Senate Rejects Tax on Wealthy by 71-29 Vote

The Senate, clearing the last major hurdle before it can approve major tax overhaul legislation, voted 71 to 29 Wednesday to reject a Democratic effort to impose a higher tax rate on the wealthy and give greater tax relief to middle-income families.

But Senate leaders, pushing to finish the tax bill this week, ran into a flurry of 11th-hour demands from lawmakers for action on more than about 75 substantive amendments and about 200 special exemptions.

Sen. George J. Mitchell (D-Me.), who proposed boosting the maximum rate on high-income taxpayers from the bill’s 27% to 35%, said the bill “helps the poor and helps the rich. But it does little or nothing for the middle class.”

Issue Likely to Resurface

Despite the Mitchell amendment’s overwhelming defeat, the debate foreshadowed an issue that is likely to be at the heart of the struggle when negotiators meet this summer to work out the differences between the Senate bill and the version approved last year by the House.

House Bill Provisions

The bill approved by the Democratic-controlled House would provide more tax relief to the middle class than the Senate package. The House bill includes a maximum personal tax rate of 38% and would shift a greater share of the tax burden from individuals to corporations.

Mitchell’s proposal to provide more help to the middle class would have eliminated the Senate bill’s complex provisions that would require families to pay 32 cents or more on each additional dollar of income between $75,000 and $185,000--more than the 27 cents in taxes that would be owed on each dollar of income beyond $185,000.

The amendment would have replaced the bill’s split-level tax rates of 15% and 27% with a three-rate system--14% on lower incomes, 27% on middle incomes and 35% on upper incomes. Mitchell’s proposal also would have restored a tax break for capital gains, which would be taxed as ordinary income under the Senate bill.

Finance Committee Chairman Bob Packwood (R-Ore.), strongly defending the Senate bill, accused Mitchell of serving as a front for special-interest groups seeking to undermine support for the tax package.

“What I fear,” Packwood charged, “is that this Trojan Horse amendment, once it is dragged into the courtyard and its belly opens, (would become) the opening wedge for them to come tumbling out.”

He also argued that any move to increase the top personal tax rate above the nominal 27% level in the bill would inevitably push lawmakers to revive many tax preferences killed in the Senate plan.

Packwood, however, did not challenge Mitchell’s central argument that the Senate bill is less generous to middle-income taxpayers than it is to higher-income groups. Those with incomes between $30,000 and $40,000, according to the Joint Tax Committee, would receive an average increase in after-tax income of 0.4%, while those with incomes above $200,000 would gain 1.4%.

Variety of Amendments

The detailed amendments, requested by more than half the senators, ranged from tax breaks affecting reindeer purchases to college sports booster clubs and parimutuel betting.

Late Wednesday evening, Sen. Ted Stevens (R-Alaska) suddenly erupted into a loud complaint against the special exemptions other senators achieved during consideration of the bill in committee. Although the Senate has been considering the bill for nearly two weeks, he threatened to delay final approval unless he was granted similar privileges to offer amendments to benefit projects in his home state.

Earlier in the evening, the Senate approved on voice votes two amendments, one of which would save the Associated Press, a not-for-profit news service cooperative, less than $1 million a year by allowing it to consolidate its non-news and news operations for tax purposes. The other amendment would ease the rules allowing barely solvent farmers to write off debts.

On Mitchell’s amendment, a bare majority of 25 of the 47 Democratic senators voted to support it, and they were joined by only four Republicans. Many leading Democrats who opposed it, such as Sen. Edward M. Kennedy of Massachusetts and Gary Hart of Colorado, had pledged not to tamper with the Finance Committee bill on the Senate floor.

‘Truth in Advertising’

Sen. John Kerry (D-Mass.), defending Mitchell’s proposal, termed it a “truth in advertising amendment” that “openly espoused a third rate” in place of the “hidden” tax rates in the Senate bill.

Several Republicans argued that the amendment, by imposing a higher tax rate to benefit middle-class taxpayers, would discourage economic growth. “We want to make the pie bigger,” said Sen. Phil Gramm of Texas, “rather than debating how we want to cut it up.”

California’s two senators split on the amendment, with Democratic Sen. Alan Cranston backing it and Republican Sen. Pete Wilson opposed.