by Ira Shapiro
Nevertheless, the Senate seemed to be moving toward a compromise that would allow the windfall profits tax to pass, until a new amendment nearly derailed the entire process. Danforth offered a plan to tax some of the oil royalties that state and local governments would derive from decontrol of profits on state-owned oil lands. He reasoned that if there was going to be a windfall profits tax, it should apply not only to private producers but to states fortunate enough to be in coastal areas with oil deposits. Danforth estimated that state and local profits from decontrol would reach about $138 billion, and his proposed tax would capture about $10.5 billion of that.
Danforth’s amendment constituted a major attack on four oil-producing states, including Louisiana, and Long set out to crush it. In Danforth’s view, the senators from forty-six other states had good reason to support him in trying to tax part of the royalties from the producing states. But, as Danforth would write almost thirty years later, his belief in the righteousness of his cause blinded him to the political realities of the fight.
On December 12, the Senate plunged into a filibuster over stiffening the windfall profits tax. Byrd urged the senators to cancel all engagements and ordered that cots be set up outside the Senate chamber. The filibuster began after Byrd and other administration allies blocked a move to table an amendment to add $31 billion worth of tax revenue to the current $151 billion in estimated revenues. But Long’s anger over Danforth’s amendment made the filibuster far more serious. Long said that he would oppose cloture until the Danforth amendment was resolved. He produced 300 amendments, almost all technical or trivial, to delay consideration of the bill if needed. Long told Danforth: “In about 15 years, I think you’ll be a great senator, but right now, you’re the biggest horse’s ass that I’ve dealt with in 30 years here.”
On December 14, the Senate ended a three-day filibuster, voting 78–13 for a deal between producing and consuming state senators that would raise $178 billion by 1990. The compromise included a 10 percent minimum tax on newly drilled wells and a 20 percent tax on “heavy oil” and oil produced by chemical methods. Danforth’s amendment became the last serious hurdle to completing the bill.
Long spoke for hours in opposition. In a folksy and selective recounting of American history, Long said that Missouri had only been admitted to the union because President Thomas Jefferson had wanted Louisiana, so Danforth was being pretty ungrateful. He accused Danforth of advocating “a land and resources redistribution scheme by plundering the states of their own natural resources.” With historical analogies flying, Bennett Johnston ranged further afield, saying it was unfair to pick on states like Louisiana that are only now “climbing out of the economic bondage of Reconstruction.” Danforth went down to a sound defeat, by a 65–28 margin. (Years later, the humiliating defeat stayed with him, and he would mistakenly recall that he only got 18 votes.)
On December 17, the Senate gave final approval to a $178 billion windfall profits tax, by an overwhelming 74–24 vote. Three days later, the House and Senate split the difference, settling on $227 billion. Impatient to recess for the holiday season, after a long and difficult session, the conferees decided to wait until January to figure out the details of where the $227 billion would come from. (“The details” were not that easily worked out. It was not until February 26, 1980, that conferees approved the compromise windfall profits tax.) Ironically, after months of intense debate, the windfall profits tax became the first part of Carter’s 1979 three-part energy plan to be approved. It was, as Long had predicted, the largest tax ever levied on one industry, and many people in the oil industry in Louisiana were embittered that Long had agreed to it. But Long believed in principled compromise and had seen that a fair trade was possible: enormous profits in exchange for somewhat higher taxes.
The conferees agreed on the main points of the synfuels bill—$20 billion and the creation of a corporation to administer it—in March 1980. But it took until May 21 for the conferees to reach a compromise agreement on a long list of conservation measures that the Senate had included. The synfuels goal had become 500,000 barrels a day by 1987, with the next $68 billion installment to be approved sometime in the mid-1980’s. The legislation finally reached Carter’s desk at the end of June.
Of the objectives that Carter had set out to accomplish in April—price decontrol, a windfall profits tax, support for synthetic fuels, and an Energy Mobilization Board—he received most, but not all, of what he had sought. In a surprising development, the House refused to approve the Energy Mobilization Board even though the conferees had earlier agreed. The once-exciting idea had long ago ceased to create excitement, and it died, never to be resurrected.
JIMMY CARTER WOULD later write:The struggle for a national energy policy had been an exhausting fight involving almost every federal agency, all state and local governments, every member of Congress, dozens of interest groups and hundreds of billions of dollars. It had spanned more than three full years of my administration. The total energy package did not please anyone completely, but overall it was a good compromise, and I knew that the final result was well worth all our efforts.
Carter’s assessment was basically accurate, although describing the struggle as “exhausting” may qualify as an understatement. Legislating a national energy policy may well have been the most complex undertaking in the history of Congress. The legislation that resulted balanced the interest of consumers and producers from throughout America. It affected the cost of energy for everyone—and if that didn’t make the undertaking complex enough, formulating a national energy policy required working with scientific, engineering, and political uncertainties. Who really knew whether synthetic fuels would be viable, and on what scale, ten years down the line? How much oil remained to be tapped, and would new drilling techniques greatly expand the potential supply? What were the auto companies really capable of, in terms of fuel economy, once they stopped resisting? Would the United States overcome its fear of nuclear energy after Three Mile Island, and even if so, would Congress ever agree on an appropriate place to store spent nuclear fuel?
One thing was certain: the price of energy in the United States had to rise, as an incentive to both increased production and conservation. Carter’s energy program caused the price of oil and gas to rise, for consumers and businesses. It represented a serious effort to raise those prices as equitably as possible. The Senate was the forum in which the extended and hard negotiation took place, to reach a series of principled compromises. The resulting legislation succeeded in reducing U.S. oil imports from 8.7 million barrels per day in 1977 to 4.3 million barrels per day five years later—a reduction of more than 50 percent. The legislation also included strong commitments to increase the use of renewable energy and mandatory improvements in the efficiency of buildings, industrial equipment, and transportation. Assessing Carter’s quest for a national energy policy, John C. Barrow wrote in 1998: “Carter’s conservation policies would contribute to an energy glut in the mid-1980’s.” Tragically, these strong gains would be lost in the coming years, as subsequent presidents, starting with Ronald Reagan, would again adhere to the view that cheap energy was something of an American birthright.
Thirty years would pass until Congress again undertook, and enacted, legislation as complex and far-reaching as Carter’s energy program—Barack Obama’s health care legislation. Jimmy Carter, in his recently released White House Diary, would note that “in dealing with Congress, I had one presidential advantage that no longer exists: cross-party support when it counted. . . . The bipartisanship that I enjoyed has now almost disappeared.” Carter faced enormous problems, at home and abroad, but unlike Obama, he had a great Senate with which to work.
chapter 15
FIGHTING THE ECONOMIC TIDE
THE U.S. ECONOMY MAINTAINED ITS STRENGTH THROUGH 1978, DESPITE mounting inflation. The American job creation machine seemed to be recovering from the deep recession of 1973–1975 that followed the first Arab oil embargo. But in 1979, the OPEC o
il increases, sparked by the Iranian Revolution, plunged the U.S. economy into a new and disturbing phenomenon known as “stagflation.”
Previously, inflation had almost always occurred at the same time as low unemployment, while the damage caused by high unemployment was at least mitigated by prices that were not rising. Now the old economic rules seemed to no longer apply. The economy slipped rapidly back into recession, while inflation surged toward double digits, wreaking havoc for people on fixed incomes and outrunning wage increases for the vast majority of workers. By mid-1979, “it’s the economy, stupid” aptly described the challenge for the Senate. Fortunately, some of its finest legislators had been thinking about these issues for a long time.
Abe Ribicoff had been one of the first senators to show an understanding that American economic strength was beginning to weaken. In his 1972 book, Ribicoff pointed out that the U.S. economy, while still the strongest in the world, had begun to show serious strain in the face of intense foreign competition from Europe and Japan.
On a trip to Europe Ribicoff found “geo-politics,” such as military pacts, treaties, and balance-of-power diplomacy, being replaced by “ecopolitics”—or, “developing international trade and investment policies to achieve economic prosperity and a higher standard of living.” He decried the willingness of the U.S. government to stand aside while the governments of our competitors were working hard to help their businesses compete. He called on the U.S. government to concentrate its efforts “in those areas where we can hope to achieve a superior competitive position.” He called for a major increase in government research and development and “the creation of a new permanent board which would select areas of national priorities, make long-range plans and then actually design possible government-industry programs to be funded.”
Ribicoff’s message had not resonated in 1972 when the U.S. economy still seemed strong. Seven years later, his insights reflected a fundamental challenge facing the president and Congress—how to overcome a deeply ingrained assumption that American economic prosperity would continue forever without an active, focused government role.
The economic prosperity that extended from the end of World War II into the early 1970’s had touched nearly every American. It had stimulated the poorer regions of the country, lifted blue-collar workers and their families into comfortable middle-class homes, and provided wide-ranging opportunities to high school and college graduates. This boom generated growing tax revenues that in turn funded social programs. Belief in a perpetually growing economic pie created a widespread willingness to help the poor and to extend opportunities to bring them into the economic mainstream. Among other things, this prosperity powered the liberalism of John Kennedy’s New Frontier and Lyndon Johnson’s Great Society. Confidence in America’s unparalleled economic might also created a willingness to help rebuild Europe and Japan and then to tolerate trade arrangements that were less than balanced in order to help other countries prosper.
For decades, American prosperity was a core assumption. Economic policy was therefore an afterthought, at best, to the Senate led by Mike Mansfield, Everett Dirksen, and Hugh Scott. Through the 1960’s and into the 1970’s the Senate focused instead on extending opportunity to the poor, dividing the economic pie more equitably, and regulating business, confident that America’s companies could handle any additional costs. Absolute confidence in America’s economic strength shaped the way the Congress did business; it allowed Congress to pass separate appropriations bills without even calculating the total cost, until the enactment of the Budget Control and Impoundment Act of 1974. But, as Ribicoff had foreseen, the economic ground was shifting under America. When the OPEC oil embargo of 1973 ended what Bruce Schulman described as “the long, sweet summer of post-war prosperity,” the economic situation of Americans changed dramatically—and senators would have to reexamine their core assumptions about the condition and direction of the American economy.
JIMMY CARTER HAD COME to office an avowed free trader. He also thought that the United States, Europe, and Japan should stimulate their domestic economies to become the “locomotives” for the global economy. However, soon enough it became disturbingly evident that Europe and Japan hoped to grow through exports, rather than domestic demand, and that those exports were heading, disproportionately, to the United States.
By 1978, the American steel industry was facing an acute crisis. The openness of the U.S. market, combined with the aggressive subsidies of Europe, Japan, and other countries, had turned the United States into the dumping ground for the world’s excess steel. Carter’s focus on fighting inflation, which led him to see lower-cost imports as attractive, only exacerbated the problem.
Ribicoff chaired the Subcommittee on International Trade of the powerful Finance Committee. From that position, he worked to fashion new rules of trade, to govern the relationship between the United States and its leading trading partners, Europe and Japan, and to begin bringing the developing economies into the global system. He worked closely with Robert Strauss, the U.S. Trade Representative and a Texas lawyer who had chaired the Democratic National Committee and helped Carter to the presidency. Strauss was a consummate dealmaker, and he was proving that international negotiation drew on the same savvy, charm, and brass that had made him so successful in Texas and Washington.
On April 12, 1979, thanks in large part to Strauss’s canny leadership, 102 nations announced the completion of the multilateral Tokyo Round, launched by the Nixon administration in 1973. Previous multilateral “rounds” had focused only on cutting tariffs. In contrast, the Tokyo Round went further to establish six agreements, known as codes, which attempted to impose discipline on the array of nontariff barriers that prevented U.S. exports from reaching their potential in foreign markets. The codes addressed government procurement, technical barriers to trade, customs valuation, import licensing, antidumping, and countervailing subsidies.
Trade agreements would later become extraordinarily controversial, but in 1979, the Tokyo Round results were universally regarded as beneficial to the United States. With Strauss and Ribicoff working together smoothly, the Senate passed the Trade Amendments Act, implementing the Tokyo Round results, by an overwhelming vote of 90–4, on July 23, 1979—virtually record time. The completion of the negotiation and the congressional endorsement of the result were two bright spots during a period that was becoming quite bleak for Jimmy Carter.
Birch Bayh focused on a different economic problem. Through the work of his Judiciary Subcommittee on Patents and Copyrights, Bayh had become fascinated by the issue of American innovation. The United States still seemed to be leading the world in advances, measured in terms of patents filed. But somehow those breakthroughs were not making it into the commercial marketplace. As Bayh and his staff probed the issue, they discovered that 28,000 patents earned as a result of research done in American universities were gathering dust, not shared with the commercial world. Bayh started working on legislation to address the problem. He found that Bob Dole, shopping for economic ideas to use for a potential presidential run, shared his interest and would be willing to collaborate on the effort.
Gaylord Nelson meanwhile used his chairmanship and energetic staff with increasing effectiveness to address the concerns of small business. Aware that small businesspeople were reacting strongly against the regulatory burden they faced, Nelson, along with John Culver, introduced the Regulatory Flexibility Act, which would require agencies to develop less burdensome regulations on small business. Nelson had also worked to persuade the White House to convene the first national conference on Small Business, scheduled for January 1980. Nelson would always be on the union side when labor and business collided, but he nevertheless saw this as a way to broaden his appeal to the business community and respond to some legitimate concerns.
Given the tax-cutting fervor that was sweeping the nation, taxes were also on Senators’ minds during this troubled economic period. Lloyd Bentsen was a rising Democratic star. A World Wa
r II bomber pilot of great distinction, Bentsen served three terms in the House of Representatives before leaving Congress to start a successful insurance company. In 1970, Bentsen had defeated George H. W. Bush for the Senate seat after ousting the incumbent senator, Ralph Yarborough, a liberal Democrat, in a bruising primary. Now, Bentsen—moderate, thoughtful, and business-oriented—shared the Republican view that America needed a tax cut, but he disagreed with Kemp-Roth and the suggestion that personal tax rates instead be slashed 30 percent across the board. Bentsen thought a reduction in business taxes would be more appropriate. Bentsen was serving as chair of the Joint Economic Committee (JEC), a committee without legislative jurisdiction that functioned more like a high-visibility think tank and research arm of Congress. He pressed the staff to consider whether there were measures that would appeal to both Democrats and Republicans and could bolster the “supply side” of the economy.
Together, all of these senators were generating a number of good ideas that could provide foundation blocks for a new economic agenda. All, however, would take time to develop into legislation, and then even more time to impact the economy. But the senators, and the Carter administration, did not have the luxury of time to wait for results as the economic downturn accelerated. They were about to face a dramatic example of economic distress and the need to make hard and historic choices rapidly, with an election year looming on the horizon. These choices became concrete with the near-collapse of an iconic American corporation.