Sixteen
The Budget Process Collapses

As 1983 began, Democratic control of the House, deepening unemployment, and the skirmishes of the late 1982 lame-duck session all suggested that the administration would have to change course. If not, it would be outstripped by a Congress that in 1982 had shown it could lead as well as follow. Conservatives such as Irving Kristol, Kevin Phillips, and William Safire joined moderate and liberal columnists in proclaiming that Reaganomics and the administration were in deep trouble.^[1] One of the strongest statements came from David Broder, perhaps the most influential of national news columnists:

What we are witnessing this January is not the midpoint in the Reagan presidency, but its phase-out. "Reaganism," it is becoming increasingly clear, was a one-year phenomenon, lasting from his nomination in the summer of 1980 to the passage of his budget and tax bills in summer 1981. What has been occurring ever since is an accelerating retreat from Reaganism, a process in which he is more spectator than leader.^[2]

Reagan's 1982 backpedaling, ending with the gas tax, explains why pundits reached such conclusions; as luck would have it, the economy was about to recover, one reason the conclusions proved false. A different president, however, might have bowed to the pressures, thus failing to benefit politically from the economy's faster-than-expected recovery. Ronald Reagan did not budge.

Reagan Hangs Tough

Reagan adjusted the facts to fit his worldview. At his worst, in a long profile of "How Reagan Decides," Time reported, "He has a propensity to seize on one comforting truth and magnify it into the whole truth,

blocking out all evidence of continuing or looming trouble."^[3] It was not that Reagan learned nothing from events but, rather, what he learned. Events did not make him question his principles; instead, he developed new tactical judgments about how he might better achieve his objectives. "Do you think that any of your preconceptions about problems and policies have been wrong?" Time 's correspondents asked him. "Well," he responded, "not as to basic philosophy: my belief that government in recent years has been more a part of the problem than part of the solution in many ways. No, I haven't changed my mind in those ways." But yes, he added, you have different information as president than as an outsider. Asked for an example that showed his preconceptions as not matching the information he received as president, Reagan replied,

I don't think I was prepared for how much of the budget was built in by the original legislation, how many programs were instituted … with features in them that made them automatically increase. So you look and say, wait a minute. If there were no recession, the budget would keep increasing at a rate that is higher than the normal increase in revenues, and you find that somehow you have got to find a way to make a structural change that will require the Congress agreeing not just to a cut in the budget but to actually changing the structure of a program.^[4]

Note the real, though selective, learning at work. Stockman and other aides had taught the president some budget truths, and he had incorporated them into his tactical understanding (structural changes are hard, so be patient) without altering at all his strategic objectives (abolishing and diminishing domestic programs).

A Business Week interview in early February also shows how Reagan adapted arguments to his own purposes. Asked why his economic program did not produce the expected surge of growth, he replied,

People began talking about whether the program was succeeding or not at a time when only a part of it had been put into effect. We believe that the tax cut will stimulate the economy, savings and investment. But you have to wait until the people get the money. Just signing the bill and saying we've got a tax cut hasn't changed their fortunes yet.^[5]

As excuses go, one could hardly do better than this. Yet much of the argument in 1981 claimed that "expectations" created by the new policy would themselves fuel a boom. And Reagan returned to expectations logic when he explained that, although he hoped the taxes would not be necessary, the contingency tax proposal "will psychologically reassure the money markets." Then Reagan rejected repeal of the third year of the tax cut or indexing, explaining "part of the optimism that we are seeing right now is because people and business have been able to look

ahead knowing that these things are going to happen."^[6] In other words, the tax cuts create optimism so should not be repealed in 1983, but the policy depended on the money actually being in people's pockets to have any effect in 1981.

It makes more sense to view Reagan as a salesman or advocate than as confused or disengaged. In spite of the judgment of pundits, therefore, the president had no intention of changing course. His aides were another matter.

Stockman and Darman in particular strove to get Reagan to sign on to a big deficit-reduction package. They were joined by the new CEA Chairman Martin Feldstein, far more aggressive than his predecessor. Determined to prevent the kind of optimistic error made in 1981 and 1982, Feldstein threatened to resign if he did not get his way when the economic forecast was prepared: prediction of a weak recovery in 1983 and steady GNP growth of 4 percent the following year. His short-term forecast, more pessimistic than many others, added to the pressure on Reagan.

Feldstein would soon become Stockman's most public ally within the administration, predicting horrible consequences from deficits and recommending tax hikes, if spending could not be cut, to reduce those deficits. His disputes with Donald Regan and other members of the administration got so much publicity and raised such acrimony that one might get the impression that Feldstein was a Keynesian mole who had somehow burrowed into the administration in an effort to undermine its policies. Yet that impression would be very wrong; Feldstein, in fact, was the "superstar of the new economists," the most prestigious supporter of "supply-side" emphases (but not doctrines), and an influential critic of the welfare state. He argued that government policies distorted incentives: that unemployment insurance increased unemployment; medicare boosted the cost of health care; social security was "probably the most important cause of our capital scarcity problem."^[7] Feldstein's work was sufficiently good and prolific that, at age thirty-eight, he became president of the National Bureau of Economic Research, a prestigious and independent association of economic researchers. He was a strenuous advocate of changes in tax laws that would increase investment. In 1980, while Carter tried to balance the budget, Feldstein attacked those who "made a fetish" out of balancing the budget. Tax cutter and opponent of the most sacred cows among government programs, Feldstein seemed the ideal Reagan economist. The fact that many Keynesians vehemently disagreed with his analyses and conclusions, yet accepted his stature, should have made Feldstein even more attractive. When Murray Weidenbaum resigned, the administration needed a new chairman in tune with its ideology yet so well-respected that his forecasts would receive

some credence. Feldstein met the bill; no one could mock his conclusions.^[8] The administration's difficulties with Feldstein stemmed from the fact that he shared the president's moral economy but was, for all that, a mainstream economist.

Feldstein and Stockman kept trying to make Reagan face up to the deficit, both by explaining its substance and by creating situations in which Reagan would be under political pressure to endorse a package. Stockman presented the substance to his boss in a lengthy preference quiz in November 1982. The budget director divided the budget into fifty major components with three choices to be made on each, "ranging from a nick to a heavy whack." Policy and political consequences accompanied each option. Reagan spent several days deciding; Stockman then added them up and reported back that, based on the president's choices, the remaining deficit would be $800 billion over five years. The budget director was sure the president would see that the difference had to be made up with revenue; after all, "the $800 billion worth of deficits were the result of spending he didn't want to cut." But Reagan continued to insist that "the problem is deficit spending!"^[9]

Stockman and Darman decided (correctly, we think) that Reagan did not believe in the long-term deficit forecasts. "When you sit there going over the deficit- projections," Darman said, "the man's eyes glaze over. He tunes out completely because he doesn't fully appreciate that the pony [a reference to a well-known joke about incorrigible optimists] is already built into the numbers."^[10] In other words, though the projections assumed a strong recovery, Reagan felt that current deficits were largely due to recession and did not realize that the projections led to deficits even if the economic plan worked quite well.

What Darman did not realize was the president's desire to believe and his experience, as another adviser told us, that over a long career his usually greater optimism than his advisers' had usually been right. Why should this case be different? Why should he give up things he cared about in response to economic forecasts? And, because he was president, nobody would confront him directly; his aides, including Stockman, kept leaving him to draw the conclusion.^[11]

A series of "kiss-and-tell" books have documented the president's distaste for conflict among his advisers. That distaste was fed, however, by his aides; even the most opinionated of men may be awed by the office of the president, if not by its inhabitant.^[12] Thus, Stockman and Darman would not say "you're wrong"; instead they tried to trick Reagan into a tax hike with a "perfectly disingenuous plan" involving a long-term proposal to create a flat tax.^[13] That plan metamorphosed, due in part to suggestions by Treasury Secretary Regan, into a "contingency" tax package, to take effect in FY86 if the deficits were too high and if Congress

accepted the FY84 budget's spending cuts. Stockman found no way to argue against those proposals. By passing the tax(es) and the trigger mechanism in 1983, the government might reduce market fears of future deficits.^[14]

Reagan's aides trotted in members of Congress to give him their message that the defense buildup had to be scaled back if they were to have any shot at reducing the deficit. Newt Gingrich of the Conservative Opportunity Society urged "pretty much an across-the-board freeze" for two years on defense and domestic outlays. He would sacrifice defense to save the tax cut.^[15] Senate leaders also—with conservative Jake Garn (R-Utah) and Paul Laxalt (R-Nev.) leading off so that Reagan would take the message seriously—urged Reagan to back down from his stand on a continued buildup. Weinberger was requesting all the dollars in the 1981 plan, despite both lower inflation and the FY83 budget resolution agreement to scale back increases. Yet congressional Republicans weren't successful. The president's budget cut Weinberger's request but remained higher in real dollars than the original 1981 plan.

Shortly before the State of the Union message on January 25, an honor roll of the "Establishment" issued its own message. Peter G. Peterson, secretary of Commerce from 1972 to 1973 and managing partner of Lehman Bros. investment bankers, along with five former secretaries of the Treasury, organized the "Bi-Partisan Budget Appeal." Its 500 signers ranged from Gardner Ackley, chairman of the CEA under President Johnson, to Admiral Elmo R. Zumwalt, Jr., chief of Naval Operations from 1970 to 1974, from conservative economist Michael Boskin of Stanford to liberal Lester Thurow of MIT, including leaders of some of the nation's most prestigious law, accounting, and investment firms and corporations.^[16]

The Bi-Partisan Appeal ad proposed a one-year freeze on universal entitlement benefits and other nondefense subsidies that were not means-tested. Afterward, indexing should be limited (e.g., to 60 percent of the CPI). These steps would (maybe) save $60 billion from the FY85 budget. Another $25 billion could be taken from defense. That would still allow for 7 percent real growth per year between 1981 and 1985. Then revenues would be increased by $60 billion in FY85. Because the Appeal's supporters were particularly concerned about investment, they preferred consumption taxes (such as a national VAT or excises) and user fees. Income tax changes would be approved "only in the context of a prior agreement on the kind and magnitude of spending cuts" specified above. In turn, entitlement, defense, and revenue measures to reduce the deficit would lower interest payments by about $30 billion and thus reduce the FY85 deficit by $175 billion.

The Bi-Partisan Appeal went nowhere; given its honor roll of sponsors,

this in itself is worth some attention. If there is a "power elite" in American society, Peter Peterson had rounded it up, and it proved powerless.

But the appeal is interesting because, give or take $10 or $20 billion in the estimates, it was actually a serious proposal to reduce the deficits; its logic and failure thereby illuminate the basic difficulty. First, because such a large deficit reduction in FY85 would have to take effect largely in FY84, the Appeal was suggesting a sharp contraction of fiscal policy in the early stages of a weak recovery. The proposed debt reductions would exceed the planned 1983 stimulus expected from the third stage of the tax cut and defense buildup, and thus they would leave fiscal policy tighter than it had been at the time the Bi-Partisan Appeal appeared.^[17] As they belatedly realized this, Keynesian sponsors such as Alfred Kahn and Lester Thurow recanted their support for the plan. Second, $60 billion in extra revenues in FY85 was a lot of money. Economists like consumption taxes, but states (because sales taxes are their main revenue source) and Democrats (because they are regressive) do not. Because higher corporate taxes were hardly what the Appeal's sponsors had in mind and because the president would oppose income tax changes, there was no good, that is, harmless or painless, way to find the needed revenues.

Domestic savings of $60 billion might be possible, but it would mean more than a 10 percent reduction (in real dollars) in such benefits. Most Democrats had little interest in that idea; when it came right down to it, neither did many Republicans.

Even in failure, the Bi-Partisan Appeal foreshadowed quick rejection of the president's budget. If such a business-oriented and prosperous group called for scaling back the defense buildup and opposed further cuts in the means-tested programs, citing medicaid and legal services as examples, administration priorities were in trouble. Reagan had lost the center.

Another Dead Budget

The FY84 budget was FY83 with new wrapping: a claimed "freeze" in total outlays, which would be held to a 5 percent increase for inflation. Because the essence of budgeting is the unwrapping and inspection of packages, the decorative rhetoric of a freeze did not help. Defense and interest payments accounted for the entire spending increase, domestic spending would not grow at all, thereby losing by the amount of inflation. The budget included many structural policy changes as well, such as eliminating Legal Services, which had been rejected in 1982. If these were rejected, then the tax package, of course, could not be proposed.

Primed for a fight, House Democrats began 1983 by kicking Phil Gramm off the Budget Committee. Such punishments for opposing the party were extremely rare. But the Speaker now had a secure majority, and Gramm had reported private deliberations to Stockman. As one House, leader commented, "In any army he'd have been shot at sunrise."^[18] Gramm replied by resigning his seat; he then won a special election as a Republican and was put back on Budget by his new colleagues. In 1984 he was elected to the Senate, but that gets a bit ahead of our story.)

Still on the offensive for jobs, the Speaker declared that "I can't conceive of a freeze on domestic spending, to be perfectly truthful." Howard Baker was not willing to fight on the president's ground. "There is going to be a real donnybrook … a ferocious debate" about defense, he declared, and led a delegation to talk Cap Weinberger into changes before the budget was published.^[19] No luck. Robert Dole said food stamp cuts were out and some other programs might have to be increased. Representative Denny Smith (R-Oreg.) expressed the common response to Reagan's proposed freeze when he said that "in order to get a freeze, we have to be fair about it. The President's plan isn't going anywhere."^[20] Silvio Conte predicted that as Congress worked on the budget "there will be a hell of a shift from defense to social programs, no doubt about it."^[21] A Newsweek poll found 49 percent of the public preferring to cut defense spending, 25 percent preferring to cut domestic spending, and 12 percent preferring tax hikes in order to reduce the deficit.^[22]Business Week found that 85 percent of its sample of corporate executives agreed with the (admittedly rather leading) statement that "Republican senators were right when they told the president he must make substantial cuts in defense spending if the budget deficit is to be attacked."^[23]

In spite of presidential calls for bipartisanship, Time reported, "the only shred of bipartisan agreement is over Reagan's plan for a stand-by tax increase; almost everyone agrees it will not fly." Barber Conable and Robert Dole announced their opposition even before the State of the Union.^[24] With Dole, Conable, and Baker publicly opposed, the contingency tax died. Democrats wanted tax increases sooner and spending cuts much later, if at all. Russell Long joined Tip O'Neill in calling for repeal of both the third year of Kemp-Roth and indexing.

House leaders wanted to use their new majority to establish a strong Democratic position. Budgeters like Jones and Gephardt wanted to reach out to the members, including the leadership, and show how tough the problem was. Both sets of purposes were served by working through the Democratic caucus and by distributing a survey questionnaire titled "An Exercise in Hard Choices" to all Democratic representatives. A senior Budget Committee aide recalled:

The survey was a really good idea…. It had two purposes: to educate the members and to get them to internalize the facts of life; and it had more value than expected in detecting consensus. Not on Medicare, which is too complicated. But it was good on defense, where the consensus was heavily at 3 percent.

The Speaker, he added, "got into it. He liked taking it, trying to lower his score, like with golf. He took it a few times." But O'Neill, like Reagan, did not change preferences after the quizzes.

While the survey found areas of agreement, divisions remained. Diehard liberals, like the AFL-CIO, wanted lots of antirecession spending and a cap on the third year of the tax cut. Ways and Means Chairman Rostenkowski, however, believed that repeal or limitation of the third year would not get through Congress. It was bad politics, he believed, to stand up for an unpopular position without even a chance of winning. His committee told the Budget Committee it could do only $8 billion for FY84. Rosty had his own freeze proposal, suspending all tax law changes scheduled for after December 31, 1983. That would have nixed indexing and raised substantial dollars. His party leaders felt the Ways and Means chairman was undercutting their position on the third year of the tax cut.^[25] The disagreement foreshadowed the fact that even if the budget resolution mandated a big tax increase, Ways and Means would not produce it.

The same was true in the Senate, where Dole was not ready for another round. Soon enough, as a perverse fate would have it, Dole was engaged in a bitter battle to keep taxes from being lowered.

An Interlude of Normal Politics

The vehicle chosen for tax reduction was a supplemental appropriations bill to replenish the Unemployment Insurance fund. On February 10, the White House and House Democrats had agreed to add another $4.3 billion to the supplemental jobs bill. Many of its details had been suggested by a House Republican task force on employment opportunities, and the administration had gone along, in part because of heavy pressure from House Minority Leader Michel.^[26] The president's staff considered $3.6 billion of that as acceleration of existing projects, to be deducted from later spending. Democrats, following Reagan's rule of taking part of the loaf and coming back for more, reserved the right to add to that spending in later years.^[27]

Some jobs proposals required authorization, but, to expedite progress, O'Neill sent the whole package directly to the Appropriations Committee.

After some battles on the House floor over the targeting of benefits—to districts with high unemployment and to districts represented by members of Appropriations—the jobs package grew to $4.9 billion. Upon House passage on March 3, the White House began suggesting that this was not quite the original deal.

Senators added supplemental funds for CCC (yes, farmers again) and Small Business Administration (SBA) loans.^[28] They also disagreed with the House on the substance and distribution of the jobs bill dollars. Senators provided more for human services and less for construction and more for smaller states (surprise!). The distribution was so controversial that Chairman Hatfield won by only one vote on a compromise to his original plan. The major obstacle to passage of the bill came out of left field, as it were, when Robert Kasten (R-Wis.) on March 10 suddenly proposed an amendment to repeal the withholding of estimated taxes on interest income.

Dole's 1982 victory on interest withholding was probably the year's biggest surprise. As individual banks looked at the new requirements, they became seriously upset. The thrifts and smaller banks were the most concerned. A lobbyist explained that the big money center banks actually liked withholding because "they handle dividends for corporations and they could charge corporations for the service."

By early 1983, the smaller institutions had mobilized. They claimed it would cost $1.5 billion to administer the 10-percent withholding of interest on their accounts.^[29] Although that fact explained their concern, it was no way to mobilize voter pressure on Congress; instead, bankers told their customers that the government was going to take their money away. A sample speech declared that withholding would "loot your savings account." One ad led off in large, boldface type: "Warning: 10 percent of the money you earn in interest is going to disappear"—with the word "disappear" fading to white.^[30] Although the body of the ad did explain that this was not a new tax and that there were exemptions for the poor and elderly, it raised fears effectively enough. Financial institutions also stuffed annual 1099 interest-report forms with printed post cards for their depositors to send to Congress. Out of maybe 80 million such cards, 4 million or more came to Congress in January and February; that was only the beginning. Dole had thirteen staffers answering nearly 450,000 pieces of mail. Banks and other savings institutions had generated the greatest flood of mail in congressional history.

Legislators will always tell you that handwritten letters, not preprinted cards, get their attention. But at some point, maybe around the millionth card, an organized campaign does begin to be noticed. By the time Kasten chose to add repeal of withholding to the supplemental, various other

repeal bills already had 52 cosponsors in the Senate and 320 in the House.

Furious, Dole threatened to fight fire with fire. He announced that twenty of the nation's largest banks had paid taxes of only 2.7 percent on domestic income in 1981. "Now you know," he declared, "why they have so much money to send out mail … to intimidate Congress."^[31] Immediately he called for a Finance Committee hearing on banking taxes. As committee Democrats dove for cover, saying they would "have nothing to do with such a reprisal" against the bankers, Chairman Dole proclaimed innocently that "there is no relationship" between the hearings and the repeal withholding—"no direct relationship," he amended.^[32] In addition to threatening reprisals, Dole held the supplemental hostage by a virtual filibuster. With some states scheduled to run out of money for unemployment benefits during the week of March 13, he hoped to get senators to table Kasten's amendment rather than delay further.

The Finance chairman also enlisted the president. Convinced that withholding was an issue of tax compliance, Reagan accused the banks of "a great distortion of the situation." "I'm deeply disturbed," he added, "that the jobs bill will suddenly become a Christmas tree for special-interest legislation. I think that the banking industry would do a lot better to spend its time thinking about lowering interest rates than lobbying the way they are. I would veto such legislation."^[33] Kasten stuck to his guns. It isn't often that a freshman senator gets to be the hero of a huge interest group. Back-bench senators of both parties were caught between their leaders and the massive lobbying blitz. Dole failed to table Kasten's proposal; Kasten failed by one vote to win cloture on Dole.

Here was a true standoff, as both Kasten and Dole now held the unemployed hostage. Finally, they cut a deal in which Dole promised that Kasten could move his amendment onto a trade bill after the Easter recess.^[34]

The Senate passed the (by now rather large) supplemental on March 17. Conferees wrangled over distribution and amount of jobs spending; Stockman threatened a presidential veto because $5.2 billion in jobs spending was too high. By March 21, various states began to run out of unemployment money. A conference agreement was passed and signed on March 24, with the extra jobs spending reduced to $4.6 billion, fairly close to the original $4.3 billion agreed between House Democrats and the administration.^[35]

This final compromise marked the end of the period, beginning in early 1982, during which Democrats in the House had held the edge in a series of raids against the president's program. It soon became apparent

that the recession had ended, but the deficit remained. As the jobs issue faded, Senate Republicans refused to add to the domestic budget.

The appropriations battle settled into roughly a two-year stalemate. The White House lost on spending cut proposals that involved real policy changes, but Democrats did not get anywhere with their selective spending increases. The appropriations committees shaved a little here and there from agency budgets, leaving most agencies with only slightly reduced current spending levels. No one knew it then, but most spending had gone on automatic pilot.

Before we return to the search for yet another package to reduce the deficit, we should finish the tale of Senator Dole and the banks. The proponents of interest withholding hoped that during the Easter recess members of Congress would discover that the millions of cards represented wide but not very deep sentiments, standing only as a passing result of the bankers' massive efforts. They were wrong. "It became an 'issue in which little old ladies in tennis shoes are a problem,' recalled Rep. Leon Panetta."^[36] When the Senate returned, members' experience back home was reinforced by the continuing flood of mail—up to 750,000 pieces a day.

Dole won a few provisions to make life unpleasant for the banks, but the Senate repealed withholding 91 to 5. When Rosty stalled, a repeal bill was blasted out of Ways and Means with a discharge petition. By the time it passed, 382 to 41, House members had received 22 million pieces of mail on the issue.^[37]

The fights over distributing jobs spending and repealing interest withholding were pure "interest-group politics."^[38] This kind of politics has always given Congress a bad name, but at least it was easy to understand. We asked one lobbyist why his side won on withholding but, after 1981, kept losing on depreciation. He replied:

We tried, but never got the grassroots populism, smaller banks, and citizens that withholding did. On that, Republicans found their donations dropping off. Dole was reduced to holding press conferences with Ralph Nader and Ted Kennedy. You don't manufacture something like that. You could not put cards in the bank lobbies on the Clean Air Act or social security COLAs [to cut them] or the deficit…. [Depreciation] affects a narrow portion of the business community, and you can't generate those cards from the employees' lounge.

Exactly. You win if you have the votes; that in turn depends on how many people feel your policy will help or hurt them. By comparison, the battle over the FY84 first resolution involved such confusion and

had so little to do with actual spending and taxing that pure interest group politics looks attractively quaint and practical.

The First (and Last) Resolution or, Wanted: a Budget, Dead or Alive

"The way to reconcile the irreconcilable is to choose the flat-out impossible."^[39] Using the results of the questionnaire distributed to all House Democrats, along with the March 15, 1983, committee reports and input from Democratic caucus meetings, House Budget Committee Democrats held a series of closed meetings and drew up a distinctly Democratic plan. They added to the president's budget for FY84 $32 billion in domestic outlays, cut defense outlays by $9 billion, and raised revenues by $30 billion. They cut defense budget authority by even more, $16 billion, allowing a 4 percent real increase rather than either the 10 percent requested by the White House or the 7.5 percent suggested by House Armed Services.

Democrats unveiled their plan on March 17, as the full House Budget Committee met to work on a budget, ramming it through the panel in one day on straight party-line votes and defeating all attempts at amendments. The committee requested a rule that would allow only one comprehensive amendment. Rules agreed, stating that only the Republican leadership would be allowed to offer a substitute. The Republicans wanted to offer a series of amendments, perhaps as many as fifteen, but could not agree on one.

The parties had reversed positions since 1981; at a disadvantage on overall priorities, the GOP now wanted to fight on the specifics. The Democratic plan passed 229 to 196 on March 23. Twenty-six new Democrats made the difference.^[40]

The biggest problem for Republicans was the defense number.^[41] At the beginning of March, as stories exposing waste in the Pentagon began to hit the front pages, Time ran a cover story about a previously obscure Defense Department analyst named Franklin C. Spinney. Chuck Spinney, who worked in the DOD's Office of Program Analysis and Evaluation, was not really saying that the Pentagon needed less money. In fact, one could have concluded from his analysis that the Pentagon actually required more. But his evaluation was such a damning indictment of Pentagon procedures that the natural reaction was to cut the military because they could not be trusted with the money. Clumsy Pentagon efforts to suppress or refute Spinney's analysis only added to the sense of scandal.^[42]

From the Pentagon came a series of horror stories. Let the Post tell the story:

Just behind the cockpit in the world's most sophisticated radar plane, on the leg of a folding blue-and-gray stool, sits the world's most expensive plastic cap.

What distinguishes this particular cap from any other lump of white nylon is that the Air Force paid its government supplier $1,118.26 for it, which is roughly the cost of the plastic, plus $1,118.^[43]

We will spare the reader further details; suffice it to say that neither Boeing Aircraft nor the military procurement system came out looking very good.

Now, ordinary people can't really argue with the military about the costs of high-tech weapons. But anybody knows that $1,118.26 for a plastic cap is excessive; and most people assume that officials who first suppress criticism and then answer it with false reports probably have something to hide.^[44] Even as President Reagan used anecdotes about people buying vodka with food stamps to judge that food stamps could be cut, stories about defense waste convinced the public that, even if a buildup were needed, the Pentagon should finance some of it by getting its own house in order.

In spite of the rash of bad publicity, Reagan campaigned heavily for his buildup. On March 15 he asked Domenici to delay SBC's action on the first resolution while he tried to rally support. The president's rather lonesome campaign climaxed on the night of March 23 (after the House passed its First Resolution) when he made a television address to the nation. Reagan made the usual comparisons of U.S. and Soviet strength and the standard argument about the West's disarmament in the 1930s. But in concluding his speech, the president "launched the debate over U.S. military spending into an entirely different orbit."^[45] He proposed a massive new program—the Strategic Defense Initiative (SDI)—in order to create a space-based system of defense against ballistic missiles.

Whatever SDI's merits, they did not include helping win support for the president's defense budget. "I would have preferred that speech during the Easter recess if it was not going to focus on the budget," Robert Michel groused, meaning that SDI had just diverted attention from House Democrats' domestic spending and tax hike plans. For the moment, SDI merely injected an extra level of controversy into the defense spending brouhaha.

On April 5 Reagan met with Senate Budget Republicans. Domenici had put together a tentative plan, including 5 percent real growth for defense. Seeking to avoid a collision, Majority Leader Howard Baker

proposed 7.5 percent, with slightly less in the out-years. This was really no different from what had been agreed in 1982, but Weinberger had backed out. Baker warned Reagan that his plan was the best the administration could hope for. Domenici was not exactly enthusiastic anyway. Reagan decided to go along if Weinberger agreed, but then no one could find Weinberger.

By the time Ronald Reagan put in a call to … Domenici, the votes were lined up, the numbers had been written on a big green chalkboard and the clerk was ready to call the roll. But Domenici, his teeth clenched with anger, nevertheless excused himself, stubbing out yet another Merit cigarette as he made his way to the phone booth marked "Senators Only." Domenici listened politely, his face noticeably reddening as Reagan barked into the phone: "I'm the president and I want you to hold off for a while. People in that committee are up for reelection. They're going to be coming to me for help."

Reagan's threat came too late. After Domenici hung up the phone, he joined all but four Republicans on the budget committee in voting for a defense spending increase that came to only half what the president had wanted.^[46]

Stockman reports that Weinberger finally had agreed to compromise, but by the time Reagan called Domenici it was already too late. "Why," Senator Grassley asked, "should we dump huge sums of money into the Defense Department when it is rotting with bad management?"^[47] His voters were saying, "Turn off the spigot!" As Robert Michel put it, "That consensus … you once felt out there to recoup on the military isn't there anymore."^[48]

With defense seemingly settled, Senate Budget turned to revenues. That was more difficult. Democrats proposed tax increases of $30.2 billion in FY84 and more in the out-years (figures very like those in the House package), but they lost on a tie vote. Then the president's tax plan was rejected, 8 to 14, with six Republicans against it. They knew what they were against, but what were they for?

On April 18, Stockman bluntly warned the president that "almost none of the huge policy savings" that the administration desired "can be achieved without congressional-administration agreement." Instead, "a runaway anti-administration resolution could emerge through de facto Democratic dominance over [a] split GOP in [the] Senate Budget Committee and through further compromise in budget conference."^[49] The budget director was fighting privately (and publicly; the memo was immediately leaked) with Weinberger, who suggested that the president abandon the budget process and go it alone with a veto strategy on appropriations. Simultaneous consideration of defense and deficits, said Weinberger, would work against defense. Vetoes, Stockman argued, excluded

any efforts to change entitlement policy.^[50] Stockman won approval to negotiate further, but divisions over defense and revenues prevented agreement on April 20, when all twelve Republicans on SBC met with Stockman, Meese, and Jim Baker.

"We must continue to try to get a compromise," Domenici declared, "or the deficits will threaten economic recovery."^[51] That refrain could be dropped randomly into any year's debate. But the Republican majority had disappeared. Dole was balking on revenues, and the Gang of Five moderates (Hatfield, Mathias, Weicker, Stafford, and Chafee) were becoming much more independent.

On the Democratic side, Hollings had succeeded to the ranking position on the Commerce Committee; he yielded his ranking spot on Budget to Lawton Chiles. Far more a conciliator and deal maker, Chiles wanted to shape the process, either by offering a Democratic alternative or by dealing with Domenici. A party man, Domenici would do it with Republicans if he could, but he and Chiles were personally close. Around this time, Slade Gorton (R-Wash.) began outlining a package, consulting with both Domenici and Chiles about what might prove acceptable in an emergency. A participant recalls that Domenici "was very sympathetic from the beginning but also thought that he couldn't do it on his own due to his relations with the president, Howard Baker, and the Republican caucus." Domenici would use Gorton as a fallback.

On April 21, a last effort to unite Republicans was stymied by the antitax faction. Domenici then joined Gorton, Mark Andrews, and Nancy Kassebaum in support of Chiles's revenue figures, and SBC passed a resolution that also included the 5 percent defense increase and $11 billion more for domestic spending than the administration had desired. "I couldn't wait any longer," Domenici recalled. "I made a decision there was little chance of getting a solid Republican budget resolution. I think I was right." Domenici would try again on the floor. Dole's response to the Budget Committee's tax figure was "speechless; stronger letter to follow."^[52]

On the floor, the Senate rejected, by big margins, four more extreme plans: Hollings's freeze; a conservative Democratic package with large new taxes; a Grassley domestic plus defense freeze; and a more-Reagan-than-Reagan budget, sponsored by Orrin Hatch, taking big chops at social spending. That left three alternatives: the SBC plan; a Domenici-Baker substitute, lukewarmly endorsed by Reagan; and one devised by the Gang-of-Five moderate Republicans. On May 12 the Gang of Five joined Democrats to table the leadership budget, 52 to 48. Then they accepted an amendment by Gorton, whose plan allowed slightly higher defense spending and restructured the tax hikes. Gorton's figures were numbers both Dole and Rostenkowski would accept for FY84–85 and

numbers the president's contingency proposed for FY86, but they had the support of neither camp and lost 46 to 53. Then the full Senate rejected the SBC plan because its tax provisions were too high—back to the drawing board.

After this unsuccessful round, Howard Baker wrote an opinion piece in the Post, with a promising title, "We Will Pass a Budget Resolution":

Equating a simple budget resolution with democracy itself may seem a bit dramatic, but the congressional budget process lies at the heart of modern and coherent democracy. What we spend determines how we govern, and nowhere is that fact in sharper focus than when all the problems of government descend on one set of people in one room at one time during budget resolution season.

Baker was joined by CEA Chairman Feldstein and leaders of the National Governors Association in the chorus of calls for responsibility.^[53] As usual, exhortation was no substitute for consensus. If only the president would accept more taxes…. Instead he had rejected Domenici and Baker's warnings that a compromise on taxes was needed, leaving Domenici, according to one aide, "as angry as I've ever seen him." Then in a radio speech Reagan declared that "governments don't reduce deficits by raising taxes on the people." This was news to state governors, most of whom had been forced to do exactly that, as well as cut spending, to meet their states' balanced budget requirements. Yet neither Howard Baker nor the governors nor much of anybody except liberal Democrats supported specific tax increases. In a letter on April 28, 146 House Republicans—enough to sustain a veto—pledged that they would oppose any change in the July tax cut or indexing.^[54] The president was the key not because he was stopping Congress from doing what it wanted to do but because Republicans and moderate Democrats wanted him to take the flak for the increases. Reagan chose not to lead Congress against himself.

Senate Budget tried again on May 18. Domenici supported a modified Gorton-Chiles plan, but it lost 8 to 12. SBC rejected its previous plan by the same margin. Then, reversing its alignment a week before, it passed a new Domenici-Baker plan, 11 to 9. That resolution hit the Senate floor on May 19. By then the Democratic leadership had finally decided to back the Gorton-Chiles plan. Senator Byrd, an aide recalled, "was strongly against passing a Democratic budget" but was convinced by the argument that "Christ, it's only a budget, it doesn't mean anything." A victory would be good for the troop's morale.

The Budget Committee plan went down as all the Democrats and ten Republicans joined to defeat it, 56 to 43. Gorton-Chiles lost, 52 to 48, when thirteen mostly southern Democrats voted against it. As usual with

Senate Democrats, leadership was weak. A revised Domenici plan lost 57 to 43. By then it was near midnight, and Howard Baker in essence conceded. He asked the Senate to reconsider Gorton-Chiles and urged his colleagues to pass something .^[55] His motion to reconsider carried 55 to 45, as a number of GOP leaders, including Baker, supported the move. Gorton-Chiles then was adopted as an amendment to the SBC plan, 53 to 47, as five Republicans who originally opposed it switched votes.

When the Senate voted on final passage of a budget resolution, now amended as the Gorton-Chiles plan, it got the same twenty Republican votes as before, but four Democrats—Patrick Leahy (Vt.), David Pryor (Ark.), Wendell Ford (Ky.), and minority whip Alan Cranston (Calif.)—now voted against final passage. Because Senator Goldwater had gone home, that left the margin at 50 nay to 49 aye. Democrats had put Domenici on the spot; at the last moment he switched, and the Gorton-Chiles plan passed 50 to 49. Republicans opposed it 32 to 21; Democrats supported it 29 to 17.^[56]

The numbers suggest a fairly bipartisan resolution; but the way they occurred shows that there was no real agreement. The Democratic leadership was in no way committed to the substance. A resolution had passed the Senate, but its provisions, particularly for revenue, could not be enacted by that body. There really was no majority for anything. A senior Senate aide recalls worrying that a resolution that could not be enforced would kill the budget process. But so would passing no resolution at all. Domenici had no good choices.

Among a chorus of pessimistic comments, James Jones said that "this could be the shortest Congress to deal with substance." Bob Dole judged that "the odds are even that all bets are off until January of 1985." And a top Senate Republican aide commented that "this Congress is over. Everyone's waiting for 1984."^[57] Rather than concede defeat, budget leaders conferred in search of the best possible impossible resolution. On June 20 they settled on a tax increase target close to the Senate number; they split the difference on defense (a 5 percent increase) and accommodated the domestic spending differences by roughly accepting the Senate numbers, while providing a "contingency fund" of $8.5 billion in new spending that would be allowed if authorizing legislation passed. Because authorizing legislation would be vetoed, this was a victory for the Senate. But new authorizations would be vetoed no matter what the budget resolution said, so it wasn't much of a loss for the House. King Solomon could have taken lessons from our legislators on "splitting the difference." More optimistic (and, this time, more realistic) economic assumptions reduced the projected deficits. Reconciliation instructions required $12.3 billion in savings from 1984 to 1985, mostly in civil service pensions, dairy price supports, and medicare.

By most standards, the Senate had "won." Yet because its position had not really been that of Senate Republicans, other Republicans were not satisfied. House Republicans did not even show up for the final meeting of the conference. Senator Domenici called the deal a "miracle"; Representative Latta called it treachery; and Ronald Reagan dressed down the Senate chairman in a meeting with Republican congressional leaders.^[58]

All along, the Gorton-Chiles leaders had hoped Dole didn't mean it when he denounced the tax increase plans. "Our assumption about reconciliation," one aide recalls, "was always that it enables authorizing chairmen to say, 'they made me do it.'" "Finance loves getting reconciliation instructions from the budget," one senator recalls. "They don't want to be told how to do it, but love getting a target." They were wrong; Dole attempted to amend the conference report to reduce the revenue figure. "We were speechless," an aide recalls, for that isn't done. "We should have realized," he added, "that if a legislative player like Dole, with all those years of experience, proposes to amend a conference report, he must be serious and you had better listen." Dole was supported by Russell Long, who argued that "to try to pass a tax increase of these kind of numbers without the support of the president of the United States is just ridiculously."^[59] Dole's amendment lost 41 to 51. With Howard Baker and seventeen other Republicans supporting Domenici, the conference report passed 51 to 43. Its passage, however, reflected only the senators' desire to finish the battle.

The president, referring to his own budget, not Congress's, promised to "veto their budget-busting bills again and again and again." Dole kept calling the budget a "dead cat" and other unpleasant things. A "budget" had passed, but no agreement had been forged. Being speechless meant being budgetless.

Packages and Formulas

If the budget process had failed to create an acceptable package, the budgeters would try to create a package outside that process. Foremost among them was Senator Dole, who was just as insistent about doing something as about not doing what the budget resolution prescribed. In early July he called for an "economic summit meeting" between Reagan and congressional leaders. The White House refused; David Gergen commented that Congress "would just use [such a summit] to beat the president over the head."^[60] When that went nowhere, Dole worked to create a package within Finance.

Why Dole thought he could succeed where Domenici had failed remains a mystery. Perhaps he thought a more "balanced" package could

win Reagan's support, and once Reagan was on board his party would have to go along. Reagan publicly opposed Dole's efforts, but the senator persisted. After one particularly strong presidential statement, Dole remarked that "there are a lot of ways to interpret 'no,'" and placed the president in the "undecided category."^[61] Most likely Dole felt Reagan would support a more "balanced" package at the last moment, that, as a good politician, the president was driving a hard bargain and was willing to let others do the spadework. There was surely political advantage in publicly leading the forces of "responsible budgeting," a role that won Dole a great deal of favorable media coverage. If he could bridge the gap between Reagan and more traditional budget-balancing Republicans, he would do good (by his own lights) and possibly increase his political support in both camps. The White House political types might win over Reagan. It had happened before. The budget responsibility faction of Democrats—Jones, Panetta, Gephardt et al.—had allies, especially among freshmen and might be able to pressure the Speaker. If the pressure were great enough and if Dole's "solution" looked better than the budget resolution, perhaps the president would seize it. Responsibility would triumph.

Reagan, however, had his own definition of responsibility: keep taxes low and strengthen the nation's defenses. The Speaker's definition differed from Dole's or Reagan's: O'Neill's was to protect the legacy of his party, to use government's power to aid the economy's losers, and to help Democrats win the 1984 election. Because the public and the media believed Dole's (and Domenici's, and Chiles's) version of responsibility, the deficits gave O'Neill and Reagan a fine club with which to bash each other's heads, though neither would get so carried away as to abandon his primary purpose. From mid-1983 to mid-1985, therefore, Speaker O'Neill and President Reagan would continually frustrate the efforts of Dole and his colleagues to enforce budget "responsibility."

This is not to say that Congress wanted to spend wildly. Remembering the chaos of 1982, in 1983 appropriations leaders were willing to cut a few dollars if that would settle the disputes, enable everyone involved to make plans, and give themselves the good feelings that go with having passed a bill. In spite of some messy battles—abortion on the Treasury/Postal bill, for example—action generally was far more orderly than in previous years. Major Reagan policy initiatives such as abandoning Legal Services were, as usual, rejected. But so, after the early supplemental, were efforts of House leadership to increase social spending. The appropriations leaders put together, if barely, bills that everyone could live with, funded agencies and programs, and then let the fight for more spending take place on supplementals and through specific provisions added to short-term continuing resolutions.

House and Senate appropriations leaders buffered the agency funding process from the chaos of the partisan budget wars. They could not have succeeded if Reagan had, as advertised, pursued a tough veto strategy. Stockman mocks his colleagues for proclaiming and then not following that course.^[62] Yet, perhaps remembering the 1982 supplemental override and how defense had been held hostage in the CR, a senior White House official recalled that "they presented us with total spending under the limits and moved it around." And "you can't veto the defense bill," he added; "then you get zero…. We would have vetoed if we thought we could do anything … [but] what would we have accomplished? We would just have gotten it back in a CR. And, as we all knew, most of the excess spending is not in appropriations." Besides, another official recalled, it was not as if the whole administration were united behind that budget: "Even the cabinet members wouldn't support the veto."

Instead, the administration tried to cut deals with Republican leaders on Appropriations. A senior OMB official recalled that by 1983 the administration was working with Appropriations Republicans "with the goal of preventing them from making a deal with the Democrats. We would work with the Senate to get a standard, and then try to get the House senior Republicans to push that standard in the early salvoes with the Democrats." These Republicans opposed Reagan's cuts but were equally suspicious of program increases.^[63]

The real conflict on Appropriations involved additions to or riders on continuing resolutions. At one point, when Appropriations members tried to invoke the War Powers Act on the first CR in regard to the American troops in Lebanon, the Speaker took the unprecedented step of referring the CR to the Foreign Affairs Committee for review and burial. As a result, in this first go-around, the Speaker ended up committed to a clean bill as a matter of principle and could not tack on some planned extra spending. The new CR passed the House 261 to 160 on September 28. The Senate, impressed by the House's example or perhaps convinced of plenty of remaining time in an odd-numbered year, also practiced restraint and actually passed the continuing resolution without trouble, and on time, by September 30.

The stalemate on appropriations showed that Congress was not in a spending mood. But the mild squeeze would not help much against deficits that now were greater then the total domestic discretionary budget. Significant spending cuts would have to come from entitlements or not at all. That brings us back to Senator Dole and his allies. "We will have to raise taxes," Dole declared, "but we will have to cut spending first."

During the summer, while Dole called for a process that might yield

a package, other legislators looked for a formula around which people might rally. In the Senate, John Danforth (R-Mo.), David Boren (D-Okla.), and Malcolm Wallop (R-Wy.) filed a bill to reduce scheduled adjustments in both COLA benefit payments and the new tax indexing by 3 percent each year from 1985 to 1988. In the House, James Jones and Carroll A. Campbell, Jr. (R-S.C.) joined four Republicans and four Democrats in a similar bill, cutting COLAs and limiting tax bracket indexing by 2 percent each year. The 3 percent solution would bring in $116.7 billion over four years; the 2 percent formula, $77.6 billion. Both left AFDC and other programs for the poor untouched. Richard Cohen explained the attraction of these formulas:

Each quickly raises a large amount of money by relatively simple legislative actions. Each raises about half its deficit savings from tax increases and half from spending cuts. Each spreads the pain in small doses to most of the population, except for the very poor. And each requires concessions of important political principles by both Republicans and Democrats.^[64]

These plans met the prevailing test of equity. But their attacks on the tax cut (Reagan's cherished principle) and social security (the Democrats'), though gradual, still meant more than an 8 percent tax hike and social security cut.

House Democrats already had taken one deficit-reduction measure, passing a $700 cap on the July tax cut, despite skepticism in their own ranks. Leon Panetta feared a "substantial political backlash."^[65] A letter sent to O'Neill from seventy-nine Democrats declared that "taking such action without any accompanying cap on spending is flawed policy."^[66] In spite of these doubts, the party gave the Speaker a 229 to 191 victory on June 23.

In the Senate, the six moderates who had spearheaded the drive for the eventual budget resolution also called for limiting the July tax cut. But Majority Leader Baker argued that the cap was a futile political gesture, sure to be vetoed, and convinced the moderates to support the cap's party-line defeat, 55 to 45.^[67] The liberals therefore had to go back to the drawing board in search of a tax-hike package that would meet the budget resolution's $73 billion target.^[68]

When Congress went home for its August recess, it was accompanied by a chorus of criticism. Persistent yet always sardonic, Dole observed that "no one is exactly marching on Washington asking us to raise revenues."^[69] "We've met our fiscal enemy and it is us," declared Barber, Conable. "We're hypocrites if we pretend anything else."^[70] The "us" of Conable's comment should not have been Congress alone; it also was the American people, who, nevertheless, complained to their representatives

about the deficit. When the members returned to Washington in September, the stalemate continued at a heightened level of anxiety.

Failure in the House

House Democratic leadership polled its members again about how they preferred to reduce the deficit. This time only half responded, and the results were sufficiently inconclusive or inconvenient that they were filed and kept secret by the staff of the Steering and Policy Committee.^[71] The Democratic Study Group (DSG), heart of the liberal faction, pushed for quick action on taxes in spite of the electoral risk; in order to get that far, they would accept some spending restraint. Freshmen Democrats formed another faction that pressed the party to devise deficit-reducing legislation.^[72] Between the economic consequences of deficits and the squeeze put on the budget by increasing interest costs, freshman Jim Moody (D-Wis.) argued, the party had "to choose between the early poison of a tax increase and the later poison of not being able to govern."^[73] The Speaker put DSG Chairman Matthew McHugh (D-N.Y.) in charge of developing a tax package separately from the work of Ways and Means, along with Moody, the ubiquitous Richard Gephardt, and Donald J. Pease (D-Ohio). Responding to a poll, 106 DSG members supported enough specifics to hit the $74 billion target. But that was no majority. Both Rostenkowski and Democratic Campaign Committee Chairman Tony Coelho (Calif.) were more interested in avoiding Republican attacks on Democratic taxes and blaming Republicans for the deficits than in pushing a tax bill doomed to fail anyway.^[74]

A small spending reconciliation bill was considered in late October. As amended by the Budget Committee, it supposedly met its three-year, $10.3 billion target. George Miller (D-Calif.) tried to attach his "pay-as-you-go" plan to this reconciliation, but the Budget Committee convinced Rules not to allow the Miller amendment. This reconciliation passed on October 25 on a voice vote.

Controversy then moved to a small ($8 billion over three years) package of revenue increases, H. R. 4170, reported out by Ways and Means on October 21. Its most controversial provision was a curb on tax-exempt Industrial Development Bonds (IDBs). Issued by state and local governments to help finance and thus attract private business projects, these bonds were immensely popular with local governments. They were less popular with federal officials, who regretted the accompanying revenue loss and questioned the federal government's indirect financing of private investors. H. R. 4170 also extended increased premium payments for medicare part B and therefore was greeted skeptically by Rules Committee

Chairman Claude Pepper. Because the major supporter of IDBS, Martin Frost (D-Tex.), was an influential member of Rules, the tax bill got hung up in that committee.^[75] Liberals meanwhile eyed it as a potential vehicle for larger tax hikes.

Meanwhile, Chairman Whitten got Appropriations to report another clean CR, through February, by putting thirteen other proposals into a separate supplemental. House leaders, however, got Rules to allow amendments, and on November 8 the House added almost all of Jim Wright's nearly one billion dollars in social spending, plus some fairly bipartisan foreign military aid. All seemed to be going smoothly, until twenty-four freshman Democrats, who had been meeting with the Speaker to urge him to force the Ways and Means bill out of Rules, decided to show they were serious by voting against the CR. It lost by three votes.

The freshmen had no plan of their own, but they wanted the Ways and Means bill reported with amendments allowed, including the Pease/McHugh group's revenue increase package. House leaders began working on Rules; a new CR, with the same amendments, then passed.^[76] The Senate knocked off Jim Wright's spending package.

Conferees could not agree in time to prevent a number of departments, including defense, from going without funds. Nevertheless, the president, on a trip to Asia, saw no political gain in shutting the agencies down and didn't. Rules are made to be bent. In the end, the CR passed on Sunday, November 13, with only one-tenth of Wright's package included.

Back in the Rules Committee, Martin Frost had the votes to allow an amendment on IDBs. Rostenkowski objected. On November 15, O'Neill won "a forced, amiable compromise" altering the IDB provision. Pepper got the medicare premium provisions eliminated. A medicaid extension amendment was allowed. Aside from these retreats from deficit reduction, Rules proposed votes on three revenue-raising amendments: a new Rosty freeze (excluding indexing); a cap on the third year; and a Pease/McHugh/Moody/Gephardt $32 billion three-year package "to go after people who don't vote for Democrats anyhow."^[77] All these measures combined would meet the budget resolution's revenue target. They were not adopted. The rule itself was defeated, 204 to 214, as all but thirteen Republicans and a total of sixty-five Democrats voted it down. So ended the House's efforts to reduce the deficit in 1983.

"The next time I see Republican crocodile tears about the deficit," Speaker O'Neill declared, "I'm going to ask them where their party was today. Today's vote proves once again that we cannot reduce the deficit with the president sitting on the sidelines."^[78] Certainly not over Reagan's opposition. The Senate was discovering the same truth.

No Go in the Senate

While House Democrats worked through ad hoc factions within their caucus and House Republicans retreated to their usual nay-saying position, the barriers of partisanship were not so great in the Senate.^[79] and Domenici strove to build bipartisan coalitions outward from their committees. Dole enlisted Volcker to help. At a closed meeting of the Finance Committee on October 26, the Federal Reserve chairman put the antideficit case in strong terms. According to Senator Danforth, Volcker's warning galvanized a majority of each party on the committee to begin drafting an antideficit package.

On Thursday, October 27, Dole unveiled his own "2.5% solution" (as Newsweek termed it), modifying the formulas proposed before the summer recess in the House and Senate, good for three years instead of four. Dole's proposal would reduce COLAs on everything except the poverty programs by a small percentage (2.5) each year. Indexing would be changed to allow a 2.5 percent tax increase each year—a major concession by Dole, the sponsor of indexing. Corporate income taxes would face a surcharge of 5 percent for the three years. Spending reductions would be extended to discretionary programs by allowing the president to impound 2.5 percent of appropriated funds each year, with a 15 percent limit on cuts to any single program. But the political costs of cutting social security perhaps would be mitigated by a provision for funneling the savings into the medicare trust fund, which was due for severe trouble by 1991. Senators Boren, Danforth, and Wallop joined Dole in presenting this modification of their earlier proposal.

While Dole worked on a deficit package, he was also in charge of a bill to increase the debt ceiling—the classic innocent victim looking to be taken hostage—by $225.6 billion. Dole hoped that his plan might forestall such maneuvers. Nevertheless, Senator Armstrong won (70 to 15) an amendment reducing the increase to $61 billion, enough only to last until February. Armstrong argued that the February deadline increased the "bargaining power" for deficit reduction. Senators then loaded the debt bill with nongermane amendments on matters ranging from press coverage of the Grenada invasion to Japanese beef imports. Lawton Chiles failed (31 to 53) in a more germane attempt to make the debt limit increase contingent on passage of legislation mandated by the reconciliation provisions of the budget. Opponents of the debt ceiling, such as Russell Long, were arguing that to endorse the increase without taking other actions meant endorsing the deficit. "I'm beginning to get the feeling," Howard Baker remarked, "that the Senate doesn't want to pass the debt limit."^[80]

On October 31 Baker moved that the bill be recommitted to the Finance Committee to remove all amendments, including Armstrong's, but he lost 27 to 68. Senators wanted neither to abandon their pet projects nor to pass the debt limit. They then defeated the amended bill, 39 to 56. Most Democrats opposed the debt ceiling because they wanted the Republicans to have to vote for the deficit.

Dole had fought for a clean debt increase. When the debt ceiling was beaten, however, he remarked that its rejection provided "an opportunity to hammer something out."^[81]

In a meeting with House and Senate Republican leaders, President Reagan banged on the table and vowed to veto any debt-ceiling bill that included a tax increase. "I've never seen him that mad," reported Silvio Conte.^[82] Nevertheless, Dole set his committee to work devising a package that might be attached to a debt bill. Although the senator had not chosen to take the debt ceiling hostage, he could see some advantages in the result. In exploiting someone else's hijacking of the debt ceiling, as in proposing an across-the-board formula and giving the president restricted powers of impoundment, Dole's maneuvers in late 1983 foreshadowed passage of Gramm-Rudman-Hollings in 1985.

After many sessions to consider a number of approaches, including an energy tax and cuts in medicare, defense, and farm subsidies, Finance Committee bargainers put out trial balloons for a $150 billion plan. On November 3, Howard Baker convened a meeting of leaders and ranking members of the Finance, Budget, and Appropriations committees. Domenici, Hatfield, Long, and Chiles agreed that Congress should act before adjournment; but Minority Leader Byrd, who joined the meeting, argued (as also in later public comments) that action should be avoided until the president's consent was secured. Howard Baker responded that, if the Speaker were willing to go along, he would try to win over the president.

That meeting in Baker's office was a high-water mark of the bipartisan effort. That evening, however, President Reagan rejected the whole effort. He told a group of his 1980 campaign workers that "we don't face large deficits because Americans are not taxed enough. We face those deficits because the Congress still spends too much…. And I am prepared to veto tax increases if they send them to my desk, no matter how they arrrive."^[83]

Dole dismissed this statement as "boilerplate."^[84] He quipped that if his committee had to consult Reagan during the president's upcoming trip to Asia, "We'll call him. If we get a bad connection, we'll be all right."^[85] Reagan, however, was not Dole's only obstacle. Senator Moynihan commented that "there are things in there we [Democrats] could

not accept."^[86] For example, the Speaker condemned social security COLA cuts.^[87] Finance members went back to drafting a bill that would defuse some opposition, though at the cost of a smaller deficit reduction.

The Senate's reconciliation bill—$14.6 billion in spending savings over three years and $13.4 billion in revenue increases—was reported out of the Budget Committee, without recommendation, on November 4.

Meanwhile, Dole changed his larger proposal in order to defuse the president's opposition and ensure that other committees did their part for deficit reduction; $150 billion would be saved over four years instead of three, much of the tax hike would be delayed, and almost all the provisions would go into effect only if CBO certified on November 15, 1984, that spending reductions had been made. If a large percentage, but not all, had been made, that same proportion of revenue hikes would go into effect. Dole had thus adopted the president's "trigger" idea without specifying that Reagan get his preferred cuts.

At the same time, Dole abandoned the 2.5 percent chops at COLAs and tax indexing, proposing only marginal, "rounding" adjustments. His major revenue provisions now were a 2 percent tax on energy products, a 2 percent extra tax on corporate income, and a surcharge on individuals with large tax bills. Senate Finance's consideration of Dole's new plan on November 16 "quickly descended," the National Journal reported, "into a murky discussion of small and obscure reforms." On the Senate floor that day Domenici and Chiles unveiled their own plan, an amendment to bring the reconciliation into compliance with the budget's deficit-reduction totals, essentially by accepting Dole's original 2.5 percent solution but throwing out the COLA reductions, a plan better for Republicans than the budget resolution but worse than Dole's target and very different from Reagan's wishes. Although they denied any such intent, it looked as if they were challenging the jurisdiction of the Finance Committee, and Dole opposed them on those grounds. The budget leaders' plan was easily defeated by an alliance of conservative Republicans with Democrats who believed, in the words of Russell Long, that "it doesn't accomplish much to be one of the dead bodies on the battlefield after the smoke has cleared."^[88]

In the early hours of November 17, Howard Baker got the debt ceiling through the Senate, 58 to 40.^[89] Conferees agreed on enough debt to get the government through April and threw out the Senate's assorted riders. Congress adjourned.

No reconciliation bill had been passed; the budget resolution's revenue targets had been ignored by everyone but the liberal Democrats. "As we leave Washington," Dan Rostenkowski declared, "word of our impotence will precede us. We have put special interests on notice that

we can be pushed around. We have confessed to an already doubting nation that we are ruled by political fear, rather than economic courage." Senator Dole explained, "There are two stumbling blocks. One, Ronald Reagan; the other, Tip O'Neill. Unless we have the two giants in this town on board, we're not going to put together a deficit-reduction package."^[90]

If the readers' patience has been taxed, think of the poor legislator. The meal was frustration pie. Everyone had to eat it. Just when they thought this monotonous diet had to end, they ate more than they ever thought possible. What remained was discovering newer and more fiendish ways of exasperating themselves.