Passing DEFRA

Congress returned in early June to conferences on the budget resolution and the reconciliation. The reconciliation conference, which began June 6, was the largest since 1981, involving twelve subconferences and sticky issues. Five of its subconferences were particularly important. We list the committees to make a point: in politics, much depends on who has a place at the table when the meal is cooked.

Not only the committees but the individuals involved mattered. Senate Finance had to cover four subconferences, so those with the least money involved (the second and fourth) got the least attention. Senators Dole, Packwood, and their colleagues put most effort into negotiating with Chairman Rostenkowski and his colleagues on the tax conference. Energy and Commerce Chairmen John Dingell and Henry Waxman could concentrate totally on medicaid and medicare part B; on the latter, liberals Charles Rangel (D-N.Y.) and Harold Ford (D-Tenn.) of Ways and Means played a major role while the more conservative, more senior Democrats—Rostenkowski, Gibbons, and Pickle—negotiated on taxes and hospital insurance. The negotiators on taxes were committed to meeting the targets, and House negotiators on medicare part A were quite willing to go even farther than their colleagues for spending reductions. The House had its toughest advocates of spending programs negotiating the non—trust funded health programs. Needing his own troops on taxes—and perhaps for more Machiavellian reasons (like keeping him busy)—Senator Dole had Russell Long, although a Democrat, represent the Senate on those health programs. Long was a southern conservative, but some of his father's populist blood still ran in him; he would prove rather responsive to Waxman's arguments. Thus, the participants in the subconferences helped guarantee the substantive result:

agreement on taxes and movement toward both the Senate position on medicare part A and the House's expansionary plans for poor peoples' health programs.

The fifth subconference on caps is important for what it did not do. It did not negotiate on appropriations caps. House Appropriations and Rules didn't think there was much to negotiate about. Their answer, simply, was "No!" Of the Senate conferees only Stevens really supported the Senate position. Senate Republican leaders therefore declared the caps a matter for negotiation between the two budget committees. The caps had to be negotiated there, anyway, in order to settle the budget resolution.

By June 14 the entire conference was deadlocked because of conflict over the caps. The Republican position—the entire package could not move without the caps—had a corollary if the caps were not settled. Senator Dole stated it succinctly: "I don't see any need to beat our heads against the wall in a tax conference if nothing else is going to happen."^[59] A special meeting on June 14 produced only recriminations. "Why should our conference go out on a limb early," one conferee asked, "if the Budget Committees may not be able to resolve their differences and the process may collapse?"^[60]

Domenici insisted more on the cap's principle than substance. His House counterpart, Representative Jones, however, argued that only after they agreed on priorities would it make sense to work on the process. Jim Wright suggested that Domenici was trying to "avoid dealing with the substance."^[61] Wright was correct, but two other considerations were also influencing Domenici. First, caps in principle increased the power of both his committee and the budget (as opposed to appropriations) process. Second, the caps were Reagan's guarantee that he would not be bilked on DEFRA as he believed he had been on TEFRA. Unfortunately for Domenici, his approach could mean no tax bill at all because there would be no conference agreement.

With the Fourth of July recess and the presidential nominating conventions coming up, time was scarce. Conferees set midnight, Thursday, June 21, as a deadline for agreement. Much was settled before then; in fact, $40 billion of the tax increase had been agreed by June 8. But contentious issues of politics, privilege, and policy remained—from cigarette excise taxes to commodity traders, capital gains taxation to policy about doctors who refused to take medicare patients on assignment (that is, agreeing to the medicare rate as full payment). Midnight passed with no solution. Finally, on June 22, the crucial compromises were made. Conferees bargained from morning to night and almost to morning again, finishing at 5:17 a.m. on Saturday, June 23.

The administration and Senate Republicans abandoned the spending

caps. Instead conferees agreed to "sense-of-the-Senate" language—that the Senate would abide by the separate defense and domestic targets in its appropriations bills. House leaders didn't care what the Senate said it would do, so long as the bill did not claim to bind the House. Meanwhile senators could say that nothing had really changed, which, in a sense, was true. After all, Hatfield had been right all along when he argued that one Congress could not bind another Congress (or itself). What then, we may ask, was the fight about? The House had resisted because Appropriations objected to the caps on principle, and Democrats saw no reason to vote for a defense/domestic distribution to their disadvantage. The senate waited because, at the very least, its leaders had to show good faith with the president by waiting until the very end.

No common theme unified the final $50 billion in tax increases; it could have been a classic product of tax committees, except that it raised revenues instead of lowering them. There were winners and losers and others who couldn't quite tell. There were benefits for poor people (the earned income tax credit), insurers, some investors, and governments.

Many tax increases involved provisions that seemed abusive, though in some nonideological way. The real estate depreciation period was raised to eighteen years; few believed a building's useful life to be as short as fifteen years or that office buildings and hotels needed help. Conferees tightened the rules on individual income-averaging, making that procedure, originally designed as exceptional, less routine than it had become. Such changes accounted for one-third of the tax increases. The tax writers also limited the pain of the tax increases by changing the law without changing people's circumstances. At least one-third of their revenue raisers were through delays of scheduled tax breaks (e.g., an exclusion for interest income, worth $7 billion alone) and extension of temporary taxes (e.g., for telephones, $3.2 billion). People were not losing anything they already had.

Time suggested that the result be called not a tax hike but "a bill to raise revenues largely by blocking extensive tax changes, and thus to make deficits get worse more slowly, assuming some guesses turn out right."^[62] Bismarck observed that those who enjoy sausage and respect the law should never watch either of them being made. The process that created DEFRA whetted no appetites, but nonetheless the government would find the tax hikes quite nutritious.^[63]

The spending subconferences produced $13 billion in spending cuts. We cannot quite say the House won. House Democrats wanted less social spending reduction than they got, and Senate Republicans, particularly Dole and some moderates, seem not to have minded those settlements that resembled Democratic victories. The president definitely did poorly. There were fewer reductions in social programs than he wished, some

of them were undeniably flaky, and few fit his philosophy. Poor people's programs like AFDC and medicaid were expanded.

Almost all of the $7 to $8 billion cuts in social spending came in medicare. Waxman, speaking for many liberals, explained that "we would have preferred not to cut medicare at all. But we were dealing with the reality of an administration that has as its primary objective cutting medicare by asking the elderly to pay more."^[64] Cutting doctors' fees seemed like a way to reduce spending without making the elderly pay for it. The major issue was how to prevent physicians charging patients more than a frozen medicare fee level. Lobbyists for the elderly were quite satisfied with the final terms. No more than 20 percent of the $7 billion medicare savings would be charged to the recipients.

Negotiations on medicaid and AFDC went down to the wire until the conferees settled on a package of changes that increased spending by at least $500 million. Some costs were unclear, which suited the Democrats just fine. "I remember coming out of there," a House aide recalls, "and I called somebody I knew at CBO to find out what [one provision] cost. I had a notion we had made a great deal, and told the CBO guy, don't tell anyone else unless they ask." Conferees rejected the Senate's medicaid cuts and accepted a scaled-down version of Waxman's CHAP program.

The administration, through Stockman, always had a voice in the settlements. However, no major participant, other than Stockman, had a real bias toward cutting welfare programs. Instead the leaders, and especially their aides, focused on welfare policy in its own terms: Who is served? What are the incentives? Are there people whom we want to help but do not reach? Budget worries, instead of provoking a search for cuts—any cuts—had produced a minilegislature, the spending subconferences, whose members took the opportunity to make a series of small changes that increased spending. "Waxman said the Senate conferees—Dole in particular—were 'very helpful, very cooperative.' An aide to Dole said the Senator 'was very pleased' at the outcome of the conference. 'We did the sort of juggling that no one ever thought we could do, and we did good things.'"^[65]

DEFRA's spending settlement confirmed, if any doubt remained, that the Reagan revolution against welfare spending was finished. One might conclude that the special interests of the poor and the elderly (represented by politicians like Waxman and Dole) were asserting their power at the expense of the general interest in budget reduction: the spenders were back in the driver's seat. That is only partially true. Waxman and Dole supported welfare increases because they believed in the policy. On medicare the question was not whether some interest group would lose out but which group—the elderly or the providers—would bear the

burden. Nobody ever wants to mess with the elderly or the doctors. That they chose to mess with either shows that legislators really felt compelled to do something about the deficit.

Congress approved the conference report on H. R. 4170, the Deficit Reduction Act of 1984, on June 27.^[66] Stockman advised the president to sign. He did.