A historic moment for the Democratic Party was reached last week when Sen. Edward Kennedy took the Senate floor to oppose a third tax bracket that would have soaked the rich a little more.
Support from the nation's foremost exemplar of social welfare liberalism ensured survival in the Senate of the top 27 percent tax rate. It also signaled that Teddy Kennedy was accepting Andrew Mellon and rejecting Karl Marx on tax policy.
While Kennedy and most other Democrats have not specifically embraced the philosophy of taxation practiced by Calvin Coolidge's secretary of the Treasury, that is the effect of their decisions. Their support of a 27 percent rate casts a long shadow, inhibiting Democratic social engineering for the foreseeable future.
The impact of these decisions is most clearly noted away from gentlemanly Senate discourse. On the Republican speaking circuit, Rep. Jack Kemp proclaims the death of the graduated income tax -- which he notes was first proposed by Karl Marx. Liberal journalist William Greider antagonizes tax-reforming Democrats by charging their pact with the ghost of Andrew Mellon is a sign that they have no party at all.
Kennedy's course was eagerly awaited, less because his vote guaranteed the 27 percent rate than as a validation by orthodox liberals. At issue was an amendment for a rich man's bracket of 35 percent, introduced by Sen. George Mitchell of Maine, the respected and increasingly influential Senate Democratic campaign chairman.
Mitchell earned his credentials as one Finance Committee member who tried to salvage tax reform when most of his colleagues were savaging it. But he could not escape the conventional liberal obsession that the rich may not be taxed enough. He also wanted revenue to preserve tax shelters -- albeit benign shelters providing housing for the poor.
Such stereotyped liberalism was rejected long ago by another rising Democratic force on the Finance Committee, Sen. Bill Bradley of New Jersey. He not only cast aside efforts to equalize the tax burden,but made a decision that the "market" is better equipped than the Internal Revenue Code to channel investment.
Bradley's missionary work on both tax-writing chairmen -- Democratic Rep. Dan Rostenkowski and Republican Bob Packwood -- has been widely reported. More recently, he has been preaching against the Mitchell amendment to fellow Democratic liberals -- including Kennedy.
Kennedy certainly did not buy Bradley's whole thesis. On the floor last week, he called the Mitchell amendment's redistribution of income "a goal I support," but opposed itju on narrow grounds: the bill's elimination of a lower tax rate on capital gains.
That reflects the ingenuity of Packwood's tax reform. To get rid of the capital gains rate, Kennedy will swallow Mellon levels of taxation. "The miracle of this . . . bill," he told the Senate, "is that the investment community is willing to accept a higher tax rate for capital gains in return for a lower tax rate on earned income."
That "miracle" also inhibits House Democratic conferees from following their impulse to bump up the 27 percent rate. The widely predicted final rate of 30 or 31 percent almost certainly would mean a restoration of the capital gains differential. So House Democrats will have to make the same choice as Kennedy.
Whatever the choice, the inevitable low rate restricts Democrats. That is reflected by Sen. Gary Hart, possessor of the Senate's most liberal voting record and front-runner for the 1988 presidential nomination. Hart favors the Senate bill with its 27 percent rate, but wants "more revenue" -- that is, higher taxes. How to get it? Partly by a minimum tax. But the revenue-neutral bill already contains a minimum tax.
With inflation indexed, shelters closed and rates capped at 27 percent, Democratic tax hikers will be frustrated. Andrew Mellon's ghost must be smiling.