From Bad to Worse
Delay in passing the FY81 First Resolution meant that a third resolution, revising targets for FY80 because the economic projections had been far off, was also delayed. That in turn delayed $16.9 billion in urgent supplemental appropriations for programs such as food stamps and medicaid. As the Senate and House negotiators battled over defense and domestic budget authority figures (outlays had been set by Latta's motion to instruct), each side was holding the supplemental appropriations hostage. Neither would give in. Finally on June 11, a day after a smashing victory in his primary campaign, Hollings agreed to transfer $800 million from defense to domestic budget authority. He also accepted a $300-million increase in transportation and low-income energy assistance at the expense of the mythical budget surplus.
Giaimo's vision of a bipartisan budget disappeared as the budget became clearly partisan. The House leadership backed the compromise in the strongest terms. O'Neill, Wright, and Brademas (D-Ind.) wrote to their colleagues:
Today you will be asked to decide the future of the Congressional budget process and at the same time to resolve a fiscal crisis of dramatic proportions….
At stake is the ability of the Democratic party to govern the House. The danger crosses philosophical lines. Failure to adopt the first resolution would demonstrate clearly that the Democratic Congress cannot deal with the budget. It would discredit the party and the Congress…. This may be the most important vote you will cast both as a member of the 96th Congress and as a Democrat.[53]
On June 12 the House finally passed the first resolution (Democrats 195 to 55, Republicans 10 to 140); the Senate followed.
Because few analysts believed the resolution's economic projections, both legislators and commentators widely remarked that it was a dead letter. But that was true only if one cared for nothing beyond budget balance. The budget resolution indicated a change in government's priorities, from domestic to defense spending. In that sense, June 12, 1980, foretold the Reagan revolution.
On Wednesday, June 25, Senate Republicans tried for another installment. They announced agreement with Ronald Reagan to support a 10 percent across-the-board tax cut and faster depreciation write-offs, effective January 1, 1981. They would offer the package as an amendment to all pending finance legislation, beginning with the next day's debate on raising the debt ceiling. The 10 percent individual cut could be viewed as either the first year of the Kemp-Roth plan (for three consecutive such reductions) or as reasonable compensation for recent bracket creep. It therefore united supply-siders with the more neoclassically oriented Republicans. "All agreed to take the first year of the Kemp-Roth bill," Senator Robert Dole (R-Kan.) explained, "but we carefully didn't call it that because we were looking for broad support."[54]
Reagan's maneuver was designed by business lobbyist extraordinaire Charls Walker, who had helped design the Jones-Conable and the 1978 Jones-Steiger depreciation changes. Because the Republicans were united, Majority Leader Robert Byrd feared the proposal might pass. In an about-face that shocked both Carter and the House leadership, Byrd called a caucus meeting for June 26, at which Senate Democrats formally asked the Finance Committee to draft tax-cut legislation by September 3. Senator Bentsen was made head of a twenty-one-member task force to hammer out recommendations.[55]
Byrd's maneuver allowed Democrats to justify voting against the Republican plan. They could say that they wanted a better tax cut rather than no reduction. Reagan reacted with mockery:
Yesterday I urged the Congress to enact an immediate tax cut … to come to grips with the country's desperate economic decline. Today the Democrats in the Senate answered. Their pitiful response: "We need a study, a task force." What are they waiting for? And where have they been all these
months? What do the Democratic leaders expect to learn … that millions of American families don't already know?[56]
Explaining the Senate's quick move, Richard Bolling said it proved "how desperately upset the Democrats are. This looks like one of those elections when the Democrats are terrified and the Republicans sense the kill.[57]
As the recession grew, major Democratic economists joined the tax cut chorus. Otto Eckstein said that "it would be the extreme of irresponsibility and the worst economic policy since the 1930s Depression to let taxes increase at the rate planned."[58] Walter Heller argued for a $30-billion cut, proclaiming that "that $30 billion isn't going to begin to be inflationary."[59] These Keynesians had begun to regain their bearings. Yet other opinion leaders went on opposing tax cuts. The Washington Post called them "a subject for next year…. Most people would welcome lower taxes, but for a great many Americans this summer a drop in interest rates is far more urgent."[60] Bankers, including New York Federal Reserve President Anthony Solomon, agreed. "Good politics," Time "commented of Reagan's plan, "does not necessarily make good economics."[61]
At a June 28 meeting of his economic team, Carter reaffirmed his hard line against tax cuts. He reports in his diary that "lenders of the key financial institutions on Wall Street … had liked the budget and had not recommended any income tax reductions for 1980. They had expressed a preference for a moderate tax cut in 1981 of $20 or $30 billion at most—provided our anti-inflation program continued to work."[62] He wanted to maintain "public confidence in our commitment to maintain discipline and fiscal restraint."[63] When their Midyear Economic Review came out, it predicted 9 percent unemployment by the end of 1980. Yet Carter rejected his own economists' proposals for a $25-billion tax cut in 1980.[64]
Speaker Tip O'Neill heard no "hue and cry for a tax cut" in the House. He and Giaimo opposed any action before the election; Congress would Christmas-tree the bill (cover it with a variety of benefits), and members probably could not resolve disagreements among House, Senate, and administration in the short time remaining before recess anyway. In spite of their skepticism, Senate Finance Committee Chairman Russell Long (D-La.) (who had his own doubts) accepted his caucus's instruction to report out a cut. The Democrats were not only terrified but divided.[65]
Through a combination of bad luck and bad timing, the president and his colleagues were heading for an election with disaster looming on all economic fronts: unemployment, inflation, and the budget deficit. "That's not a very inviting picture they paint for us," commented Representative Jones. He felt his constituents would willingly forego a tax
cut in order to balance the budget. Now they would have neither. "This," he said, "is the worst of all worlds."[66]
Voters generally agreed with Jones. Carter's approval rating in the polls had turned mildly negative by early March, then drifted lower, and in mid-July bottomed out at 21 percent—even lower than Richard Nixon's in the darkest days of Watergate. The following list shows the demise of Carter in opinion polls.
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By early August, 52 percent of Democrats wanted the party to select somebody other than Carter at its convention. "Never before," said Gallup, "in the almost fifty years of Gallup polls has an incumbent president entered a convention with less grassroots support from his own party."[67] Democratic officeholders, unhappy about campaigning with Carter around their necks, began an "Anybody but Carter" movement. Out of sixty marginal House districts, Carter, who had carried twenty-two of them in 1976, was leading the polls in only four in 1980. The difficulty, said David Obey, was that "we'd be in as bad shape or worse shape" with Kennedy at the head of the ticket.[68] In Gallup's polls Kennedy was even less popular than Carter, and Reagan had big leads over Muskie and Mondale. There was nobody but Carter, and Carter looked like a loser.