House Democrats, after lying back all year to let the Republican-led Senate act first on the budget, must now decide how to compete with the Senate's $56 billion in deficit reductions and whether to adopt a Social Security freeze or come up with more politically palatable alternative.

Democratic House leaders said yesterday that they expected the House Budget Committee to take up the 1986 budget next week and swiftly propose a Democratic alternative that will come close to, if not match, the Senate resolution that has President Reagan's blessing.

In the political gamesmanship of the budget, Democrats have believed that they must be as aggressive as the Republicans in cutting deficits projected at more than $200 billion for the rest of the decade, but, in order to show voters the differences between the two parties, they must do so in a way that will protect the domestic programs cut or eliminated by Reagan.

House Majority Leader James C. Wright Jr. (D-Tex.), a member of the budget committee, said yesterday that the Democrats would "produce a very substantial deficit reduction and may meet the Senate's number" but it would be "a package based more on fairness."

Wright and House Speaker Thomas P. (Tip) O'Neill Jr. (D-Mass.) both indicated that the House probably would reject the Senate's one-year freeze on Social Security and other federal retirement benefits.

O'Neill, in an interview to be broadcast today by the Mutual Broadcasting System on "Reporter's Roundup," said House Democrats would vote "two or three to one" against any freeze in Social Security benefits.

Yesterday O'Neill issued a statement in which he said, "The president has violated his promise not to cut Social Security cost-of-living adjustments. I intend to make him honor that mandate."

But O'Neill and other House leaders face division within their ranks over Social Security, with many moderate and conservative Democrats saying they favor a budget freeze that treats all groups equally and does not exempt Social Security recipients.

The Senate resolution freezes Social Security and other federal retirement programs for one year, increases defense spending only for inflation, saves but cuts many programs President Reagan had slated for extinction next year and eliminates a dozen others.

Democrats on the House Budget Committee have been working with the leadership for months on a package that would produce about $50 billion in deficit reductions. They have agreed on about $46 billion in cuts, without eliminating any programs next year. However, the Democrats emphasized that the agreement on the package was tentative.

According to committee sources, the Democrats have agreed to a flat freeze on defense budget authority, without the increase for inflation approved by the Senate. Democrats said this would save $8 billion to $9 billion more than the Senate plan. The House Armed Services Committee, however, approved a fiscal 1986 authorization bill this week that gives the Pentagon a budget increase to cover inflation.

The Democratic budget plan also cuts sharply a number of domestic programs that Reagan wanted eliminated, including revenue sharing for local governments, which would be cut 25 percent as part of a two-year phase-out; Urban Development Action Grants; the Small Business Adminisration; the Economic Development Agency, and the Appalachian Regional Commission.

At the same time, the Democrats have agreed tentatively to provide a 3 percent raise for federal workers, a small increase for education programs, and an inflation increase for all means-tested entitlements programs such as Medicaid.

"The politically salable budget," said one Democrat on the committee, "uses the defense budget to restore Reagan's cuts."

Budget Committee Democrats have agreed tentatively to freeze next year's cost-of-living adjustment for military and civil-service retirees, but several Demcrats said that the agreement might stand only if Social Security were added to the freeze.

Key Democrats, such as Wright, O'Neill and Rules Committee Chairman Claude Pepper (D-Fla.), have made it clear in closed Democratic caucus meetings that they will oppose a freeze on Social Security.

"They House Democrats are intensely, bitterly opposed to it," said one high-ranking Democratic official. "They believe its a fundamental tenet of our party, and the president promised to protect Social Security."

In addition, the Democrats are keenly aware that their 1982 House election gains were due in part to GOP threats to cut Social Security and Democratic efforts to protect it. They would like to see a repeat of that situation in 1986.

Democratic opponents of a Social Security freeze this week were passing around a recent Gallup poll that showed only 8 percent of Americans supporting a freeze.

But a substantial group of House moderates, conservatives and more recently elected members believe freezing Social Security is needed this year to deal with the deficit. And they argue that, politically, it would be manageable as part of an across-the-board freeze.

Rep. James R. Jones (D-Okla.), former House Budget Committee chairman, said that while the House's 253 Democrats were "fairly closely divided" on the issue, the Senate might have provided the political cover to vote for a freeze.

"Obviously, Social Security and defense were volatile issues," he said. "Now that the Senate Republican leadership has dealt with both makes it easier for the House to do what it knows it should."

At the same time, Democrats appear to be coalescing around some form of corporate and individual high-income minimum tax, but are divided on whether to include it in the budget proposal or in a Democratic tax package.

Depending on its structure, a minimum tax could produce from $3 billion to $25 billion in new revenue that could allow the Democrats to propose a deficit-reduction package much larger than Reagan's or the Republican Senate's. But in a tax package, it could provide an important political boon by allowing the Democrats to reduce the rates of most individual taxpayers.