What is the difference between legalism and the gospel?
- Legalism (or Moralism) says God looks at how well we keep the law.
- The Gospel says we are hidden in Christ. So God sees how well Jesus kept the Law (perfectly), all his works, and his death on our behalf. Consequently, because we are hidden in Christ, God sees the work of Jesus when he sees us. The gospel says that, because of God’s grace, all that Jesus is and did is credited (imputed) to us, through faith. (Colossians 3.3, Ephesians 2.8, Romans 5.2, Galatians 2.20)
So what is the difference between the gospel and legalism? It is the difference between Christianity and every religion in the world.
GRACE & PEACE 
Sometimes I think this is a misleading argument. It can and does lead people to the wrong conclusions.
The Gospel is not devoid of commands. Jesus certainly wasn’t afraid of commanding believers to live a certain way. Legalism teaches an understanding that I HAVE to keep those commands to earn a right standing before God. Clearly, that’s not the case.
That does not mean that following Christ’s commands is an unnecessary part of following Christ. It is indispensable. The legalism vs Grace argument can lead one to falsely conclude that it doesn’t really matter how they live. A point that I know you are not making and would reject entirely.
The Gospel frees us to follow Christ, to become like Him, and to live the kind of life that God created us to live. That necessarily involves ordering our lives after the pattern He has given. It involves bring our life up to a standard.
Here is the fundamental distinction as I see it: It is not that we HAVE to obey Christ to gain favor with God. We GET to Obey Christ and in the process our lives become ever increasingly more like His.
Agreed, Jim. The gospel is very demanding. It reminds us that grace is free, but it is not cheap. The gospel frees us from the weight of the law, and empowers us to be able to keep the law at the same time. Yet the problem is that many are so enamored with the law that they want it to have the same central place as the gospel. The law serves the gospel; and event he gospel empowering us to obey the law does not make the gospel a servant of the law, but only underscores the beauty and ultimate nature of the gospel. It reveals to us the glory of God in a way that the law alone never can.
Put another way, the gospel creates a new man in us that is capable of loving God, and that love compels us and gives a strong desire to keep his commandments. We gain nothing in righteousness by keeping the commandments, but everything in the knowledge of our Savior. He asks only for a relationship through faith. We have so much to gain from seeking his glory.