year ago. Real life also offers a cautionary tale. In the 1980s, all tax rates were cut, the capital-gains rate was cut (compared with the 1970s), savings incentives (individual retirement accounts) were liberalized. Interest rates -- adjusted for inflation -- rose, and the stock market boomed. In theory, people should have been induced to save more of their income. They weren't. The lesson: tax policies can't easily alter savings behavior.

Aside from being oversold, a capital-gains cut has big drawbacks. It would needlessly complicate the tax code and spur a lot of unproductive activity -- by lawyers, accountants, investment bankers and tax advisers -- to allow wealthy taxpayers to profit from the lower capital-gains rate. Tax avoidance is precisely the sort of parasitic work that undermines a vital economy. The only worthy reform of capital gains would be to index them for inflation.

The capital gains crusade has mostly been a symbolic test of will between the president and the congressional Democratic leadership. If a tax cut were ultimately passed, it would clutter the tax code and provide little if any economic benefit. At best, the struggle has been a time-consuming distraction from the vital business of reducing the budget deficit. Bush allowed his ego to get the best of his judgment.