Christmas in July
That would not do. On July 23, the Post reported, "The Reagan administration, preparing for a confrontation in the House … abandoned all pretense of seeking a 'clean' tax bill and substantially altered its tax package to include special interest amendments for the oil industry, savings and loan firms and a collection of other groups."[56] Stockman provides a vivid explanation of what had happened: "Everyone was accusing everyone else of greed, and cynically auctioning off the tax code. … At a White House strategy meeting, Minority Whip Trent Lott summed up the mood: 'Everybody else is getting theirs, it's time we got ours.'"[57] Republican House leaders, over the resistance of Stockman and, more important, Treasury Secretary Don Regan and Assistant Secretary for Tax Policy John "Buck" Chapoton, won a series of concessions. Opposition to All-Savers was abandoned, and the commodity tax break, which Reagan had blasted on July 14, became part of the package on July 23. Regan explained that these revenue reducing "giveaways" were necessary for the "greater good" of passing the administration tax bill.[58] Among other provisions added were a reduced holding period for, capital gains from one year to six months, the generous Democratic treatment of estate taxes, and indexing.
In a separate meeting with the boll weevils, the administration upped
the ante on oil, adopting not only Dole's proposed Senate treatment of new oil, but a series of other adjustments that raised the revenue loss to an estimated $13 to $16 billion. The White House had doubled the Democrats' bid.[59]
The oil provisions were the most publicized aspects of the tax battle, but there were many, many more. The Senate adopted 80 of 118 proposed amendments to the Finance Committee bill, creating a beautiful Christmas tree. These ranged from lowering the minimum corporation tax rate to a one-time $1,500 credit for adoption of certain disadvantaged children to a $10 credit for each pecan tree planted in South Alabama to replace each one blown down by Hurricane Frederick in 1979.[60] In short, the Senate adopted many amendments serving many ends.
The administration's July 23 agreements, about which Conable now had more of a say (some wags suggested calling it "Hance-Conable 2"), included special provisions ranging from sops for gypsy moths (tax credits for rehabilitating old buildings and for woodburning stoves) to a credit for investing in television shows, which Dole dubbed the "Gong Show amendment." By this time all parties to the great tax debate were embarrassed. "It's awfully easy to focus on the add-ons," declared Conable defensively. "If I were writing the bill, I would write it differently. Everybody would write it differently."[61] Liberals in the House finally began crafting an alternative. "It would probably be cheaper," David Obey suggested, "if we gave everybody in the country three wishes."[62] "It's terrible that we should be involved in a bidding war," Rostenkowski admitted. "But it all depends on whether you want to lose courageously or to win. I like to win."[63]
Stockman and Darman were beginning to wonder. As the budget director watched Ways and Means Republicans extract concessions from the Treasury on July 23, he passed a note to his colleague. "'I hope they're enjoying this,' it said. 'They've just put themselves out of business for the rest of the decade.'"[64]
The oil deal distressed Stockman further. He and Darman had assumed all along that they would have to compromise with Rosty: "[We] expected to have to give in on some spending, but it wouldn't matter because we wouldn't get all the tax cut." Instead the tax package kept getting bigger.
On the afternoon of July 23, the two most independent-minded members of the administration considered heresy: "Maybe," Darman suggested, "we should take a dive on this." If only they managed not to cut a few extra deals—they could see that more deals were needed—the tax cuts might not pass. "But in the end," Stockman reports, "we chickened out." Always the tactician and institutionalist, Darman told himself he was preserving the president's ability to govern. Stockman, more the
moralist, recalls that "calculated sabotage of the President's most cherished initiative was beyond the pale."[65] At least for awhile.
With all the ornaments attached, however, the biggest bucks were in the most defensible addition: indexing. Its cost was estimated, by Joint Tax Committee staff, at $12.6 billion in FY85, and $37.4 billion in FY86. When the administration added indexing to its House bill, the proposal was now in the Republican packages on each side. The editors of the Washington Post objected:
Congress has shown itself fully capable over the last decades of legislating tax cuts sufficient to offset "bracket creep." … Legislating a massive three-year tax cut in an economy as uncertain as the present one is folly enough. Sharply limiting the freedom of future Congresses to deal with whatever failures of current unforeseen shifts may emerge is mid-summer madness.[66]
A realist had to assume that fiscal policy would work better if choices were phrased as how much to cut taxes rather than how much to raise them. Democracies, in this view, need institutions that can help representatives do the unpopular and the necessary—in this case, match taxes and revenues. President Reagan, of course, would say the issue is too much spending, not too little collecting.
Whether sound or not, the argument against indexing based on grounds of fiscal flexibility is hard to sell. If the reader disbelieves us, try arguing that tax increases should be surreptitious, done in the dark of night, which is how bracket creep takes place. Indexing had already passed the Senate on July 16, 57 to 40 (Republicans, 43 to 8; Democrats, 14 to 32).
In the House, by July 17, Willis Gradison (R-Ohio) had 223 cosponsors on a separate indexing bill. Rostenkowski acknowledged that Gradison's bill would sweep through the House if a vote were taken but vowed to keep it off the House floor. Thus, Treasury Secretary Regan was under intense pressure when he capitulated on July 23.[67]
"It's like the arms race between the United States and the Soviet Union," said Representative William Brodhead (D-Mich.). "For every move, there's a countermove; for every weapon, a counterweapon."[68] There was one big difference: in the tax battle all the weapons were used.
The parties organized home district lobbying of possible swing votes. Democrats set up a "boiler room" in the Capitol with telephone banks for calls to newspaper editors in key districts. Party Chairman Charles Manatt asked contributors to contact wavering legislators. Democrats also tried to pressure the gypsy moths, particularly through labor unions, since many of the more liberal Republicans represented districts with strong union organizations.[69] The gypsy moths were uncomfortable at
being placed under such continuous pressure by the administration's unwillingness to compromise. "They don't have to put us to the wall every week," declared Carl Pursell (R-Mich.).[70] But it was hard to see how union pressure could be any stronger on taxes than on reconciliation. Ed Madigan (R-Ill.) concluded, therefore, that the "tax vote should not be too tough for them, but," he added presciently, "if Stockman tries for another $20 billion in cuts next year, it will be very hard."[71]
Republicans had bigger guns. As on reconciliation, they were helped by the fact that they controlled the Senate and the presidency. They had the money ($500,000) for a series of radio ads in swing districts. Most of all they had the president. He used the soft sell, inviting fourteen waverers to a barbecue at Camp David on Sunday, July 26. The waverers generally reported no change of mind; Charles Bennett declared that he felt that any tax cut was a bad idea and had told Reagan so three times. In the end, a sense of being personally courted could not have hurt as eleven of them did back the president. With some members Reagan made specific deals. Then on Monday, July 27, he went on television to sell his program.