THE ADMINISTRATION did not invent the idea of promoting or rewarding certain kinds of behavior through the tax system. It has simply pushed the concept to its natural limit--the point at which many individuals or coporate entities become indifferent to the enticement of new tax avoidance schemes by virtue of the fact that they already pay little or no tax at all.

Congress has long understood the advantages of subsidizing activities through tax breaks rather than direct federal programs. It is relatively easy to slip a new loophole into the law simply because the tax code is already so complex that few people follow, let alone understand, the arcane debate surrounding its periodic amendment. Tax breaks also have a built-in tendency to multiply. Because they always favor one group of taxpayers over others, you can expect that less-favored groups will come to Congress the next year demanding offsetting compensation in the form of a tax break tailored for them.

From this process of accretion an elaborate system of tax incentives has been developed. No area of contemporary American life is immune from the influence of the tax code as it forgoes over $250 billion annually to encourage everything from home ownership and child care to corporate mergers and investment. The philosophical guardians of this system are the IRS officials who must ponder such essentially metaphysical matters as whether a particular divorce is for real or just for taxes, or whether a trip around the world is strictly for medicinal purposes. >

>Now it is beginning to look as if the game may be up. Consider for example, the plight of overseas bank branches that are trying to cash in on the new tax break for people who set up IRA accounts. They can't find any customers because, thanks to a new tax break added last summer, hardly any American living abroad now pays U.S. taxes at all.

>The administration faces a similar dilemma in its plans to offer tax incentives to firms that locate in depressed "enterprise zones" or hire the hard-core unemployed. Thanks to a combination of investment credits and generous depreciation allowances, many firms already have more deductions than they will have income to shelter. Further tax breaks are of no interest to them.

There are, of course, ways out of this dilemma. One would be to step up the "minimum tax" that must be paid by certain individuals and corporations whose tax preferences would otherwise wipe out their tax liability. A new set of tax incentives could then be created that would apply only against that minimum tax. When that played out, a further minimum could be imposed, more tax breaks applied and so on.

If you don't like the idea of a 200-page tax form, you might want to consider another alternative. Why not begin dismantling the whole system, use the savings to cut tax rates across the board and let people and businesses decide for themselves what is the best use of their income?