INCOME TAXES are going to be cut, but a great deal depends on the precise design of that cut. Since mid-March we have been carrying on a debate with W. R. Grace and Co. over taxation. Grace ran a couple of advertisements in this newspaper and others, and we replied in this space. The president of the company, J. Peter Grace, today offers a final rebuttal on the opposite page.

Neither of us seems to have persuaded the other, but we trust that readers will have found these exchanges useful. Mr. Grace argues, correctly, that inflation raises almost everybody's taxes and, under present law, almost everybody would be paying much higher rates by 1984. He compares those higher rates with those that President Reagan's tax proposal would provide. Our own position emphasizes the year-to-year distortions imposed by inflation, and the compound effect of inflation and the Reagan plan in sliding the tax burden downward on the income ladder compared with the present distribution. The two comparisons bear different messages, but both are mathematically correct and both are worth keeping in mind as the bill moves through Congress.

While the points in dispute here are not minor, perhaps it is useful to observe that there's also a wide area of agreement. Mr. Grace and we agree that wide revisions and cuts in the tax rates are now necessary. We agree that the top rate ought to be dropped from 70 percent on unearned income to 50 percent, and the invidious distinction between earned and unearned income ought to be dropped. Perhaps we also agree that the greatest threat to equity in taxation is the blind working of high and continuous inflation.