IT'S BALLOON time over the budget; the latest word is that the president has decided once again to propose a cut in the capital gains tax. If he simply says that he's for it and no more -- tries to appease the party's true believers without destabilizing the budget -- no harm will be done. But if he goes further and uses the proposal to paint a fanciful fiscal picture, as has been done in the past, he will be making a terrible mistake.

The preferential treatment of gains is a bad idea in any case. By creating two classes of income, it would undermine tax reform and in the long run transfer billions of dollars the government can't afford to citizens who don't need it. More than 80 percent of the benefit of a capital gains cut would go to perhaps 3 percent of the population in the highest income brackets.

That kind of trickle-down economics is no way to greet a recession. Even worse will be if, as has been done in the past, the administration proposes to use the short-term proceeds of a gains cut to finance other pet projects in the form of spending increases or other tax cuts that would last. Though no one knows for sure, most estimators think a gains cut would generate an artificial increase in revenues when first effective, as investors hastened to take advantage of it. But over time congressional (though not administration) estimates are that the cut would cost the Treasury money.

The balloons say that to neutralize the fairness issue vis-a`-vis a gains cut, the administration may wrap it in various spending increases and/or tax cuts for the middle class and the poor. Some of these are fine ideas, but they would cost money; where would it come from? What the administration must not do is propose again that a tax cut be used to finance other tax cuts and spending increases. That would be an invitation to Congress also to return to sugarplum accounting and tear up last year's hard-won deficit reduction agreement; the administration is supposed to be that agreement's chief enforcer instead.

It would also be an invitation to the Democrats to revive their proposals of last fall to raise rather than reduce the taxes of the rich and use the proceeds for other purposes. Their politics would allow them to appear both generous and responsible. It would trivialize the president's office to reopen most of these issues in the midst of a war. He should leave the capital gains idea alone.