The Senate rejected a proposal to add a higher tax rate of 35 percent to the two brackets in its tax-overhaul bill yesterday, despite contentions such a move would provide more tax relief to the middle class.
The amendment to add the 35 percent rate -- 15 points lower than the current top individual tax rate of 50 percent but substantially higher than the bill's top rate of 27 percent -- generated the only partisan rhetoric heard so far during the tax debate.
Even so, its sponsor, Sen. George J. Mitchell (D-Maine), was abandoned by 22 Democrats in the 71-to-29 vote. Most Democrats apparently feared a major change would leave the package vulnerable to other amendments. Only four Republicans voted with the 25 Democrats who supported the amendment.
Efforts late last night by Senate leaders to set a deadline in the next few days for a vote on final passage faltered as one senator after another said he wanted to propose amendments to the bill. Most were said to be relatively minor, but they were mushrooming, and chances for quick passage of the bill appeared to be diminishing.
Senate Majority Leader Robert J. Dole (R-Kan.) reeled off a list of some 50 amendments that senators wanted to add to the tax bill aiding interests from copper mines to Alaskan Eskimos, and said that tally did not include perhaps 200 requests for transitional assistance to particular companies and projects.
"We're trying to put 40 pounds of sugar in a six-pound sack, to put it politely," said Sen. Warren B. Rudman (R-N.H.).
Senators also expressed resentment that their amendments on the floor had to be coupled with tax increases to keep them "revenue neutral," while Senate Finance Committee members were able to give tax relief to pet projects as the bill was being drafted.
"It's a double standard on the floor of the Senate," said an angry Ted Stevens (R-Alaska). "We have to raise revenue and you in the committee did not."
During the debate on the amendment to add the 35 percent rate, Mitchell argued that his amendment would spread more of the benefits of the legislation to middle-income earners. It also would help low-income workers by reducing the bottom tax rate from 15 percent to 14 percent, he said.
"When Americans learn this bill puts factory workers and secretaries whose income exceeds $17,600 in the same tax bracket as those earning $200,000 per year or $2 million per year, will they call it tax reform? I don't think so," Mitchell said.
Senate Finance Committee Chairman Bob Packwood (R-Ore.), speaking in opposition to the amendment, accused Mitchell of straying from the path of tax reform laid by such Democrats as Sen. Bill Bradley (D-N.J.).
The amendment "is more Walter Mondale than it is Bill Bradley," Packwood said. "What I fear is that this Trojan horse amendment, once it is dragged into the courtyard and its belly opened, will be the opening wedge for special interest groups" to request special treatment in the bill.
"I suspect those who support a higher rate for the rich do it so they can increase taxes on the middle class to run the social welfare schemes they want to experiment with on this nation," Packwood continued.
Mitchell responded that no such complaints had been raised against President Reagan's tax proposal sent to Congress last year, which included a top personal tax rate of 35 percent. Later, he said Packwood's partisan comments about raising taxes on the middle class "had no basis in reality."
Because of his amendment, Mitchell was the target of an ad campaign accusing him of trying to kill tax reform, financed by a private coalition launched last year with White House blessings to favor tax overhaul.
The ads were written and placed by Grover Norquist, executive director of Americans for Tax Reform, a coalition of companies, low-income advocacy groups and profamily groups. Norquist said the coalition firmly opposed any effort to raise the top tax rate above 27 percent.
However, according to Norquist, coalition member R.J. Reynolds complained that the ads were "a bit tough on Mitchell and implied that he was opposed to the concept of tax reform." Packwood also praised Mitchell yesterday as an early advocate of tax overhaul, calling him a "gentlemen who has never blind-sided us."
The debate over the Mitchell amendment embodied, in a way, the fundamental political disagreement over how to make the tax system fairer to middle-income earners.
Mitchell pointed out that the richest 0.5 percent of all taxpayers, earning more than $200,000 per year, would get 16 percent of the tax relief provided by the legislation. The bill would cut taxes for all Americans by an average of 6.4 percent, shifting $100 billion in taxes from individuals to corporations over five years.
Opponents of his amendment responded that that group of taxpayers already pays 22 percent of all taxes, and that higher rates increase political pressure to add tax breaks to the code so that the tax burden on the rich does not increase.
After defeating the Mitchell amendment, the Senate approved by voice vote a compromise on another "transition rule," the special provisions easing the effects of the new law for companies or projects.
The compromise, negotiated between Sens. Howard M. Metzenbaum (D-Ohio) and Daniel Patrick Moynihan (D-N.Y.), limited a $50 million break already in the bill for Avon Corp. and used the revenue saved to fund research for "orphan" drugs and to give The Associated Press a tax benefit worth as much as $5 million.
AP Treasurer James F. Tomlinson said the amendment would let the AP be treated like other wire services, so that it could consolidate income from investments with income or losses from operations before calculating its tax liability.
Sens. Paul Laxalt (R-Nev.) and Daniel K. Inouye (D-Hawaii) said they had decided not to offer an amendment to restore the full deduction for business meals. CAPTION: Picture, Sen. Mitchell, arguing that "secretaries whose income exceeds $17,000" would be in same tax bracket as millionaires." BY JAMES K.W. ATHERTON -- THE WASHINGTON POST