BLOOMFIELD, N.J. (AP) _ Vice President George Bush campaigned in a flag factory Tuesday and declared, ''My friends, flag sales are doing well and America is doing well.''

Bush, who has sought to turn the Pledge of Allegiance to the flag into an election issue, toured the Annin Flag Co. and then spoke at a rally outside, talking about patriotism as well as stressing what he said were economic accomplishments of the Reagan administration.

The Republican presidential nominee reiterated his contention that Democratic opponent Michael Dukakis had ''raised taxes several times as governor of Massachusetts and I believe he will raise them again if you elect him president.''

''Americans have a new economic power, and I'm not going to let them take that away from you,'' he said, with a huge American flag as a backdrop.

''The flags you make fly over an America that today is stronger and more prosperous than at any time in its proud history,'' Bush told a group of several hundred people, many of them employees of the plant.

Inside, he chatted with workers at sewing machines, and at one point he pushed a foot pedal attached to a machine that cut cloth.

Bush has cited the small factory in speeches around the country, noting that its sales had been up since Reagan and he took office in 1981.

He joked that he and Dukakis, whose rallies also prominently feature American flags, were ''responsible for only half'' of the purchases of 37,000 flags the plant manufactures each week.

The company is the nation's largest flag maker.

Bush returned to Washington to swear in Lauro Cavazos, a fellow Texan, as the Secretary of Education.

Hispanic leaders have questioned the timing of Reagan's decision to nominate Cavazos in the waning months of his administration. Bush had said he would appoint Hispanics to his cabinet, and critics suggest Reagan speeded the process to help Bush's candidacy in Texas and other states with high Hispanic populations.

Bush is spending most of his time this week preparing for Sunday's nationally televised debate with Dukakis.

Bush is reviewing issues and possible questions with top aides and policy advisers and later in the week will engage in mock debates with former Deputy Treasury Secretary Richard G. Darman, aides have said.

Asked by reporters how Bush's debate preparation was going, campaign political director Richard Bond said: ''Diligent.''

''You want to avoid costly mistakes. And you want to come across as presidential,'' Bond said.

In his flag speech, Bush's amplified voice easily drowned out the shouts of a few dozen protesters, two of whom were carrying signs that said: ''Patriotism is the Last Refuge of a Scroundrel - Samuel Johnson.''

Also, Craig Livingston, a lawyer representing the United Textiles Workers of America, passed out copies of a statement accusing the administration of a ''do-nothing trade policy'' that resulted in layoffs of ''thousands of our sisters and brothers in industry.''

Livingston told reporters that textile workers are among the poorest paid of all workers and that the average wage of those in the Annin flag plant was between $4 and $5 an hour.

Company president Randy Beard, who introduced Bush, said that never ''has flag demand been as strong as in these past five to six years. I don't know why it happened, but it happened during the Reagan-Bush watch.''

In his speech, Bush accused Dukakis of accentuating only negative economic statistics. ''I would hate to try to win the presidency by being so negative,'' he said.

On this day, he spared Dukakis from some of the attacks that he himself has made in recent campaign appearances.

Bush has made much of the Pledge of Allegiance issue in his campaign, attacking Dukakis for vetoing Massachusetts legislation to require public school teachers to lead their classes in saying the pledge. However, he did not raise that issue in Tuesday's speech.

Bond, the political director, said New Jersey is one of nine states the campaign views as crucial battlegrounds in the fall election.

The others are California, Ohio, Pennsylvania, Illinois, Missouri, Texas, Michigan and Wisconsin, Bond said.

''None of them are out of reach for either candidate. These are the states that are going to get an awful lot of attention,'' he said.

Bush, after his speech, stopped at the Glenwood Diner a few blocks away, ordered a cup of coffee and a piece of crumb cake and bantered with patrons.

Several women in the diner told Bush he looked better in person than on television. He asked them why they thought so.

''Because you're relaxed,'' suggested Lucie Galioto, who said she had stopped by the diner with friends on the way home from a senior citizens exercise class. ''This way, everything is spontaneous,'' she added.

''You may have something there,'' the vice president said. With his nationally televised debate with Dukakis less than a week away, Bush said he would have to work on appearing more relaxed in front of the cameras.