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Ten
A Government Divided

What members found at home was no cause for thanksgiving. Unemployment climbed to 8.8 percent in December. As people stopped buying their products, businesses stopped investing to produce more. The public's reaction to the slump eliminated the sense that Congress had to follow the president, without providing a clear alternative message.

The Initiative Shifts toward Senate Republicans

In December only 36 percent of voters said they were better off than a year before; 59 percent felt they were not.[1] In January a Gallup poll reported that 53 percent wanted Democrats to win their congressional district, compared to 41 percent for Republicans. The public still approved Reagan's performance but by the lowest marginal percentage ever after one year of a presidency (52 to 38). On any particular issue—the tax cut, greater emphasis on inflation than on jobs, effectiveness on inflation—narrow margins continued to endorse Reagan. But that seemed, as Gallup's president put it, "hope—not conviction."[2]

The voters distrusted the Democrats even more than Reagan; one-quarter had "a lot of confidence" in his ability to solve the nation's economic problems, while only one-tenth had confidence in the Democrats. In the abstract, people favored "greater cuts in government spending." They also opposed higher income or gas taxes. Unfortunately for Reagan, there was little support for cutting specific programs. A plurality wanted to reduce defense.[3]

The economy continued to slide. Unemployment rose to 9.8 percent by July and 10.8 percent in November. Gross private domestic investment fell by more than 20 percent between the third quarters of 1981 and 1982. By December 1982, industrial production fell to the level of


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1977. Supply-siders had argued Americans would work harder because of lower marginal tax rates. However, there were many implicit qualifications; for example, a sufficient supply of money should manifest this incentive, and the cuts should be not merely anticipated but actually effected. But no one was hiring.[4]

As the recession deepened, so did public skepticism about Reagan's leadership, the military buildup, and scheduled tax cuts.[5] Strong majorities opposed further cuts in aid to the poor. In March the most popular option for reducing the deficit, by a 5 to 3 margin, was eliminating the July 1982 tax cut.[6] There would be far less support for raising taxes once people had the cut in their pocket.

Unlike other presidents, however, Reagan's support would not go into a free-fall. By July the decline had halted, even though the economic slump intensified further. His hard core of supporters, present since early in his administration, held firm at around 40 percent of the electorate. Thus, he would not feel as pressured as Carter; yet he also could not rally public support behind him.

Public opinion encouraged stalemate. So did economic logic: massive deficits fueled calls for budget restraint, but the recession provided a strong argument against spending cuts or tax increases. Both concerns, deficit reduction and the recession, lessened the confidence of Reagan's original supporters. "We really believed—and still do—that what we did was right," said boll weevil Billy Lee Evans of Georgia. "All of us would just like to see some indication that these things are working."[7] Donald Regan argued the program had not gone far enough; if the tax cut had been 10 percent in July, none of this bad news would be happening. This classical argument to do more—equally applicable to bombing North Vietnam or spending money on poverty programs—was drowned in a sea of economists condemning the deficit. Of course, as the early December meeting of Time 's Board of Economists revealed, the economists differed widely about both the relevant evils and their solutions.[8]

Elite opinion was revealed most clearly when CEA member William Niskanen, on December 8, told a seminar at the American Enterprise Institute that, according to his research, "there is no direct or indirect connection between deficits and inflation."[9] Niskanen had resigned from the Ford Motor Company because he refused to offer arguments contrary to his personal beliefs in regard to the undesirability of restricting foreign competition. On this occasion, Niskanen had correlated size of deficit with all manner of bad things and had found no relationship. So, as usual, he told the world what he thought. Niskanen was immediately blasted by all the organs of "responsibility," such as Time and Newsweek . "It was a 'How I Learned to Stop Worrying and Love the Deficit' performance that stunned me nearly speechless," said Republican and former


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OMB chief economist Rudolph Penner (who in 1983 would replace Alice Rivlin as CBO director).[10] The spiraling deficit numbers made it easy to accuse the administration of trying to slough off responsibility.

"Responsible opinion," with its horror of deficits, was deeply entrenched in the White House itself. It just didn't include the president, who identified deficits only with deficit spending. He wanted to cut spending, but, if he could not, Reagan would live with the contradiction between his present results and his past efforts as the scourge of budget deficits. The Economist expressed the divisions within the administration very nicely at the end of 1981:

"We stick with our tax programme," Mr. Reagan told his news conference on December 17th. "We go forward with the reduction in tax rates. I have no plans for increasing taxes in any way." Both in the White House and at the treasury his advisers are divided about the extent to which the president means what he says. Those who doubt the magical revenue-yielding properties of supply-side economics think he is going to have to ask for some new taxes sooner or later, and so they explain that when he says "taxes" he only means income tax, he is not ruling out the customs or the excise. Their only ground for this contention is that, if it is not so, the budget prospect becomes too horrible to contemplate. Mr. Reagan has given no sign at all that he shares their alarm. Unlike the Democratic economists, he does not see a remission of tax as an expenditure; to him it is a beneficent shrinkage of government interference in the life of man.[11]

Both sides were correct: the president did not accept his aides' logic, but he was going to be forced to raise taxes anyway. He was determined, but the pressure was intense—and his credibility was reduced as the economy went to hell in a handbasket.[12] Like Carter in 1980, Reagan would be pressed to "do something."

Reagan did want to balance the budget, but he didn't want to give up the rest of his program to do it. Far better, in his view, he strove to make deficit reduction compatible with his preference for smaller domestic government. Reagan so disliked domestic government programs that he could give a little on taxes and defense to get some social-spending reduction. The difficulty was that Reagan's idea of compromise—given his rather extreme position relative to other politicians on most of these issues—might not look like much of a deal to others. Still, the bounds of negotiation could be revealed only by experience. If some package could win the president's approval, he might, in turn, be able to help it pass in Congress.

From that day to this, the search has been on for a formula to compel Congress and the president to do right, that is, to balance the budget quickly and sensibly. Senate Republicans played the central role in the


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search for this formula-to-end-all-formulas because they cared the most about balance. Liberal House Democrats and conservative Republicans in the administration cared about deficits as well. We will see why the Democrats became even more interested in balance than they had been in Carter's time. Yet the two wings stood for other things as well. The right was against domestic government and taxes and for a strong defense. The left was for domestic government and its efforts to provide social security in the widest sense. The center, however, stood for balance above all; balance as proof that the system was working, that they as politicians and the nation as a community were responsible, that they could govern. At times, Senate Republicans had help from these moderate Democrats. Hollings, and later Lawton Chiles (D-Fla.), led Democratic budget balancers. The great organs of opinion—New York Times, Washington Post, and the newsweeklies—also led demands for action against the deficit. Mainstream economists found certainty again and joined the chorus. Still, the protagonists of that period from August 1981 through December 1982 would be Senate Republicans, continually searching for a position on which they could unite and to which they could win over the president.

Senate leaders (Howard Baker, Robert Dole, Pete Domenici, and Appropriations Chairman Mark Hatfield) had made clear all along they were worried about deficits but thought that a new Republican president should be given a chance. When the economy began to deteriorate, they could argue for modifications in the program, suggesting alternatives, without seeming to abandon either principle or the constituents who elected them.

Selling a deficit package to all the other factions in the government would not be easy, for Ronald Reagan's victories obscured many divisions within Congress.

Lots of Attitudes Mean Little Latitude

We have argued that the bargaining over Ronald Reagan's taxing and spending package was shaped by the difficulty of uniting southern Democratic boll weevils and northern Republican gypsy moths. The circumstances of early 1981 were ideal for overcoming such divisions. A new president was on his honeymoon; the failures of his predecessor fed a demand to "do something"; the president had no failures of his own to defend; the public was willing to give him a chance; members of his party, elated by control of one branch of Congress for the first time in a generation, united to show they could govern. Senate Republican unity on budget votes was unprecedented.[13] House GOP unity, though limited to far fewer votes, was nearly as impressive. Thus, Reagan was able to


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hold his party and win over enough House boll weevils to build a majority. All the favorable circumstances vanished by the end of 1981; they are summarized in the fact that the president was no longer leading. After the September offensive fizzled, budget votes were no longer matters of support for "the president's program." As program content became more important, therefore, so did the divisions of preference among congressmen.

These divisions, shaping decisions in both chambers, were both more visible and more effective in the House. Senate Republicans, under the skillful leadership of Howard Baker, trying to make the most of their rare opportunity to govern, knowing that if they could settle differences among themselves that would be enough, remained remarkably unified. The House had no such governing party; Republicans needed help from the boll weevils, who in turn were very different from most Democrats.

Party, region, and ideology are the major cleavages among American politicians and voters. They overlap in large measure, but nowhere near perfectly.

Broadly defined, a party is an alliance of politicians united to help each other win elections, control Congress and the presidency, and thereby enjoy the fruits of government. Members of Congress vote with their party because this stable, if rather weak, system helps them know who their friends are. But party also has a strong, often forgotten, ideological component. The budget battles highlighted deep differences within parties in attitudes toward the government and the market. In the United States, what makes party divisions rather messy is a disjunction between party as alliance and party as ideology. That disjunction is mainly a consequence of regional divisions.

The heritage of slavery exacerbated regional economic differences. Until the 1960s, Civil War memories and the search for allies to defend the remnants of its "peculiar system" left the Democratic party as the only party in the South. Republicans, who waged the Civil War, were not welcome. The Great Depression gave Democrats something like parity in the Northeast and Midwest, making them, because of their southern monopoly, the normal party of government. Yet the powerful unions and ethnic groups in the North fit very badly with the WASP conservatism of the South. In the 1960s, when Democrats in the North finally turned on their southern compatriots over civil rights, Republicans began to court the South. At the same time many more liberal Republicans in the North moved toward the Democrats.

From 1964 to 1980 the disjunction between ideological and regional bases of the parties diminished. Yet many Democrats in the South held ideologies that did not much resemble northern liberalism. Especially on issues of race, religion, and social values, Republicans in the Northeast,


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upper Midwest, and Pacific Coast states were far from comfortable with their party's courtship of the South. They were descendants of the Yankees who, though quite capitalist, had a "commonwealth" ethic of noblesse oblige and community governance that fit poorly with both Reaganite individualism and New Right moralism. As we saw, their districts' material interests also made these gypsy moths more supportive of social programs than were most Republicans.

For most legislators, the 1981 battles on the budget resolution, reconciliation, and tax cut saw party, ideology, and regional interest support each other. The boll weevils, however, followed ideology and interest over party, while the gypsy moths favored party. All that was possible because attention was focused on general characterizations of policy rather than on program content. When the issue became content, as on the tax auction, less grand definitions of interest became more relevant.

Groupings

Every bill will tap partisan and regional interests. Both a bill's debate and its provisions shape attitudes. We know, for example, that members of Congress are more willing to cut programs if they can focus attention on the money saved, not the programs cut. That was one point of reconciliation; it is also seen in the popularity of across-the-board cuts, rather than targeted ones, like those at the end of 1981.[14] Because each bill poses issues differently, we need to look at many bills in order to understand the cleavages within Congress about budget policy. When we look at such a variety of bills, we see less stable coalitions than our previous story suggested. Yet amidst the cacophony of roll calls is a modicum of order, enough to suggest why Congress would have trouble solving the budgetary dilemma.

House members in the 97th Congress may be divided into six groups, more or less from right to left: domestic opposers, responsible conservatives, Sunbelt conservatives, Frostbelt moderates, Democratic loyalists, and diehard liberals.

Approximately forty opposers were fervent supporters of Ronald Reagan, and almost all were Republicans. They were distinguished from other Reaganites by their unwillingness to compromise even as much as their leader. They opposed the domestic government at every opportunity. They voted against individual appropriations that almost all other members supported. They voted against continuing resolutions. They voted against a tax hike even when endorsed by the president. They voted for spending cuts everywhere but in defense; for example, they supported cuts in farm programs and water projects.

About fifty responsible conservatives included most of the Republican


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leadership and a few Democrats. They were stronger for budget balance, as opposed to simply opposing spending. Thus, they would support the 1982 tax increase, casting far fewer symbolic votes against routine appropriations, while supporting Reagan's basic priorities.

Unlike the first two groups, the ninety or so Sunbelt conservatives were united more by region than by party. About two-thirds were from the South, and Republicans constituted a slight majority. These members were quite conservative, but regional interest came first. They backed Reagan in hiking defense and cutting urban programs but, unlike the previous two groups, strongly supported rural "pork": water projects and farm subsidies. They also voted against the 1982 tax hike.

The sixty Frostbelt moderates were the regional mirror of the Sunbelt conservatives. Almost all from the North, they were willing to cut farm subsidies and water projects. While they supported Reagan on most big votes, they were uncomfortable with the military buildup, particularly when forced to choose between it and medicare. This largely Republican group was the broadest definition of the gypsy moths,

Around seventy members were Democratic loyalists, mostly southern and western Democrats who shared regional concerns with Sunbelt conservatives but who were much more comfortable with the Democratic party. Some were liberal; some were senior; all were pretty loyal. Their regional interests showed up in strong support for agriculture and water projects. They were more prodefense than were Frostbelt moderates. They opposed Reagan on major votes and strongly supported the appropriations bills, compromises no one loved, which kept the government running.

The last and largest, though outnumbered, group was around 110 diehard liberals who were northern Democrats. They opposed Reagan at almost every turn. They particularly opposed the defense buildup. They agreed with Stockman and Reagan, however, in one area: they didn't like rural subsidies, crop supports, and water projects. Some of this opposition was regional interest; some was the attitude toward business subsidies represented in support for reconciliation by Representatives Seiberling and Miller, the liberal side of Stockman's argument about justice and corruption.

The administration's maximum coalition consisted of the first four groups, between 240 and 250 members. But it would not be so easy to get because the Frostbelt moderates and Sunbelt conservatives did not agree on much of substance. Furthermore, a moderate-conservative budgeting compromise, if it lost the opposers, would need backing from members of one of the two Democratic groups. House Democrats, meanwhile, would have their own problems assembling a majority. They could rely on only two groups, about 180 to 190 members. If they allied with


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the Frostbelt moderates, the loyalist Democrats would worry about defense and rural programs; alliance with Sunbelt conservatives was even less likely because they and the diehard liberals disagreed on virtually everything.

These groupings only reflected tendencies; on any particular issue, local concerns and the merits of the individual case would affect many members. If a vote was on one issue, rather than on a package, members could be targeted and lobbied, as on civil service retirement in the 1980 reconciliation. The clearest case of pressure occurred in May 1981, on the Export-Import Bank.

Congress had to pass a very large supplemental appropriation, H.R. 3512, before the FY81 CR expired on June 5. Reagan used the opportunity (so kindly granted by the Democrats' maneuvers) to request $15 billion in rescissions and an extra $12 billion in military spending. He had the whip hand because spending was expiring; the rescissions were mainly in slow-spending programs like housing; and, after reducing the rescission slightly, Congress passed the package easily. In the course of House consideration, however, Appropriations split the difference between the Export-Import Bank's $5.9 billion existing FY81 loan authority and Stockman's request of $5.1 billion. Diehard liberal David Obey submitted an amendment to cut to Stockman's level.

Export-Import's biggest beneficiaries are very large corporations (like Boeing) and big, very liberal unions (for example, the machinists, who work for Boeing). Good Republicans and good Democrats. Obey won, 234 to 169, on a ballot that split the parties (Republican 113 to 70, Democrat 121 to 99) and our six groups. Only the opposers, who disliked all subsidies (by 36 to 4) and the Sunbelt conservatives, who represented little industry that benefited from the Bank (by 62 to 21) came down strongly on one side of the issue. That night the affected groups got to work, and the next day the House reversed itself. The biggest switches were among the subsidy-oriented Sunbelt conservatives and the Democratic loyalists. The former went from 62 to 21 in favor of cutting to 42 to 40 opposed. The moderate loyalists went from 35 to 30 in favor of cutting to 52 to 14 opposed. Only the opposers and the responsible conservatives hardly moved at all after the lobbying blitz. Obey lost, 162 to 237. A program supported by business and labor groups was still hard to reduce. Lobbying pressure was most effective on an isolated issue, especially when applied to those members with least ideological or partisan commitment to reductions per se.[15] They, however, were a majority.

Diverse preferences were highlighted most clearly in a series of votes on the reauthorization of the Legal Services Corporation (LSC). Reagan had wanted to kill Legal Services ever since, when he was governor of


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California, California Rural Legal Assistance, funded by Legal Services, had blocked some of his policy initiatives in the courts. Local legal services agencies had a disconcerting and well-publicized habit of suing local and state authorities who, the poverty lawyers believed, were administering programs in ways contrary to the law. The LSC lawyers also won frequently. Many conservatives did not approve of the federal government paying liberal attorneys to sue the locals; even some moderates were uneasy with the idea. Liberals admired it: because everybody else had access to the courts for such purposes, so should the poor or, at least, their self-appointed legal advocates.

An amendment to ban political action by legal services agencies passed 275 to 146, with diehard liberals heavily opposed and moderate loyalists split evenly. It should be noted that, because few Republicans worked at the typical legal services agency, political action generated massive Republican opposition. A ban on lawsuits against governments also passed. The most revealing vote came on a motion to recommit (that is, kill) the legislation. It was phrased as allowing a hearing on the president's proposals (i.e., to eliminate the LSC), thereby making the vote more a matter of loyalty to the president than it would otherwise have been. Yet recommittal lost 176 to 233, as forty-two Republicans voted against it. Opposers and Sunbelt conservatives strongly supported the motion. Diehard liberals and moderate loyalists strongly opposed it. Responsible conservatives mainly supported their president, but the Frostbelt moderates voted almost two to one against recommittal. Even in June 1981 they would go only so far in support of the president.

Farmers

The Export-Import Bank showed how group pressures could limit spending cuts. Legal Services showed the ideological limits on Reagan's revolution. The farm bill, later in 1981, showed why both budgeting and politics are very difficult. Sometimes you just can't tell who will ally with whom or what a proposal will do if it passes.

Agriculture is the nation's largest industry and, going back to clipper ship days, a major export industry. Modern agriculture is very capital-intensive; for most crops, tractors, land, and feed cost far more than the labor employed. Farmers often carry considerable debt, so they are at risk in bad years. Bad years come fairly frequently because prices fluctuate greatly. Prices depend on supply, which depends on weather, not only in the United States, but in the rest of the world. The only thing as bad for a wheat farmer as bad weather at home is really good weather in Argentina.

Farmers, therefore, always want assurances of what they consider reasonable


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prices. Since the Depression, the government has tried to help. Economists have argued all along that these attempts to help farmers could only make them inefficient. They have been wrong and right: American agriculture gets steadily more productive and efficient, meaning the number of farmers continues to decline. No generation has been quite willing to take the economists' advice. The result has been a complex system whose terms change as market conditions change or costs get too high or some crop's supporters come up with a new idea.

The variety of programs and crops makes farm subsidy politics a fragmented arena. There are, however, some natural alliances by region: cotton, sugar, tobacco, and peanuts from the South; wheat, corn, and soybeans from the North. Certain crops, particularly the grains, are more vulnerable than others to the vagaries of weather and international markets. The combination of regional histories and crop peculiarities has divided the farm bloc into a liberal/radical side (the National Farmers Union and, somewhat, the Grange) and a wealthier conservative side (the Farm Bureau).

Farm Bureau types were more likely to look to export markets for higher profits; the Reagan administration hoped to reduce costs while helping their constituents by promoting exports. Many farmers, however, saw no need to take risks; if the government wanted to help exports, that was great. But if prices went down, those farmers wanted to preserve the existing system, built from a series of logrolls. They stuck together, recognizing their individual weakness: tobacco helped corn, cotton helped soybeans, and milk helped peanuts.

One more giant logroll lay at the heart of farm policy. Nonfarmers had at best a mixed interest in high prices for farmers because, after all, nonfarmers had to pay for the farmers' food. Also, farmers, in spite of their risks, were frequently quite well-off and distinctly Republican. Even the more liberal farmers tended to come from areas, like the Dakotas, of traditional Republican loyalty. So the big city liberals and the farm representatives made a deal; the former would support farm programs if the latter would support food stamps. Food stamps and farm programs were authorized every four years or so in the farm bill. It was an unstable marriage because, although the partners did not much like each other, they needed each other.

The farm bill came up again in 1981. Its consideration was shaped by events during the battle over reconciliation. When a number of farmstate legislators made food stamp cuts real by voting for Gramm-Latta 2, they broke the alliance with urban liberals. The liberals would remember.

The farm bill was already in trouble when it hit the House floor in October. It originated in the Senate, where Agriculture Chairman Jesse


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Helms was not likely to ask for, or get, much help from his more liberal colleagues and Republican leaders were leery of the deficit. "We've never had such a hard time, believe me," said one peanut lobbyist. "Agriculture needs to stand together, but we seem to be getting nothing but splinters."[16] First, the Senate cut the milk price support level from 80 to 70 percent of "parity." (Parity is quickly defined as the price when times were very, very good.) That was what the Reagan administration wanted. Then, even though the administration sat on the sidelines, as it had promised Georgia House members in the reconciliation fight, Richard Lugar (R-Ind.) led an attack on the peanut allotment system. Despite Howard Baker's support, a motion to table Lugar's proposal was beaten 56 to 42. A senator commented that the vote reflected antagonism against Helms. Only a hastily drafted compromise preserved a weakened peanut support system. The farm coalition barely protected sugar and tobacco. Robert Dole led a move to trim back increases that the Agriculture committee had mandated for wheat, rice, corn, and cotton. "I'll be criticized by some in my wheat-growing state for this," Dole explained, "but the farmers want us to stop spending, and they are willing to make some sacrifices."[17] Senate events made farm block House members justifiably nervous.

The House then passed a bill that was more generous than the Senate's. The key consideration was that the administration, in cutting deals with the southern Democrats on sugar, peanuts, and tobacco, so as to pass the tax cut and reconciliation, lost its ability to ask midwestern Republicans to sacrifice their programs on the altar of deficit reduction. Therefore, they allied with northern Democrats to (a) protect the North and (b) take revenge on those southern crops whose programs were protected in the earlier deals.[18] Diehard liberals, Frostbelt moderates, and responsible conservatives led the charge to repeal the peanut allotment system and sugar price supports. Diehard liberals had no reason to support fellow Democrats, like the Georgians and Louisianians, who had deserted them on food stamps. Only on tobacco, where the North Carolina delegation had supported the Speaker on the big budget votes, did the diehard liberals have no reason to take revenge. And enough of them supported the program for it to go unscathed.

The bill went off to conference. Tobacco, peanuts, and sugar survived, but, by the standards of previous years, the compromise seemed favorable for the Reagan administration.

Democratic leaders did object to giving Reagan another shot at the farm bill in 1983. So after a series of mostly nonpartisan votes, as Frostbelt moderates and diehard liberals cooperated to cut subsidies, the proposal to cancel FY84–85 reauthorizations resulted in nearly party-line division. Democrats won 201 to 188, picking up 9 Republicans and losing


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only 22 Democrats. The farm bill then passed 205 to 173, with mostly Democratic votes. The administration was unhappy with its totals; some liberals thought it was too generous; some moderates felt things had worked out just right; and some Sunbelt conservatives decided they had better take what they could get.[19]

The greatest irony in the farm story was yet to come. The administration, which had not quite understood how farm programs worked, made some mistakes. As the year went on, it became clear that the farm economy was in a serious depression. Prices slumped; farmers defaulted on their loans; and the federal government spent three times more than planned on aid to farmers.[20] All the permutations of ideology and interest, ambition and revenge, had far less effect on spending than did the inexorable workings of the economy.

With a series of uneasy compromises 1981 drew to an end. In late November, the House passed a DOD appropriation. Support for the military was still high as the House gave the administration almost all it wanted. Proposals to delete funds for the MX missile and B-1 bomber received only 143 and 148 votes, respectively. Yet a 2 percent cut in procurement and R&D lost by only 204 to 209, with northern Republicans, such as Bill Frenzel, using the opportunity "to warn the Defense Department that, unless it demonstrates a real commitment to reduce wasteful, unnecessary spending, it will lose the strong coalition that now supports the strengthening of our defense."[21]

Congress also faced the embarrassing task of passing a second budget resolution. Senate Budget reported out a second resolution that, as the Congressional Quarterly reports, "merely reaffirmed the first…. The report accompanying the resolution was a long disclaimer for the committee's action. 'Approval of the resolution, without recommendation, is a stopgap solution to a problem that the committee found intractable at this time.'"[22] The resolution passed 49 to 48. Democratic and Republican budget leaders cooperated in getting the Senate's resolution passed on the House floor, 206 to 200. The leaders all admitted they were just trying to get rid of the darn thing. "There should be no confusion that this will get us through the year," said James Jones. "But this is the only thing upon which we can reach agreement."[23] When the only thing people can agree on is pure fantasy—budget balance without budget action—they are in trouble.

As Congress passed this pro forma budget on December 11, it also finished work on a third continuing resolution. H.J.Res. 370, as passed, followed negotiations among administration and congressional Republican leaders, particularly Mark Hatfield and Silvio Conte, moderate leaders of Republicans on the two appropriations committees. The resolution cut discretionary spending by 4 percent from the levels in Senate or


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House pending bills, whatever that meant; the provisions as to which bill applied were as complicated as those in the aborted second CR. The package also increased spending for education block grants, railroad retirement pensions, and low-income energy assistance—sweeteners for gypsy moths like Hatfield and Conte. All in all, H.J.Res. 370 was estimated to reduce domestic outlays by $3.7 billion from previous estimates of the totals for the bills included.

Work continued on regular appropriations. The HUD bill totaled $1.7 billion more in budgetary authority than the president's September request for $58.7 billion, but it also allowed Reagan to cut by 5 percent any budget account that exceeded the September request. It therefore was essentially a victory for the president.

The most complicated battle at the year's end involved foreign aid. The foreign aid bill had not passed in either 1979 or 1980, in part because Congress thought it was in the domestic aid business and in part because of bitter partisan divisions over the proper balance between military and economic assistance. The tortuous bargaining process within both the House and the conference committee ended in a compromise that not only preserved the usual balance between economic and military assistance but actually produced a bill. If there was a hero in the process, it was Jack Kemp, who designed and fought for the crucial compromise on International Development Association funding.

Thus, the year ended with three bills still financed by a CR (Labor-HHS-Education, State-Justice-Commerce-Judiciary, Treasury-Postal-General Government), while Ronald Reagan, Jack Kemp, and Tip O'Neill worked together for a foreign aid spending increase!

The CR and foreign aid compromises might encourage the moderates who hoped all good men could agree on a responsible deficit-reduction package. The budget resolution sham could only discourage them. In retrospect, the signs were discouraging, but that is more obvious now than it was then.

The gypsy moth-boll weevil coalition had already been pushed as far as it could go. Without that coalition, there was no governing majority in the House. The politicians, however, could not know as much. Take the Democrats. They could see that the gypsy moths' ideology and district interest should keep them from supporting further social spending cuts, but the trouble was that the moths, by that logic, should not have supported Reagan to begin with. When you have been clobbered three times in a row, it is hard to believe that won't happen again.

Reagan's victories, even though they had ended five months before, were so dramatic, so different from results in previous years, that no one could be sure of their calculations. Stockman had lost a lot, but he had won some, too. The Republican budgeters in the Senate had been


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thwarted in the fall. But they controlled their chamber; they had won smashing victories on spending earlier; Reagan had not been around long enough for the senators, or even his staff, to appreciate the depth of his preference for tax cuts and a defense buildup over budget balance. The shifting coalitions we have detailed in the House could mean many things; on peanuts, for example, the House floor had gone beyond the Reagan administration's efforts to cut programs.

The forces of responsibility could also be encouraged by 1981's budget processes. The first resolution was enforced as fully as could be reasonably expected; as CBO later reported, deficits stemmed from the economy, not from congressional failure to keep budget promises.[24] Reconciliation obviously provided a means to package major deficit reductions. If agreement could be forged, it could be enacted.

Carter's January 1980 deficit projection had been $15 billion; Reagan's December 1981 projection, based on the evident recession, was ten times as much. The problem kept getting larger; agreement, so fervently desired, was growing correspondingly more difficult. And the Republicans were divided. Howard Baker pressed for reductions in the defense budget: "I cannot believe that out of a budget as large as the Pentagon budget … we can't find $5 billion or maybe $10 billion that we can save."[25] He was skeptical about further cuts to discretionary programs: "We may have overdone it already with some of them."[26]

Taking in the deficit prospect and the cleavages in his own party and the rest of Congress, Silvio Conte concluded, "What we really need is a magic wand. There's going to be a hell of a crunch here."[27]

The Party of Responsibility

As 1981 ended, the governing Republicans in the administration and Congress were deep into maneuvers over a budget plan for FY83. A year earlier the president had clearly set the tone and direction. Now the issue was not how or even how far to pursue his radical agenda; rather than a basic position altered at the margins to win crucial votes, with most votes taken for granted, the very nature of the entire package now had to be negotiated.

Over the course of many months, Senate Republicans would craft a package and convince the rest of the political system to support it. With the economy at its worst in more than forty years and with an election imminent, GOP senators managed a tax increase, called the Tax Equity and Fiscal Responsibility Act (TEFRA, or the 1982 act, to be distinguished from the 1981 Economic Recovery Tax Act, ERTA; the names say much). Passage of a tax increase under such circumstances was surprising enough; perhaps equally interesting were the bill's provisions.


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Straw-bossed by a mainstream Republican senator, Finance Chairman Dole, aided by quiet advice from Treasury, Senate Finance produced a package including many tax reforms long coveted by the Senate's dying breed of liberals. In other legislation, social spending was reduced, but not so much as the president might have hoped at the time he agreed to the deal. All in all, the 1982 budget battles were bravura performances by Senate Republicans, particularly Howard Baker and Robert Dole.

Baker was the consummate insider, a self-described "congressional brat," son of a House member, son-in-law of longtime Senate Minority Leader Everett Dirksen (R-Ill.), himself minority leader from 1976 to 1980. Baker was best known to the public for his performance on the Senate Watergate committee. He appeared earnest and diligent, continually asking, "What did the president know, and when did he know it?" (He could not then have imagined trying to protect another president against similar questions.) It is probably a sign of Baker's talent that Nixon's men thought he was aiding them, while as informed an analyst as Michael Barone of The Almanac of American Politics was convinced that Baker was trying to discover the truth. With his colleagues, Baker's greatest skill seemed to be the ability to make them feel good about going along with him. His personal skills, along with a fine sense of timing and maneuver, made him, by general acclamation, the most effective majority leader since (the very different) Lyndon Johnson.

Baker combined basically conservative policy preferences with an emphasis on doing the work of government. He deviated from conservative positions on matters that could be construed as questions of responsibility; for example, he supported the Panama Canal treaty and rejected ideological crusades on emotional issues like abortion.[28] Balance was Baker's policy, compromise his forte.

Robert Dole, who became chairman of Finance in 1981, was known mainly for his acerbic wit and partisanship. As chairman of the Republican National Committee in 1971 and 1972 and vice presidential nominee in 1976, Dole had seemed more a hatchet man than a creative politician. But Bob Dole was complicated. Badly wounded in World War II—after months of recovery, left without the use of his right hand—he was both an advocate for the handicapped and an architect of the food-stamp program.

In the United States it is especially important to know where a person comes from because the meaning of left and right, liberal and conservative, varies from one place to another. In The Almanac of American Politics, Michael Barone described Dole as a man

whose values and beliefs remain very deeply rooted in Kansas, but who is also a Washington insider, a politician who knows the Senate, the lobbyists,


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the media—and has been around long enough to see the individual senators, lobbyists and reporters come and go.

To understand Dole's politics, you have to understand that he … comes from a state where Republicanism is the natural affiliation of the majority and where the Republican Party's base is broad…. Kansas Republicanism believes in free enterprise, but it also understands that the untrammeled operation of the free market is going to hurt a lot of people. Kansas' populist past, and its frequent farm revolts, reinforce that lesson: Republicans as well as Democrats here believe in some sort of safety net. And, living in small towns where everyone knows, or knows something about, everyone else, they see the problems of the poor, not as theoretical, but as practical and personal.[29]

Unlike David Stockman, Robert Dole could not cut social programs merely on the basis of a theory about the causes of poverty. Like Stockman, Dole abhorred deficits and high interest rates, as do most Kansas Republicans and all farmers. It was easy for him to believe that irresponsible government borrowing could ruin decent productive farmers who needed loans for their businesses. That attitude had been common outside the financial centers since the days of Jefferson and Hamilton. Dole therefore was willing to cut social programs so as to reduce the deficit, but he also wanted bondholders and the military to bear some burden.

In part because no one else wanted it, an interesting trio seized the budget initiative: Howard Baker continually fostered a spirit of unity among Senate Republicans; Robert Dole carefully crafted TEFRA and then defended it skillfully; and Pete Domenici stubbornly insisted that the deficit problem be faced, by draconian measures if necessary. Reagan had no desire to attack his own tax cuts, little more in looking as if he wanted to cut social security benefits. Liberal Democrats were quite willing to oppose the defense buildup or the third-year tax cut, but they wanted Republicans to take the blame for any assault on universal entitlements, such as medicare and social security. House Republicans were looking for someone to follow who would not lead the country further into the depression or push the party off a cliff in November.

When Baker, Dole, Domenici, Hatfield, and Laxalt met with the president on December 18, after Congress had wrapped up the budget for FY82, their confrontation revealed real differences in substance. Dole said that he would not help cut food stamps unless something were done about defense. Laxalt held that unless the FY83 budget pointed credibly toward balance in 1984, Congress would see little reason to endure the pain of further spending cuts. Domenici argued that increased economic activity could in no way make up the revenue lost from the tax cut.[30] The president still wanted to slash social spending, not raise taxes. Senators


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and their allies in the administration wanted a big package, including a tax increase.

Thus, senators and their allies turned their efforts toward making the tax increase medicine as palatable as possible for their recalcitrant president. First, they had to demonstrate that the patient was sick. If the FY83 economic forecast showed fast growth, there would be no need to close the deficit. But preliminary projections by monetarists—led by Jerry Jordan, CEA member with primary forecasting responsibility, and leaked on December 7—showed a considerable slowdown in real economic growth. The forecast was resisted by supply-siders. After the leak, Donald Regan insisted that "we don't have an economic forecast we've agreed on yet. I'm the who isn't agreeing. I'm a little more bullish than my conferees."[31] CEA Chairman Weidenbaum, however, won that battle. Responding to his critics, he called the forecast "very optimistic, though not quite as optimistic as the supply-siders would like. If our forecast is dismal, the prevailing private-sector forecasts are the end of the world."[32]

The administration's projections were not too terribly out of line with historical experience.[33] Other forecasts were less optimistic because the Fed's monetary restraint would provide a level of downward pressure on the economy that had not existed in previous recoveries from a recession.[34] Supply-siders, such as Paul Craig Roberts and Norman Ture at the Treasury, argued that if any economic mistake had been made it was not the large deficits but rather the tax cut postponement. When the president asked Weidenbaum what would have happened if the original plan's 10 percent cut in July had been implemented, the CEA chairman replied that it would have boosted output in the third quarter, though with only small, "measurable but not significant," effects overall. Roberts then denounced Weidenbaum for a conclusion "inconsistent with the reasoning upon which Reaganomics is constructed"—a fair enough claim, but relevant only if Reaganomics did not include the monetary freeze. Roberts, who viewed himself as keeper of the flame, soon resigned in frustration.[35] Supply-side influence was steadily diminishing. Donald Regan lessened his own objections to new taxes, so long as they were fairly small and on consumption.

The next step for Reagan's aides was to find nice wrapping paper for the tax package. They found it in "federalism." Reagan had long advocated devolution of federal responsibilities to the states, so that decisions would be made by people at the grassroots. Analysts with very different ideologies than the administration's might be attracted by a plan that made some activities wholly federal and others entirely state activities. The difficulties were in determining which programs might be shifted and financing the resulting transfers. White House policy development


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staff had already been working on these issues when the political staff began to search for something positive that the president could say in his State of the Union message—preferably something to divert attention from the deficit.

The transfer of programs—called, say, a "New Federalism" or "New Partnership"—looked as if it might work. "We've got numbers showing the idea favored by margins of 8 or 9 to 1," Newsweek quoted "a Reagan strategist."[36] The senior staff decided to make federalism the centerpiece of the State of the Union address, so Stockman became involved in turning that policy into something that could be put into the budget. There was the opportunity for the deficit cutters.

The package being developed in late December began with a swap in which the states would take full responsibility for AFDC (the main "welfare" program) and food stamps, while the federal government would take over medicaid. In addition, more than forty other programs (sixty-one in the final package) would be transferred to the states. In order to finance these programs, a trust fund would be set up to receive revenues from various federal excise taxes. The trust fund would expire (in the final package, begin to phase out) in four years, by which time the states, presumably, would have decided which transferred obligations they wished to maintain and at what cost.

The whole package was definitely in tune with the president's predilections. He proposed such a transfer in his 1976 campaign, only to get in trouble when President Ford's campaign told New Hampshire voters their state would need an income tax to pay for it. In March 1981 Reagan declared that "I have a dream of my own. I think block grants are only the intermediate step. I dream of the day when the federal government can substitute for those the turning back to local and state governments of the tax sources we ourselves have preempted."[37]

On the budget front, the federalism plan provided two opportunities Stockman could hardly resist. If programs were being transferred to states, then, just as with block grants, Stockman could claim administrative savings that would justify expenditure cuts.

Better yet, the trust fund had to include revenues from taxes that the states could themselves impose, if they wished. Income tax revenues would not do because some states, as Reagan had learned to his chagrin in 1976, do not want an income tax. The fund instead would have to be built from various excises. But the available excises in no way added up to the cost of programs being transferred. Therefore, new excises—temporary, of course—would be needed to finance the fund. The fund and the spending would go off budget because they were "really" state activity. What remained in the budget would be reduced on the revenue side by the lost (smaller) old excises and on the spending side by the


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(larger amount of) transferred programs. Then the budget would be both smaller and closer to balance. It was all remarkably neat: a tax increase needed to accomplish the Reagan dream of smaller federal government.[38]

On December 22 and 23 Reagan met with his top aides to discuss the budget and the State of the Union. At the first meeting, he commented, "Well—I understand you're here to talk me into a tax increase." After hearing some details, he remarked, "Well, they're right, you are trying to talk me into a tax increase."[39] Don Regan made the main presentation of the proposal. Normally the leader of antitax forces, Regan disliked taxes on consumption (excises) far less than taxes on income or capital. The president gave a tentative go-ahead to the plan but wanted to see more details. He told reporters, "I don't think that consumption taxes are in direct opposition to the tax program we have instituted."[40]

Most excise taxes involved, such as those on beer, liquor, and cigarettes, had gone many years without change. Increases could be justified, though House Republicans, including Bob Michel, worried about taxing Joe Sixpack to give Daddy Warbucks defense contracts.[41] Senate leaders, however, joined to urge Reagan to support about $45 billion in tax increases over two years.[42]

At a meeting on January 20, Reagan rejected a number of tax increases listed in a decision memo drafted by Richard Darman, but said others were acceptable. Aides leaked the decision to the New York Times, no doubt to commit their troubled leader to his decision. As Washington and Wall Street were learning of the president's support for a package yielding $30 billion in FY84 and half that or less in FY83, however, an uneasy Reagan was meeting with Chamber of Commerce leaders. The Chamber lobbied hard for defense restraint rather than tax increases. In fact, they said, they would sit out the budget fight in Congress if Reagan proposed new taxes. Reagan heard the tax argument more clearly than the defense part. The Chamber's reaction made all of Reagan's own doubts seem politically more reasonable; he had begun to feel isolated as all of his aides ganged up on him. "I just want you to know that I've taken everything you've said into my heart, deep into my heart," he is reported to have replied. Then he told his aides that he had reconsidered. Even with federalism sweeteners, Ronald Reagan simply could not swallow the tax pill. "I haven't been able to sleep because of this. I just can't do it," Reagan told Michael Deaver the next (Friday) morning. "He stood up and was bouncing again," Deaver reported. "He felt better down to his toes. He was comfortable again. You shouldn't try to change him on basic things and it was a mistake for us to try."[43] (Here, as we say in California, was a man in touch with his feelings.)

Thus ended the cleverest of all Stockman's maneuvers. Reagan kept


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the federalism initiative in his State of the Union where it got much publicity. The New York Times's headline read, "Reagan Vows to Keep Tax Cuts; Proposes $47 Billion Transfer of Social Programs to States." The revenue hole was plugged by using the windfall-profit tax to earmark revenues for the trust fund for transferred programs. Because only the oil states would be able to replace the windfall tax, the device was of no help to most states or their senators and representatives.

Although it remained a major news story for a number of weeks, the federalism proposal had no obvious constituency. State and local officials, buffeted by recession and unhappy with 1981's block-grant legislation, quickly endorsed the idea of the transfer but remained skeptical about its costs. Rich Williamson of the president's staff, Governor Snelling of Vermont, and others negotiated extensively in attempts to create a plan that the locals could support, but their efforts were doomed to fail. More power and responsibility with less money was a lousy deal, and local politicians rejected it.

National politicians might have liked to dump their fiscal problems on the locals, but, because each of them came from somewhere, they would catch the grief, too. New Federalism seemed irrelevant. "My enthusiasm has to be muted a bit because it doesn't create one new job now," observed minority leader Robert Michel. "The President didn't discuss 1982 or 1983 at all," said Vermont's Senator Stafford. "We've got to live through them first." Senator Hollings, as usual, was the most biting commentator; Reagan, said that senator, had "just shifted around the deck chairs on the Titanic."[44]

If state and federal responsibilities were to be realigned, the process was going to be much slower and less direct. As the federal government was hamstrung by the deficit and while states that raised taxes to balance their budgets in 1982 got extra revenues during the subsequent recovery, states picked up a portion of the programs the feds were unwilling to finance. Indirectly, perhaps inadvertently, Reagan got a small part of what he wanted.[45]

In his State of the Union address, the president reiterated his faith:

Higher taxes would not mean lower deficits. If they did, how would we explain that tax revenues more than doubled just since 1976, yet in that same six-year period we ran the largest series of deficits in our history? …

Raising taxes won't balance the budget. It will encourage more Government spending and less private investment. Raising taxes will slow economic growth, reduce production and destroy future jobs, making it more difficult for those without jobs to find them and more likely that those who now have jobs could lose them.

So I will not ask you to try to balance the budget on the backs of the American taxpayers…. I will stand by my word. Tonight I'm urging the


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American people: seize these new opportunities to produce, to save, to invest, and together we'll make this economy a mighty engine of freedom, hope and prosperity again.

Whatever was happening conveniently could be made to justify the president's preferred policies. That this was pure rationalization, albeit heartfelt, is evident. We should be less sure that it is an unusual way to govern. Among other things, to govern means to lead, and to lead means to get others to follow. A leader works to (retrospectively) rationalize what is happening in terms that can support present and future policies. In this way the leader tries to give followers a coherent picture of the world so they will not only feel better but also understand their part in the scheme of things. Coherent, however, does not mean true by definition. Ultimately there must be contact with the world of events, which may prove the president wrong.[46]

Reagan's leadership style made more sense in dealing with the public than with the Congress with whom he shared authority in the divided U.S. political system. Reagan's rationalizations came from a world that Congress did not recognize; thus, he could not lead it. His definition of "uncontrollable" spending illustrated the problem. As he explained it in the State of the Union, "uncontrollability" was not, as understood by the budget community, a prior obligation through contract or law to spend. To Reagan "uncontrollable" meant wasteful.

Contrary to some of the wild charges you may have heard, this Administration has not and will not turn its back on America's elderly or America's poor. Under the new budget, funding for social insurance programs will be more than double the amount spent only six years ago….

But it would be foolish to pretend that these or any programs cannot be made more efficient and economical…. There's only one way to see to it that these programs really help those whom they were designed to help, and that is to bring their spiralling costs under control…. [People are] cheating the system…. Not only the taxpayers are defrauded—the people with real dependency on these programs are deprived of what they need because available resources are going not to the needy but to the greedy. The time has come to control the uncontrollable.

The president used statistics in ways that would sound better to the public than to the pros. Few budget experts in Congress would pay heed to his comparison in current dollars to those of six inflation-prone years before. Other comparisons Reagan made—such as a 16,000 percent growth in food stamps, from the time when it was a small pilot program—were equally flawed. Congress could as well have said that the increase was infinite because once there had been no program at all. Congressional leaders continually fumed about Reagan's reliance on anecdotes


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about food-stamp recipients who used the stamps to buy vodka, and similar stories, when he argued for his program in private meetings. Anecdotes serve more to reinforce a believer than to convince a skeptic.

The mutual misunderstanding was inevitable. Only our congressional opposers could understand because they agreed with the president. Reagan saw government as a child to be disciplined—remember the children's allowance theory; uncontrollability was sort of like not being toilet trained. Most members of Congress, by contrast, saw government as themselves. They saw uncontrollable spending not as waste but as their obligations, and they disliked the thought of going back on past promises.

Reagan's plan to gain control by limiting waste had nothing to do with the problem of being locked in by past commitments—save the possibility that, if a majority could agree that some provision of law was undesirable, Congress might remove any legal entitlement under that law. Barring such easily identifiable policy error, Reagan and many of his listeners were talking about very different things even if they used the same words.[47]

Reagan and Senate leaders perceived a budget crisis, but, where Reagan saw the problem as insufficient control of the government, the senators saw insufficient agreement within it. Reagan tried to use the deficit as evidence of the evil of social programs. To those who did not share his premises, however, there was another, more compelling, interpretation of the crisis: spending could be out of control because Reaganomics was not working.

The case against Reaganomics was made just hours before the president gave his State of the Union address, when Federal Reserve Chairman Paul Volcker, testifying before the Joint Economic Committee, gave his own version:

I am very concerned about the deficit in the out years because we do obviously want to look forward to recovery and growth in those years…. If the Government is going to stand out there and pre-empt a very large share of the savings flow, you call into question what financial market conditions will look like out there in 1983 and 1984. Anticipation of that situation tends to block the markets today.[48]

The president urged the American people to seize opportunities; Volcker warned against wishful optimism.

Pushed to the wall by events, President Reagan preferred to downplay the deficit. He was reported to have asked why the pessimistic projections had to be calculated at all. Told that the law required these forecasts, the president appealed to Stockman, who confirmed that it was so.[49]

Among the many tensions in Reagan's program, receiving most attention was the one between tight money and promised economic recovery.


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Politically, however, the most important tension was between the promise of economic recovery—necessary to maintain political support—and the desire for a general sense of urgency required to make people willing to cut social programs that were, individually at least, popular. Reagan seemingly wanted the politicians to believe both him and Volcker.

The goals of these two powerful officials differed: Where the president wanted to legitimate a reduction in the size of domestic spending, the chairman wanted price stability, at whatever level of spending existed. The center in Congress—Senate Republican leaders such as Dole and Baker and moderate Democrats and Republicans like Leon Panetta and Silvio Conte in the House—believed Volcker's version of the state of the union. But Ronald Reagan, as he reminded Senator Baker, was still president.[50]


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