Power Game

by Hedrick Smith

  By mid-1981, Stockman understood that while the Reagan game plan was a stunning political success, its economics were heading the nation to ruinous deficits. So, almost literally on the morning after Reagan’s big budget and tax victories, Stockman was privately trying to persuade President Reagan to raise taxes and cut back on his defense buildup, in order to try to restrain the burgeoning deficits. Baker, Darman, Gergen, Deaver, and eventually Meese joined this effort, but Reagan resisted.32 His own pet agenda of tax cuts and a military buildup was on track, and he was sloughing off the promise of balancing the budget, though he was not yet ready to admit that to Congress and the voters. On the heels of his stunning 1981 legislative victories, Reagan did not want to change his agenda. When others told him his economic optimism was unfounded, he turned a deaf ear.

  What nearly derailed the Reagan train was an exposé of Stockman’s loss of faith in a stunning article by William Greider in the December 1981 Atlantic Monthly. The way the Reagan White House handled those damaging revelations is a classic lesson in snuffing out bad news before it damages the president.

  The Atlantic article, based on Stockman’s candid admissions to Greider, was political dynamite. Greider quoted Stockman as admitting he had jimmied the budget numbers when his computers produced appalling deficit projections from the Reagan package. Probably his most damaging admission was that the ten-percent-per-year tax cut “was always a Trojan horse to bring down the top [tax] rate” for the wealthy and to clothe old-fashioned Republican trickle-down economics in an attractive new package, “It’s kind of hard to sell ‘trickle down,’ ” Stockman told Greider. “So the supply-side formula was the only way to get a tax policy that was really ‘trickle down.’ Supply-side is ‘trickle-down’ theory.”33 That was a fuse to ignite the anger of the middle class and their protectors in Congress.

  With an economy sliding into recession and Democrats already accusing Reagan of tax cuts that helped the rich and budget cuts that hurt the poor, those were explosive admissions. They certainly derailed Stockman’s proposal for more budget cutting in late 1981, but clever damage limitation by the White House prevented far worse damage. Stockman’s confessions were explosive enough to discredit Reaganomics permanently and to undermine the core of the president’s agenda. The article made the shaky foundations of Reagan’s economic program fit for national debate.

  Instead, White House strategists—Stockman among them—ingeniously shifted the news focus. The substance of what Stockman had said got lost in a squabble over whether he should have said it. Very few people had time or interest to absorb the contents of the twenty-three-page article, which was devastating in the ignorance, cynicism, and hypocrisy it portrayed. Most people read no more than brief news summaries.

  Thus, overnight, the issue became whether this Judas—Stockman—could survive on the Reagan team. Congressional Democrats were slow to pounce on Stockman’s confessions, and the White House press corps focused on how Reagan would treat Stockman, so valuable and yet so sinful. Most of the top White House staff wanted Stockman’s head on a platter; Jim Baker protected Stockman, though he gave Stockman a barracks-style cussing-out. Then Stockman, tail between his legs, was sent in to Reagan. The ingenious plot device was having Stockman describe his man-to-man talk with the president as a verbal thrashing “more in the nature of a trip to the woodshed after supper.”

  As Stockman later revealed, the “woodshed” metaphor had been his own invention. Reagan had actually listened sympathetically, eyes moist, to Stockman’s apologies and had turned down Stockman’s offer to resign. But, as Stockman put it, to “shut down” the Atlantic story, and to insure that its substance would be ignored, Stockman had to top it with an even juicier story: his own public self-humiliation. The woodshed line was irresistible. Time headlined its story of the whole episode “A Visit to the Woodshed.” Newsweek had the young budget director as Brutus: “Et Tu, David Stockman?”

  Partisan Democrats such as Christopher Matthews, Speaker Tip O’Neill’s spokesman, marveled at White House cleverness.

  “The most important thing, it shifted attention from the truth, the objective truth of what Stockman had said, to the subjective condition of his loyalty,” groaned Matthews. “That served the interest of Reagan and Stockman. It gave Stockman expiation; [for] Reagan, it suggested the problem is not revelation but betrayal. The media fell for it in spades, the metaphor of the woodshed. Reagan never had to acknowledge the revelation being true. He was the father dealing with the wayward son, the Prodigal son. And it worked brilliantly.”34

  Nearly five years later, Reagan worked a similar gambit to wiggle away from even more damaging revelations in Stockman’s book The Triumph of Politics: Why the Reagan Revolution Failed, about the gaping flaws in the Reagan economic program. Like an agile fighter deflecting a heavy punch without letting the crowd know how hard he has been hit, Reagan employed patronizing humor as if to say, There goes little David again. When someone asked whether he had read Stockman’s shocking inside account of the deceptions and disasters of Reaganomics, the president quipped: “I don’t have too much time for fiction.” In the Washington power game, Reagan’s soft-touch damage control worked wonders. Once again, Stockman’s message was largely ignored.

  1985 Game Plan: Broken Field

  What is striking about the start of Reagan’s second term is that this extremely popular president did not repeat the successful formula of his first year: have a clear game plan, claim a mandate, start fast, focus your agenda. Reagan’s handling of Congress in 1981 and 1985 provides a contrast in dos and don’ts in the agenda game. His record in 1985 was more like Carter’s in 1977 than his own in 1981: a demonstration that the size of an electoral victory is no guarantee that a president can control the political agenda.

  By the arithmetic of election politics, Reagan should have done better in 1985 than in 1981; his reelection landslide was one of the most sweeping presidential victories in modern American politics. In 1980, he had gotten just fifty-one percent of the popular vote. In 1984, he won fifty-nine percent, carried forty-nine states, and got all but thirteen of the nation’s 538 electoral votes.

  Yet he did not capitalize on the window of opportunity he had created. From the start of his second term, Reagan was bogged down. Democrats were amazed at the openings they were able to seize, and Republicans were downcast at the opportunities lost. Reagan’s budget was ignored. He got cut back from one hundred to fifty MX missiles. He wanted six-percent real growth for defense and got none; in fact, defense authorization was cut. He wanted military aid for the Nicaraguan contras and settled for nonlethal aid. He could not get arms for Jordan and had to welsh on a promise to provide new jets to Saudi Arabia. He was forced to impose economic sanctions on South Africa, which he had vowed not to do. All fall, he had to fight rearguard action to prevent protectionist trade legislation pushed by House Democrats.

  For months, the president lost the political initiative. Others did his hard work in 1985. He was helped, up to a point, by the daring of Senate Republicans: Bob Dole on the budget, Phil Gramm and Warren Rudman on the deficit. Like many a second-term president, Reagan turned to foreign policy to project leadership. Near year’s end, Reagan got a major boost from his Geneva summit meeting with Moscow’s dynamic new leader, Mikhail Gorbachev, though the two men deadlocked on arms control and regional disputes. Reagan’s one domestic triumph was his rescue of tax reform in the House in December—though it took Reagan nearly seven months after his reelection to make tax reform his domestic centerpiece. Overall, this was hardly the record of political invincibility that Reagan’s landslide presaged.

  Second terms are usually more difficult than first terms. Franklin Roosevelt, Woodrow Wilson, Lyndon Johnson, and Richard Nixon all fared worse during their second terms than in their first terms. The easier goals have been reached, the harder ones remain. Intellectual capital has been drawn down, the momentum of newness has been sapped, and fresh ideas are hard to come by. As Dennis Thomas,
a senior second-term presidential aide observed: “Everyone talks about the honeymoon, but the honeymoon and the fifth anniversary are not the same.”35 Richard Neustadt, Harvard University’s widely respected presidential scholar, points out that second-term presidents falter either because of fatigue or because of overconfidence. Reagan seemed to suffer from both. Obviously, he felt no political pressure from voters to undertake new initiatives.

  In fact, the main cause of Reagan’s poor second-term beginnings lay in the 1984 campaign. It was a feel-good campaign, wrapped around the glow of economic recovery, low inflation, the Olympic slogan “Go for the Gold,” and the Reagan campaign ad “It’s Morning Again in America.” Riding far ahead of his Democratic rival, Walter Mondale, Reagan was unwilling to take the risk of fighting for potentially unpopular policies, however responsible that might be.

  On economic policy and the budget, Reagan promised more of the same, though exactly what he meant was unclear, since for three years running, Congress had set aside his budgets, and Reagan had signed tax increases. Trying to smoke out Reagan, Mondale took the supreme political risk of admitting he would propose a tax increase to help stanch the deficit. Mondale wanted an open, honest debate. Reagan, having promised to balance the budget by 1983, practiced the politics of evasion. House Republicans wanted him to attack Mondale by proving that Carter-Mondale programs would have led to bigger deficits than Reagan’s. The problem was that impartial projections obtained by the Republicans showed projected Carter-Mondale deficits as having peaked in 1983 and heading down to $39 billion by 1987—compared to $248 billion in 1987 for projected Reagan deficits. So GOP strategists scrapped the idea of debating deficits.36 Reagan was riding so far ahead politically that he could afford to be vague.

  On taxes, Dick Darman sensibly crafted an ambiguous statement that a tax increase would be “only a last resort”—to convey Reagan’s reluctance but also to avoid closing the door to what some Reagan aides deemed essential to taming $200 billion deficits. But Darman’s ambiguity did not accord with Reagan’s gut instincts; Reagan closed the campaign declaring taxes would rise only “over my dead body.”

  On tax reform, Reagan was deliberately vague. In his 1984 State of the Union address, the president had put off the problem by ordering Treasury Secretary Don Regan to study the tax system—but not to report until after the election. Reform was an item Reagan could have taken to the voters, but he let the issue dangle. Dick Wirthlin’s midsummer polling found that many voters heard tax reform as code words for a tax increase, so Jim Baker, as top campaign strategist, advised Reagan to soft-pedal it. “We took a look at highlighting tax reform and concluded it would be a mistake,” Baker later told me. “The polls showed us that tax reform was an absolute loser with the public. So we opted not to highlight it.”37 So, unlike Reagan’s 1980 campaign, in which he outlined his main economic agenda, Reagan put down no clear marker in 1984. He cheered the country with his jaunty slogan “You ain’t seen nothin’ yet,” but that was unrevealing in policy terms—great for politics, bad for governing. The voters got to choose a man and a mood, but not specific policies.

  The play-it-safe campaign strategy caused two problems. First, in spite of Reagan’s whopping popular vote, his vacuous campaign platform left him without a policy mandate from the voters to leverage Congress. In 1980, he had made budget cuts and tax cuts his main campaign planks, and he could claim to Congress that he had popular backing. Similarly, Lyndon Johnson had called in his 1964 campaign for a “war on poverty” and used that mandate to get Congress to pass his poverty legislation in 1965. By contrast, one of Jimmy Carter’s problems in 1977 was trying to make energy proposals the centerpiece of his domestic program without having made that a major campaign issue.

  Strangely, given how well Reagan had learned from Carter’s mistakes in 1981, he suffered from Carter’s problems in 1985. Like Carter in 1977, Reagan could not claim a mandate for tax reform because he had not made that a clear campaign issue.

  Moreover, without a clear policy platform in the campaign, Reagan’s advisers could not even agree on whether to claim any mandate—a symptom of disarray to come.

  Richard Wirthlin, who had told Reagan on election morning that he would carry forty-nine states, and Ed Rollins, Reagan’s feisty campaign manager, were both bullish. Favoring a quick second-term start, they wanted to play up the election as a broad legislative mandate. But Jim Baker stopped that.

  “We’re going to play down the mandate,” Baker told Rollins, as Rollins was about to brief the White House press.38

  Rollins was stunned. “Horseshit!” Rollins roared at Baker. “How’re you going to play down forty-nine states?”

  Baker insisted. He seemed not to want to inflate popular expectations. And Baker understood that Reagan lacked the congressional votes to revive his old 1981 conservative coalition in Congress. Reagan would need help from Speaker O’Neill for any major legislation. Baker did not want to cross swords with congressional Democrats on the morning after a partisan campaign.

  “No,” Baker declared. “We need to be gracious winners. We don’t want to rub Tip the wrong way. The mandate will emerge from our results with Congress.”

  Baker himself told reporters: “It was a victory for his [Reagan’s] philosophy and a victory for him personally. But I’m not sitting here claiming it’s a big mandate.”

  That uncharacteristic caution reflected Baker’s own intellectual fatigue and the policy emptiness of the campaign. In frustration, Wirthlin wrote a memorandum to Meese to push for an action agenda and a fast start, patterned after the first-term triumphs. “Meese was in agreement, but he had his own fish to fry”—namely, becoming attorney general, Wirthlin later lamented.39

  A second problem arose from the 1984 Reagan campaign: Its themes were so vague that it provided no blueprint or clear legislative strategy. David Stockman favored another run at the Reagan deficits. By then, most thoughtful members of Congress, Democrats and Republicans, privately accepted Stockman’s three-pronged formula: some tax increase, much slower growth in defense spending, and winching down cost-of-living adjustments in Social Security and big entitlement programs. But President Reagan rejected a tax increase, blocking Stockman’s plan. So the budget initiative passed to Senate Majority Leader Bob Dole.

  There were not many other political foundation stones for Reagan’s domestic agenda; top Reagan aides privately admitted to me they were out of fresh ideas. Back in 1982, Reagan had tried New Federalism, a program to transfer major federal programs and revenues to the states, but it had flopped. Meese’s domestic staff wanted to push welfare reform, Reagan’s big achievement as governor of California, but it did not get off the ground. The Jack Kemp wing of House Republicans wanted tax reform, but given Wirthlin’s polls showing lack of public enthusiasm, that was not a big favorite at the White House after the election.

  Treasury Secretary Donald Regan wanted to bull ahead. On November 27, Regan put out the long-awaited Treasury Department proposal, later known as Treasury I, which called for significant cuts in individual tax rates and a bigger tax burden for business. It got a cool reception, both in Congress and from the president. Given Democratic strength in the House, Ken Duberstein, chief of congressional liaison, and Dick Darman, manager of the Legislative Strategy Group, advised negotiating privately with House Democratic leaders to insure bipartisan support before surfacing any presidential package.

  “I’m not so sure the president himself was so enamored with tax reform,” Ed Rollins, White House political director, told me. “I’m talking about December ’84, January ’85. My sense is that if Jim Baker hadn’t gone over to Treasury [as secretary in January 1985], it may never have had all the weight it had.

  “Treasury I became the first thing out of the box after the election,” Rollins recalled. “Nobody was focusing on anything at that time. The bill was so disastrous from a political perspective, it created this tremendous wave of opposition.… It had never come to the White House for si
gn-off. It had never basically been discussed. You know, the two-month period after the election, everybody was just sort of in a letdown stage. And I think with Baker going over to Treasury, knowing that was his claim to fame for the year, they worked it, tried to make it more politically salable. [For] Don Regan going in the White House, clearly tax reform was the most important thing to him.… So that the two principal staff leaders certainly provided an impetus.”40

  President Reagan liked the idea of lowering rates but as he saw how tax reform would hit business, it took several months to sell him on the specifics. “I mean, he had to be convinced, day by day, of the merits of the whole thing [by] Baker and Regan,” Rollins told me. “My sense is that the President thought it was a good idea, but as he started going through it piece by piece, and he started seeing whose ox got gored, you know, it had less appeal to it.… His friends were in the corporate world, and what you basically were doing was shifting your tax burden off of the individual taxpayers onto corporate America. Corporate America is who Ronald Reagan’s friends were.”

  With Reagan lacking a game plan, Congress took the lead—a real oddity in the wake of a landslide presidential election. Congressional Democrats, and even some disgruntled Republicans, filled the vacuum left by the president. Overall, the spring of 1985 was a curious jumble of setbacks for the White House, a political minefield instead of a postelection springboard.