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The Bidding War

Which side are you on? Most members knew, but some were on the fence. Neither side could abide the prospect of losing, so they began an all-out bidding war for the swing votes. That war provided the year's most lurid political dramas, which almost obscured the battle's serious policy stakes.

Senate Republicans had saved money by attacking tax straddles. On July 10, House Democrats, on the instigation of Marty Russo (D-Ill.), reduced the savings from $1.3 billion to $900 million by allowing commodity traders to continue using tax straddles. This proposal was drafted by Joint Tax Committee staff after meeting with Russo, the chairman of the Chicago Board of Trade, and the special counsel to the Board of Governors of the Chicago Mercantile Exchange. Nothing could look more like "special-interest" politics. Each organization had given hefty campaign contributions to Russo and Rostenkowski. On July 14 President Reagan, in a speech in Chicago, proclaimed that the Democrats "have gone out of their way to offer 2,500 commodity speculators a tax break of over $400 million."[50] Before the fight was over the president would abandon such rhetoric and raise Russo's bid.[51] The real high-stakes auction, however, involved oil.

What could be more old style politics than oil? Long before OPEC, long before energy shortages and worries about the national security implications of war in the Persian Gulf, oil was at the center of politics. For years a precondition of appointment to Ways and Means was supporting a tax break for oil—the depletion allowance. Texas, Oklahoma, and Louisiana oil money—originally Democratic for reasons of either state politics or opposition to giant eastern oil companies (whose pipelines and market power continually threatened smaller but still rich operators)—became a major financial prop of the Democratic party.


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As the Democratic party became more liberal, its conservative southern wing became less influential. The "small" operators of Texas and its neighbors came to realize that they were rich men, sharing some interest in national politics with the "Seven Sisters" of the international oil business. On the whole, Democratic biases, favoring price controls and other measures to ease customers' pain from the dramatic oil price run-ups during the 1970s, did not sit well with oil men. Republican biases toward letting the market decide were much more congenial to people who, for the moment, supplied a commodity for which there was great demand. Democrats had lost their grip on the oil money; it was missed.

The oil industry was not merely of interest to a few fat cats. Many thousands of people received royalties from oil wells; hundreds of thousands more depended on the health of the industry. In Oklahoma there are oil wells on the grounds of the State Capitol; in Baton Rouge, capital of Louisiana, the giant Exxon refinery is a symbol of petroleum's importance. Oil is important in its region in the same way the auto industry is in Michigan or the federal government is in Washington and its suburbs. James Jones said that as many as twenty votes on thetax bill would depend on the treatment of oil. Secure in upstate New York, Barber Conable could call Kent Hance a "knee-jerk oil man";[52] Hance had little choice in the matter if he was to serve his district.

Oil politics focused on redistributive issues: who would pay and receive more or less depending on governmental policy. When OPEC drove up prices during the Carter administration, the oil states raked in money from the rest of the country. In order to assure supply, Jimmy Carter worked for a phased decontrol of prices (which oil interests liked); to prevent further regional redistribution, however, he fought for the windfall profits tax. In this battle over energy policy, the oil-producing states had ideological allies in the Republican party; but it was essentially a regional battle of oil interests against everybody else's, and oil was outnumbered. In 1981 fortunes dramatically reversed. Instead of a losing protagonist in a policy battle, oil representatives found themselves—because of their ideology and the balance of power within the House—a crucial swing group, courted by both sides.

Democrats appointed Richard Gephardt—both budget and tax reformer, and deal maker from Missouri—as their negotiator with the oil Democrats. Senate Finance's proposal to increase the tax credit against the windfall-profits tax from $1,000 to $2,500 for royalty owners (generally, landowners who have sold rights to drill on their property) would be justified as an aid to the "little guy," the farmer who just happens to have an oil well on the back forty. The Ways and Means Democrats were looking for something more.

They came up with a plan for a tax credit of $4,300 for royalty owners,


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that is, a windfall-tax exemption rising to three and a half barrels a day by 1986. This latter provision could be worth far more than the credit. With other exemptions for newly discovered oil, their bid was estimated to cost $7.1 billion through 1986.[53]

Over in the Senate, during debate on the Finance Committee bill, Lloyd Bentsen proposed to more than double the House offer. Although Dole got Bentsen's amendment tabled, 61 to 38, the Finance chairman concluded that some compromise was necessary. He therefore proposed a further reduction, beyond the Ways and Means plan, in the windfall profits tax on "new" oil. Administration lobbyists were unhappy with the cost of this proposal (raising the ante to $11 billion) but could not say much because Reagan was known not to like the windfall profits tax.[54] Northern Democrats, however, now began a filibuster—enough was enough. Dole found that he did not have the votes for cloture to limit debate, a development that may not have disappointed him very much; so on July 22 he dropped his amendment. As of that day, therefore, the Ways and Means bill was superior to either the Senate's or Hance-Conable as an oil subsidy. Charles Wilson was confident about the final outcome: "I will state categorically that we have the Republicans beat on this bill."[55]


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