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.