Republicans and Democrats who helped draft the 1986 Tax Reform Act said yesterday that President Reagan's suggestion to Congress last night to recreate a tax break for capital gains would undermine the nation's new tax system -- Reagan's hardest-won domestic achievement.

"Ronald Reagan should not make a proposal such as this," said Sen. Bill Bradley (D-N.J.), known as the "godfather" of the tax changes enacted in 1986. "A cut in the capital gains rate will create tremendous pressure to raise tax rates, {meaning} loopholes for the rich and the special interests and high tax rates for all of us."

"If we reintroduce a capital gains preference, it would be an easy and short step toward reintroducing a whole range of benefits and raising rates, and pretty soon we'd be right back where we started with the old tax system," said Reagan's former internal revenue commissioner, Roscoe L. Egger Jr., whose tenure spanned the formative stages of the new tax law.

Reagan called for a lower capital gains tax rate in the proposals sent to Congress yesterday along with his State of the Union address, calling the idea "the most important piece of unfinished business" in the 1986 act. Earlier, every Republican candidate for president in the 1988 field had similarly called for lower capital gains taxes. In his message to Congress, Reagan did not formally propose legislation to change the rate. Some officials characterized it as a "wish" for change in the long term.

Capital gains are the profits on sales of such assets as stock, real estate, art works and race horses. Vice President Bush and Rep. Jack Kemp (R-N.Y.) have called for a rate of 15 percent, less than half the highest tax rate faced by wealthy Americans on other income.

The 1986 act eliminated the preferential tax rate for capital gains, which now are taxed as ordinary income. All but the wealthiest quarter of Americans pay a 15 percent income tax under the new law; the top quarter pays up to 33 percent.

Proponents of a capital gains tax break argue that, without it, investors are slow to cash in gains, tying up dollars that would otherwise be plowed into new ventures and entrepreneurial activity. Reagan said the break would "generate the savings and investment necessary for future economic growth."

Until its repeal, the capital gains preference provided huge tax breaks for the well-to-do. According to the latest statistics from the congressional Joint Committee on Taxation, in 1986, 70 percent of the break -- worth $38 billion in tax savings -- went to people making $200,000 or more a year.

Before the tax overhaul was passed, capital gains were taxed at a maximum rate of 20 percent, compared to a top rate of 50 percent on regular income. The gap between those rates encouraged the growth of tax shelters -- lawyers' and accountants' devices allowing the wealthy to convert highly taxed income into lightly taxed capital gains.

Populist resentment of such tax breaks was a key factor eroding confidence in the old tax system. Repealing the capital gains preference and closing most tax shelters became critical ingredients of tax revision, under which wealthy Americans lost loopholes and other special benefits in return for lower rates on all income.

The change reflected a consensus that the system had become riddled with so many preferences that taxpayers were pouring money into ventures to avoid taxes, not because they had intrinsic economic worth. Proponents of tax overhaul, including Reagan, argued that a system with fewer such incentives would help the economy, luring money to projects with real value, rather than to shelters.

Since tax overhaul was passed, the capital gains debate has become intensely political. Bush portrays his proposal for a 15 percent rate as a boon for small business, reminding audiences that he once started an oil business and therefore knows that a capital gains rate can help entrepreneurs recruit investors. His aides say this proposal has brought cheers from Republican audiences.

"It will create more jobs than you can imagine," Bush said in one speech. "It will create more prosperity."

Bush takes the argument further, however, arguing that a lower capital gains rate "would not cost the government money -- it would provide additional revenue by stimulating growth." He cites the writings of economists Martin Feldstein and Lawrence B. Lindsey to buttress this claim.

But a range of other authorities, from the Reagan Treasury Department to the Joint Committee on Taxation and liberal economist Joseph Minarik, an adviser to Bradley, argue the opposite -- that a 15 percent rate would ultimately lose federal revenue, making it a political powder keg at a time of groaning deficits.

Reagan's message to Congress also hedged, saying that a lower rate would lead to the cashing-in of more gains, which does not necessarily mean more revenue.

"The uncertainty of the revenue effect of this proposal makes it all the more alarming," said House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.), who steered the 1986 law through the House. "We should not risk increasing the deficit in order to give a tax cut to the wealthy."

Treasury studies also have cast doubt on the power of a low capital gains rate to spur investment in entrepreneurial risk-taking, as Bush and Reagan envision. The supply-side theory holds that a lower rate will spur investors to cash in their gains, freeing more money for investment in risk-taking ventures.

However, according to Treasury, the boom in venture capital after a 1978 cut in the capital gains rate came primarily from sources that are either tax-exempt or unaffected by changes in capital gains rates -- pension funds, insurance companies, endowments, foundations and foreign investors.

Senate Minority Leader Robert J. Dole (R-Kan.), Bush's top challenger, has said little about capital gains incentives, although an aide said he supports them in some form. "But he doesn't have any illusions of it raising big money," the aide said.

"One of the reasons other Republicans are soft-pedaling the thing is that they're the kind of guys who have capital gains themselves," said an aide to one Republican contender. "You open yourself up for criticism that you're advocating a tax break for yourself and your friends."

That is precisely what Democrats have charged, while also accusing Bush of fiscal irresponsibility. "The notion that a candidate for president is saying he would handle these issues with another tax cut is a reflection of how unreal the situation is," said former Arizona governor Bruce Babbitt, a Democratic presidential dark horse.

By calling for a 15 percent capital gains rate, Bush and Kemp are excluding three-fourths of American taxpayers from its benefits. Under the 1986 law, three-fourths of taxpayers already are subject to a rate of 15 percent on taxable income. It is the wealthier quarter that faces marginal rates of 28 to 33 percent and thus would benefit from a lower rate on capital gains.

"There's no question that this proposal talks about putting the money where the money already is," said Minarik.

"George Bush doesn't know the steelworker or the plumber or the bus driver. He associates with people who have big houses and big cars and big bank accounts and they have big capital gains," said Sheldon Cohen, commissioner of internal revenue under Presidents John F. Kennedy and Lyndon B. Johnson and a longtime supporter of tax overhaul. "There's nothing wrong with it, but it shows where his heart is."

Kemp argues that regardless of who gets the direct benefit of the tax break, the ripple effects will reach all classes. "Growth of the economy, full employment without inflation, is the highest economic goal," said Kemp's press secretary John Buckley. "We welcome the vice president to the supply side credo, now that he has finally seen the light on this issue seven years after Jack Kemp."

Aides to Bush said that his capital gains proposal has paid large political dividends among Republicans, particularly in the party's conservative wing.

"From a political point of view, we're delighted with the reception we're getting," said a Bush campaign official. "The heart of the Republican Party are people directly involved in small business or entrepreneurial in nature. To them, this has the intuitive appeal of the supply-side rate cuts of 1981."