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.