Rostenkowski Delivers
In regard to philosophy, Dan Rostenkowski thought it wrong that working people, like his own daughter, had to pay so much in taxes. Aware that a person of his background, who plays politics with such evident relish, might not be thought of as embodying the national interest, Rostenkowski explained that "I want to be a patriot, too. It sounds like corn but, if we get no credit at all on this tax reform bill, my God, we're elected to do what's right."[46] Rosty and Reagan had come a ways since 1981, when they competed for votes with the commodity tax straddle.
Credit or not, the Ways and Means chairman's prestige depended on passage of some sort of tax reform. Rostenkowski had not fared too well in past years. Badly beaten by the across-the-board tax cuts of 1981, having to dodge the House floor to pass TEFRA in 1982, he had eventually consolidated his influence in his committee and on tax policy but not in a way that won him much credit as a leader or innovator. Rostenkowski was looking for a winner. Tip O'Neill had announced his retirement. Would Rosty run for Speaker against James Wright of Texas? "I'd like to see the kind of tax reform plan the House can produce
first," he responded. "Winning a big fight over a tax bill can make you do just about anything."[47]
On May 28, President Reagan gave a major address from the Oval Office outlining his revised tax reform proposal. He appealed to common feelings: "Well, how many times have we heard people brag about clever schemes to avoid paying taxes or watched luxuries casually written off to be paid for by somebody else—that somebody being you? I believe that in both spirit and substance, our tax system has come to be un-American."[48] Reagan's appeal could have been dismissed as just more fine words from a master wordsmith. Instead, Rostenkowski, in the Democratic response, echoed the president's rhetoric and laid claim to its Democratic heritage:
Trying to tax people fairly: That's been the historic Democratic commitment…. My parents and grandparents didn't like to pay taxes. Who does? But like most Americans they were willing to pay their fair share as the price for a free country where everyone could make their own breaks.
Every year politicians promise to make the tax code fair and simple, but every year we seem to slip further behind. Now most of us pay taxes with bitterness and frustration. Working families file their tax forms with the nagging feeling that they're the biggest suckers and chumps in the world….
But this time there's a difference in the push for tax reform. This time, it's a Republican president who's bucking his party's tradition as protectors of big business and the wealthy…. If the president's plan is everything he says it is, he'll have a great deal of Democratic support.[49]
The chairman ended by asking his audience to "write Rosty"—or their own legislators—to show their support.
Rosty got 75,000 letters and a lot of praise in the media. The public response was not enough to convince other politicians to go along, but it was enough to reinforce Rostenkowski's personal commitment to producing a bill. The two speeches put Reagan and Rostenkowski in a public alliance that ensured tax reform would stay on the agenda, for now politicians would have to take public stands "for" or "against."
Responding to the attacks on Treasury 1, Treasury made a series of compromises in a new plan, dubbed "Treasury 2." It protected oil and gas interests at the insistence of the Texan Treasury Secretary, James Baker. It gave bigger breaks to upper- than middle-income taxpayers. Capital gains rates went down instead of up; state and local taxes no longer would be deductible. But it eliminated taxes for families of four with incomes of $12,000 or less, cut the highest corporate rate to 33 percent, and kept the Treasury 1 individual rate structure (15/25/35).
For Rostenkowski, Treasury 2 was not acceptable, but it was a starting point.
During the summer Ways and Means held voluminous hearings, searching for possible soft spots in group resistance. Public support for the reform effort remained "tepid."[50] "I scheduled five town meetings on tax reform across Arkansas during the August recess," Democratic Senator David Pryor noted. "We averaged 200 to 250 at each meeting and I got no support. All that people wanted to talk about was the $2 trillion debt."[51]
Cross-pressured particularly on state and local taxes (which New York's Governor Cuomo had made a crusade for his state's large delegation) and worried about the deficit, members of the House wondered out loud why they should bother with reform at all. Representative Byron C. Dorgan's (D-N.D.) retort—"no matter what people are hearing from back home" an "outrageously complicated and unfair" tax system had to go—was about the best plug that reform got.[52]
The first stage of Ways and Means' effort reached its climax during markup on October 15. Chairman Rostenkowski was beaten 17 to 13 on an amendment that proposed expanding (by $4.8 billion over five years) the deductions banks can take for reserves to cover bad debts. Here ended revenue neutrality at a time of deficits. Rostenkowski was angry. Bank lobbyists, waiting in droves outside the committee rooms, were so joyous (in poring over a tally of the vote that was not supposed to be released until the next day) that one of them shouted, "We won, we won."[53] That rankled. Were these representatives, servants of the people, really at the beck and call of the monied interests? "If I were a bank," advised Representative Fortney Stark who had been a banker, "I wouldn't start to spend that money."[54]
The Ways and Means chairman decided to wait rather than immediately attempt to reverse the bank amendment.[55] He believed the pressure for tax reform was essentially negative; as columnists Birnbaum and Murray put it, "Anyone who stood in the way of reform would be tagged in the press as having sold out to special interests; that was a harsh label few were eager to accept."[56] Congressmen had to be flogged into action by the press; and failures in public, ironically, might raise press condemnation to a level that would overcome interest-group pressure. So Rostenkowski decided to let the vote "hang there," to "let them stew in it for a while."[57]
The committee worked on other provisions while the members stewed. Rostenkowski was trying to keep within the limits of his informal understanding with Reagan: that if he hit the president's targets for rates and if the bill were revenue neutral, the president would hold fire
while retaining the right to suggest changes after the bill left the committee. They shared an interest in establishing that some bill was likely to pass if they could do so, then the changes not made would seem like benefits to the lucky nonvictims. The leaders' timing was everything. If opposition became too vocal, opponents might seek to kill reform then and there. Concessions at the right time, however, would give former opponents a stake in the bill.
On October 21, Rostenkowski made his crucial move. The New York bloc was adamant about preserving the state and local deduction; even representatives of low-tax states opposed its elimination. Tax reform's ideological opponents, like James Jones, a believer in incentives for capital formation, had allied with the New Yorkers in hopes that, with state and local deductions preserved, there was no way to get lower rates and the same revenues. After realizing they could raise revenues by lowering the brackets, so the middle and top rates applied to more income, Rostenkowski and his staff decided to cut a deal on state and local. They secretly gave in to the New Yorkers in return for support on the rest of the bill. Then Rostenkowski used that agreement, and pressure on the amendment's sponsor, Ronnie Flippo (D-Ala.), to compromise on the bank issue. He won 14 to 7.[58]
Treasury would be upset about state and local, so Rostenkowski concealed the deal as long as possible. Because this was a provision his committee Democrats had been particularly loath to lose, however, they were relieved and encouraged.[59] "I was always going to give you state and local taxes," Rostenkowski told a surprised colleague. "If you were," Thomas Downey (D-N.Y.) responded, "you deserve an academy award."[60] Representative W. Henson Moore (R-La.) agreed: "I have seen a master politician at work."[61]
After eight days of meetings, begun November 15, the committee Democrats agreed on a bill. It had a fourth and top bracket (38 percent), a higher top corporate rate (36 percent), and tougher depreciation provisions than in Treasury 2. Some House Republicans particularly objected to a provision that raised the personal exemption for nonitemizers more than itemizers (they called this antifamily; in essence, it favored poorer over richer families). The Ways and Means plan also maintained existing deductions for medical expenses and nontaxability of employer-paid health benefits.[62] For these reasons, the administration was hesitant, hoping that some other bill could emerge from the House. Rostenkowski's version passed Ways and Means (28 to 8) on December 3, 1985; but only five Republicans supported it.[63]
Without endorsing either the majority committee bill or the Republican alternative, President Reagan asked for a "positive vote" in the
House. However, Republicans—feeling cut out as Ways and Means Democrats caucused, believing Baker and Darman had ignored them while attending to Rostenkowski, and opposing reform anyway—were seething. Amid threats about who Ronald Reagan would not campaign for in 1986, James Baker and Richard Darman arranged to shuttle Republican House members over to see the president. "I hope you won't let me down," Reagan told them. He wanted it any way he could get it, whether the final plan was more Republican or more Democratic, and assured legislators that problems would be fixed in the Senate.[64] Minority Leader Robert H. Michel (R-Ill.) found his members strongly opposed—"They don't want to vote for this turkey just to get to conference."[65] "The phrase the 'Senate will fix it up' is the moral equivalent of 'I'll respect you in the morning,'" commented Bill Frenzel (R-Minn.) of Ways and Means.[66]
A number of Democrats also disliked the bill's treatment of federal pensions, including their own. As the rule for the bill came up for debate on December 11, they rose to denounce it. They were joined by oil-state Democrats. Seizing their opportunity, Republican leaders quickly mobilized their whip organization to beat the rule. They succeeded, 223 to 202, as only fourteen Republicans voted allow consideration of their president's greatest legislative priority.[67]
"If the President really cares about tax reform," Tip O'Neill rubbed it in, "then he will deliver the votes. Otherwise, December 11 at 12 noon will be remembered as the date that Ronald Reagan became a lame duck." Unless the president assured him of at least fifty Republican votes, the Speaker wouldn't bring the bill back to the floor.[68]
With Darman and Baker at his side, President Reagan engaged in a personal lobbying effort. "I just can't accept we would let this historic initiative slip through our fingers," the president told House Republicans.[69] Aside from telling them, personally, he did care about their views, the president gave GOP congressmen written assurance that he would seek to reduce the top 38 percent personal rate voted by Ways and Means (for the incentive faction); increase the personal exemption to $2,000 for everyone (for the family order faction); and provide more generous deductions for business (for the capital formation faction). Reagan succeeded in getting seventy Republicans to vote for the rule bringing up the bill on December 17, whereupon the Ways and Means plan passed on a voice vote.[70]
Speaker O'Neill had his written statement ready when the vote took place: "Democrats tonight have rescued tax reform from the jaws of big business Republicans. We have delivered on our historic commitment to tax fairness. Only the Republican Senate can stop tax reform now."[71]
Like the target bear in a shooting gallery, Richard Darman observed, "It [tax reform] gets hit, it rises, pauses, turns a bit—and then it keeps going."[72]