Senate Blocks Effort to Kill Middle-Income Tax Break : Legislation: Dissident Democrats want the money spent on cutting budget deficit, helping fix the nation’s infrastructure.

The Senate on Thursday rejected a move by a small group of lawmakers to scrap the Democratic leadership’s proposed middle-income tax cut and use the money instead to reduce the federal budget deficit and help repair the nation’s neglected infrastructure.

The measure was defeated by a vote of 57 to 39, but only after Senate Democratic leaders persuaded some of its sponsors to switch sides in order to block an effort by Republicans to support the liberals’ proposal and ruin the Democratic tax-cut legislation.

Approval of the measure, which was sponsored by Sen. Carl Levin (D-Mich.), would have killed the middle-class tax cut, which is the centerpiece of the Democratic tax legislation. The cut would provide a $300-per-child tax credit for middle-income families.

Nevertheless, the close vote on the provision, which appeared certain to be approved before the Democratic leadership stepped in to prod some lawmakers to change their votes, reflected widespread dissatisfaction with the tax cut, even in Democratic ranks.

Several lawmakers have said they would have preferred to reduce the federal budget deficit rather than to vote for the modest tax reduction for the middle class the measure would provide. Many economists have expressed doubt that a tax reduction is needed.

The Senate later resumed its work on the overall tax-cut bill in hopes of finishing it today, in time to send the legislation to President Bush by the March 20 deadline he set for passage of an economic growth package.

Bush has said repeatedly that he will veto the Democrats’ legislation, principally because it would be financed by raising taxes on the rich. Both the House and Senate versions contain such provisions.

Meanwhile, Senate Democratic leaders announced that they had once again broadened the terms of the proposed tax credit, apparently after recalculating how much it would cost the Treasury.

On Wednesday, the Democrats narrowed the terms of the credit to progressively reduce it for those earning $40,000 or more a year, denying it to families with incomes of at least $50,000. The original limits of $50,000 and $70,000 were found to be too costly.

But Thursday, Senate Majority Leader George J. Mitchell (D-Me.) said new calculations showed that it was possible to widen the eligibility again and still keep the overall cost of the tax bill from increasing the federal budget deficit.

Under the new terms, families earning up to $47,500 a year would be eligible for the full credit, which would decline gradually through the $60,000 income bracket. Families earning more than $60,000 would not be eligible.

In other action, the Senate approved an amendment by Sen. Howard M. Metzenbaum (D-Ohio) that would prohibit buyers of failed savings and loans who received government subsidies to cover their losses from deducting those same losses for income-tax purposes.

Also approved was a provision by Sen. Arlen Spector (R-Pa.) that would allow savers to withdraw up to $10,000 from their individual retirement accounts to help finance the purchase of a new car. Both provisions are expected to be dropped in conference committee.

The Senate also passed legislation that would prohibit states such as California from imposing state income taxes on the pensions of former residents who move to other states when they retire. The provision was sponsored by Sen. Harry Reid (D-Nev.).

The Senate acted as the House began debate on whether to revamp the 1990 budget accord to enable Congress to shift billions of dollars in savings from defense spending cutbacks into new domestic spending programs.

The House put off all votes on the issue until next week, and congressional strategists said the final vote would be close, with Republicans and some conservative Democrats likely to oppose any shift of funds. As in the case of the tax-cut bill, Bush has promised that he will veto such legislation.

Meanwhile, Treasury Secretary Nicholas F. Brady indicated that despite earlier hints by top Bush campaign officials, the President is not likely to cut tax rates on capital gains by administrative order if the bill Congress is considering doesn’t become law.

Capital gains are the profits from the sale of stocks or other assets.