Senate Takes Up Democrats’ Tax-Cut Bill as GOP Considers Setting It Up for Veto : Legislation: Republicans to decide today on their strategy. Agreeing to foe’s plan could force a compromise before Bush’s deadline.

The Senate began work Tuesday on the Democrats’ tax-cut bill amid signs that Republicans may try to push the measure through quickly so that the measure can be vetoed early enough to force the Democrats to compromise before President Bush’s March 20 deadline for action.

During a strategy session at the White House, Republican senators indicated that they will decide in a caucus this morning whether to proceed with that strategy or simply try to alter the Democrats’ bill on the floor to reshape it more to Bush’s liking.

Tuesday’s session in the Senate was devoted solely to floor debate. The Senate begins today to consider a string of possible floor amendments, with expectations of finishing work on the entire tax package by the end of the week.

Bush reiterated his intentions Tuesday to veto both the tax legislation and a new Democrat-crafted budget package that would allow Congress to use savings from defense cuts to increase domestic spending, rather than to pay for tax reductions as Bush would prefer.

At the same time, the Office of Management and Budget declared Tuesday that the Democratic tax-cut package would increase the federal budget deficit, in violation of the 1990 budget accord. The measure, therefore, can be blocked by any senator merely on a point of order.

It was not immediately clear which strategy GOP senators would adopt in trying to block the Democratic bill. If some lawmakers seek to stop the package on a point of order, Democrats could alter the provisions so that the deficit is not enlarged.

Meanwhile, Administration officials said that, if Congress does not enact Bush’s own tax-cut proposals, he may seek to put some of them into effect by administrative action, using a possible loophole to cut taxes on capital gains--profits from selling stocks or other assets.

Although key Administration officials still are not certain about the legal implications, they are exploring a proposal that would permit the Treasury to let investors adjust the purchase prices of these assets for inflation, effectively reducing their tax liability.

Bush has asked lawmakers to enact a stripped-down “emergency” version of his package by March 20, in hopes of helping to jolt the economy out of the recession. Democrats have agreed to meet the deadline, but instead have put together their own rival versions of the plan.

Meanwhile, Sen. Phil Gramm (R-Tex.) announced that he is planning to introduce the emergency provisions of President Bush’s tax-cut plan as an alternative to the Democratic bill--restoring a $500-a-child increase in the personal exemption that Bush proposed and later shelved.

The idea would be to restore the broad tax cut for middle-class Americans to make the package more attractive to conservative Democrats. Although Bush postponed the children’s tax credit for technical reasons, Democrats have charged that he is ignoring the middle class.

The Democratic plan, approved last week by the Senate Finance Committee, would cut taxes for middle-income families--by offering them a tax credit of $300 for each child--while increasing the tax burden for upper-income Americans and for millionaires.

It also contains a cut in capital gains taxes and several key domestic provisions long sought by key Democrats, from proposals for direct government loans to students to other provisions designed to broaden workers’ access to medical insurance policies.

Bush has said repeatedly that he especially objects to provisions which would increase taxes for upper-income Americans. Conservatives have warned that permitting such tax increases would violate the President’s 1988 campaign pledge to permit “no new taxes” during his term as President.

The President agreed to some tax increases as part of his budget accord with Congress in late 1990 and has been criticized sharply for it by GOP presidential rival Patrick J. Buchanan. Last week, Bush said that the 1990 accord was the biggest mistake of his presidency.

The House has passed similar Democrat-drafted tax legislation that would provide a $200-a-person tax credit to help offset the Social Security payroll taxes that most workers pay. As in the Senate bill, the tax cut would be financed by raising taxes for the rich.

The outlook for the tax bill in the Senate still is uncertain. Senators are expected to try to load the measure with special-interest provisions. A House-Senate conference committee then would work out any differences between the two versions of the bill.

Meanwhile, Senate Minority Leader Bob Dole (R-Kan.) told reporters that, if the Republicans decide to help rush the Democratic package through to a veto, they probably will not take part in the House-Senate conference committee set up to reconcile the House and Senate measures.

“What we’d like to do is to get the Democratic package down here and have the President veto it,” Dole told reporters after the strategy session at the White House, “and still try to meet the March 20 deadline, you know, with a good (Republican) package.”

The developments came as Sen. Lloyd Bentsen (D-Tex.), chairman of the Finance Committee, urged Bush to “change his mind” about the veto, repeating earlier Democratic claims that the committee’s bill would restore more “fairness” to the tax system.

“This is a fair and fiscally responsible way,” he said in opening floor debate Tuesday. He added: “If the President feels he must treat this as veto bait, so be it. I am more than happy to let the American people decide that one.”