by Alan Murray
But there was one public office that the chairman held in esteem—indeed, he viewed it with near-reverence: the office of president. Rostenkowski’s father traveled from Chicago to Washington to let his son witness Roosevelt’s third inauguration, an experience that deeply moved the young man. In his own congressional office, Rostenkowski displayed several photographs of himself with more-recent presidents. Among them was one photograph of Mount Rushmore, with Rostenkowski’s own face pasted next to the sculpted countenance of George Washington. Its handwritten inscription reads: “Dear Danny, It looks good to me. Say hello to George for me. [signed] Ronald Reagan.”
The obstacles to reform began piling up in Rostenkowski’s path the day that Baker and Darman delivered the details of the president’s plan to Capitol Hill—Wednesday, May 29. Rob Leonard, Rostenkowski’s tax aide, dropped his clipboard in disgust when he saw the complete plan. He immediately saw there was a problem with revenue. There was no binding-contract rule, a tradition in tax legislation. In addition, the Treasury’s business-recapture provision was quickly recognized for what it was: a desperate grab for revenue that did not have a chance of winning approval in Congress. The committee would have to find some other way to raise the $64 billion in revenue over five years that would be lost by correcting those two problems. But even if one counted those sleight-of-hand revenue-raisers, the Treasury bill still wasn’t revenue neutral. It was calculated to add $12 billion to the government’s budget deficit over the next five years.
The bill “had elements of mirrors, and, if you want to be that hard about it, intellectual dishonesty,” said Ways and Means chief counsel Dowley. Baker and Darman, he says, “weren’t playing the game totally on the up and up.”
In addition, Rostenkowski complained that the Treasury team had not gotten anything in return for what they gave away. Despite the billions of dollars’ worth of concessions to interest groups made in turning Treasury I into the president’s plan, Rostenkowski saw little increase in the number of groups supporting the plan. Moreover, Baker had defied Rostenkowski’s most solemn warning: His plan retained virtually all the tax breaks for oil and gas drillers. It had another political shortcoming as well: It gave bigger cuts to upper-income taxpayers than to middle-income taxpayers, a fact that worried many politicians on the Hill.
Baker and Darman wanted Rostenkowski to finish drafting a tax bill by the August congressional recess. But the chairman knew that, with such big problems to overcome, the administration’s schedule was a pipe dream. For one thing, the chairman insisted on holding hearings to allow groups a chance to air their complaints about the proposal. Baker and Darman thought such hearings were a waste of time. They thought the purpose was for show more than substance, but Rostenkowski insisted. “This is the people’s house,” he said.
The hearings droned on throughout the summer, as the committee heard from well over four hundred special pleaders, who once again demonstrated the intensity of opposition to tax reform. Committee members grew weary of the harangues and tried to avoid the meetings, but Rostenkowski ordered his staff to assign at least a few members the chore of sitting with him through every hearing. While the members paid half-attention to the numbing parade of witnesses, the Ways and Means staff listened intently for hints of where compromises might lie, where allies could be enlisted. They searched for what Rostenkowski described as the “middle,” that place where deals could be cut and enough support garnered to squeeze the legislation through.
Meanwhile, a more serious struggle went on behind the scenes. In the chairman’s hideaway office just off the House floor, Rostenkowski and Leonard carefully interviewed each member of Ways and Means to determine which tax preferences were most precious to them and which they would be willing to repeal. There also was a great deal of truth-telling in the back room between the Ways and Means staff and the framers of the president’s plan. During one meeting, Dowley and Leonard grilled Pearlman and a few other Treasury officials about the bogus recapture tax. After several minutes of intense argument, Dowley recalls, “We started smiling, they started smiling.” Then all of them broke into outright laughter. “Nobody could stop laughing,” says Dowley. The recapture tax “just didn’t make sense,” and all of them knew it.
Outside of Washington, the great populist awakening that was supposed to sweep tax reform to victory remained only a yawn. Taxpayers disliked the existing system, to be sure, but they still weren’t convinced Congress was going to make it any better. The only constituents that lawmakers heard from were those who complained about losing this or that tax break. Hardly anyone seemed to think that they might have something to gain by lowering rates. The average taxpayer was unmoved by the reform effort, and the warning of Ways and Means Republican Willis Gradison of Ohio was coming through in spades: “This inevitably will be an uphill fight. The potential winners are skeptical that Congress will ever enact reform and the potential losers are organizing.”
This fact was evident everywhere, from the rural foothills of the Appalachian mountains to the middle-class neighborhoods of Islip, New York, and the corporate suites of suburban Minnesota.
In the Georgia mountains, Representative Edgar Jenkins, a respected Ways and Means Democrat and political pal of Rostenkowski, found little if any support for the effort. His sprawling district included Gainesville, Georgia, known as the “Broiler Capital of the World,” a town that had a monument with a chicken on top and feathers strewn along the roadways. Questions to him from voters during a round of visits and speeches focused mostly on his personal crusade in the House to protect the struggling local textile industry from a flood of Asian imports. Some folks expressed more general worries that the budget deficit was running amok. But there was seldom a mention of tax reform. On the rare occasion that the tax bill itself was discussed, most everyone had a gripe. The possible repeal of the deduction for mortgage interest on second homes was seen as threat to the otherwise impoverished region’s only growing business, vacation home sales. In addition, any trimming of tax benefits for small farmers was viewed with alarm.
“There is no enthusiasm down here for a tax bill,” Jenkins concluded. “In a tax-reform bill, you step on everyone’s toes to some extent, and everyone is looking for an excuse to oppose it.”
Late in the summer, Representative Thomas Downey, also a Rostenkowski ally, convened a public meeting on the tax-overhaul bill in the sweltering auditorium of Islip High School on Long Island, New York. Big fans were whirring in every corner of the packed room, but the citizens’ animosity toward the president’s proposal could not be cooled. The Ways and Means Democrat asked how many people supported the president’s plan, and only one hand was raised. The big problem: the proposed repeal of the deduction for state and local tax payments. New York Governor Mario Cuomo had raised that issue to the level of righteousness, and no politician in the Empire State could resist. In a rare show of comaraderie, Senator Alfonse D’Amato, the state’s Republican senator, joined Downey on stage that night and together they whipped up the crowd about their fight to save the state and local deduction. “We’re here tonight to underscore this is not a partisan issue,” Downey implored the crowd. “It is a matter of survival.”
The next day the young congressman told a long parade of local leaders and business owners who met with him in his office that he was sympathetic to each of their causes, which ranged from preserving the business-meal deduction to keeping the inside buildup on life insurance policies tax-free. But he said he had to focus all of his attention on the state and local issue and could not be counted on to champion any other cause. On the drive to La Guardia Airport later that day, Downey compared tax reform to an impressionist painting: “The further away from it you go, the clearer it gets. The closer you get, the more it looks flawed.”
As Downey was encountering resistance from the man on the street, Representative Bill Frenzel, Republican of Minnesota, was hearing similar complaints from about eighty business executives during a dinner in the Mi
nneapolis suburb of Bloomington. At the meeting of a group called Minnesota Business Partnerships, Frenzel heard a withering series of worries. They carped about the possible cutback in the amount that high-paid executives could contribute to their tax-free 401(k) pension plans. They were also concerned about such business breaks as the foreign tax credit, which was a candidate for reduction, and of course, about the state and local deduction. “It’s obvious that every friend you make [with tax reform], you are going to make a few enemies,” Frenzel concluded. “The chairman’s enthusiasm here is a mile ahead of everyone else’s.”
Tip O’Neill, usually one of Rostenkowski’s strongest backers, added his voice to those of the doubters. “I have found very little sentiment for the reform tax bill [sic], very little sentiment,” the speaker told reporters after Congress’s monthlong August recess. “The people in the street, they never even mention it.” He predicted “great difficulty” moving a bill through the House unless President Reagan somehow managed to convert the nation’s apathy to excitement.
Even some of the most ardent backers of the enterprise began to abandon ship during these summer doldrums. On a plane to Washington from Atlanta, a tax reporter ran into Missouri’s Gephardt, who had just attended a fundraiser for ambitious Democrats. The cosponsor of the seminal Bradley-Gephardt bill inquired, almost incredulously, whether the reporter was still writing about taxes. When Gephardt got a yes in reply, he responded with blank surprise. “It’s not that good a story,” he said.
Despite his seminal role, Gephardt dropped the ball on tax reform while the legislation was experiencing some hard times. Gephardt had remained true to reform for at least two years after he signed onto the bill with Bradley in 1982. During this period, he talked up the proposal with fellow Democrats in the House, traveled to promote the idea, and worked closely with Bradley to revise parts of the second version of the bill introduced in 1983. But his dedication did not last.
In May 1985 Gephardt sided with several tax-reform opponents and supported a proposal that would have used the revenue raised by a stiffened minimum tax to reduce budget deficits rather than help tax reform’s effort to lower tax rates. In the fall, when Congress, spurred by newsmagazines’ cover stories, rushed to pass some sort of protectionist trade legislation, Gephardt helped to lead the charge. At the time, he confided privately that he thought tax reform was going nowhere and that trade was the issue of the hour. Later, when Congress moved away from trade to focus on the Gramm-Rudman-Hollings law as a way to appear to be doing something about reducing budget deficits, Gephardt was out front again. He spent a lot of his time on the budget problem while other members of Ways and Means were working on tax reform.
Gephardt’s time for tax reform also was crowded out by his frequent trips across the nation. In 1985, the young lawmaker was spending spare moments advancing the cause of his own nascent presidential campaign. Gephardt contends that he never abandoned tax reform and that he played key roles in developing the Ways and Means proposals and in counting votes to help pass the finished product. But when it came to the day-in, day-out efforts to muster support among wavering members of the House, Rostenkowski didn’t rely on Dick Gephardt, whom he sometimes disparaged as one of the “blow-dried guys.”
While the average taxpayer seemed apathetic toward Rostenkowski’s effort, the average interest group was intensely involved. Loud and persistent complaints came from groups that ranged from one-man lobbying crusades to multifaceted and expensive coalition efforts.
Thomas Franks, the thirty-one-year-old lobbyist for the American Land Development Association, spent his days in 1985 talking to members of Congress about a sore point: the importance of preserving the mortgage-interest deduction for second homes. The developers he represented with his $60,000-a-year job were worried that their high-toned tourist developments might be squeezed by plans to do away with the deduction, and Franks had a $250,000 budget to fight it.
Franks paid out thousands of dollars for public-relations campaigns and even some extra lobbying help. He also made campaign contributions to tax writers such as John Duncan of Tennessee. Franks explained that he had no choice but to attend a $500 a head fundraiser for Ways and Means’s top Republican because, “I couldn’t go to his office without having contributed.” Making arguments to members was the heart of his one-man show.
Popping a Certs mint into his mouth, Franks said: “I can’t have bad breath, can’t smoke, can’t perspire. In this line of work, I can’t afford to offend anyone.” He worried that his message was not getting through. “Getting congressmen to take a stand against a provision of this tax bill is more difficult than I’ve ever seen. They would rather talk about anything else right now. It’s paranoia on the Hill. They’re scared to appear to be caving to special interests.”
To help make his argument, Franks called in Jesse Abraham, an economist with Data Resources Incorporated, a Massachusetts-based consulting firm, to conduct a study on the economic effects of the proposed second-home limitation. Such supposedly objective studies were a standard part of the Washington lobbyist’s repertoire. “What do you think you’ll find?” Franks asked. Abraham responded, “First of all, I don’t have a contract with you or a check from you.” After Franks ordered up a check and a contract, Abraham inquired, “What do you want us to find?” (Asked later what he meant, Abraham said: “Well, I was interested in seeing what he expected the market impact would be. As an industry person, he has a strong feeling on what will be the market reaction, which can be useful for my analysis.”)
Data Resources was only one of a host of hired guns who made hay preparing studies on the supposedly disastrous effects of tax reform. When added together, they suggested the president’s tax bill would create a cataclysm. According to various studies circulated on Capitol Hill, the bill would force “a dose of Jonestown-type cyanide” on the construction industry, raise apartment rents by 20 percent to 40 percent, destroy old urban neighborhoods, and jeopardize “the oral health of the American people.” Horse breeding would fall 18 percent, American Samoa would be devastated, and canned tuna would become obsolete. The president’s tax plan, according to these studies paid for by anti-tax-reform lobbyists, would precipitate all evils short of famine, pestilence, and plague—even plague wasn’t entirely out of the question: The National Council of Community Hospitals submitted a report claiming that taxing private-purpose revenue bonds would threaten health care for the poor.
Jobs would become scarcer than congressmen-in-August if these many authoritative-sounding reports proved true. “Millions” of workers in export industries would be out on the streets, along with 350,000 construction workers, 224,841 Puerto Ricans, 144,000 restaurant workers, 69,000 oil men, and 44,000 country club employees. In Beaufort County, South Carolina, alone, 28,000 workers would get the ax, according to one survey. To the congressmen and their aides deluged with such reports, it seemed that tax reform would devastate every American industry save one: the economic consulting and research business, which produced all these forecasts of disaster.
The consulting firms insisted their work was unbiased. “Nobody is ever going to buy us,” said Norman Ture, former Treasury undersecretary who headed an organization called the Institute for Research on the Economics of Taxation, which raised money from corporations to fund anti-tax-reform studies. As James Wetzler, a congressional tax aide who left the Hill in 1984 to become an investment banker, put it: “Most people who get into this game are big boys and realize they’re not being paid to do a study that goes against the guy who funded them. They know which side their bread is buttered on.”
Consultants were available to study almost any potential problem the tax plan might create. Economics Research Associates, a Los Angeles-based consulting firm, earned $45,000 from the American Horse Council for a study showing the tax plan’s effects on horse mating. The firm also got a contract from Thomas Franks’s group to study the effects on vacation homes. The results of the studies, although frequently s
tated in very precise-sounding terms and numbers, were seldom rock-solid. The study concluding that horse breeding would drop 18 percent was done simply by surveying horse farmers, who opposed the tax plan because of its proposed changes in capital-gains taxation. Anxious to alter the tax bill, the breeders may have simply overstated the effects, or they may not have really known what the effects would be. “You can poke all kinds of holes in our survey research,” conceded Steven Spickard of Economics Research. “This isn’t the kind of ironclad econometric analysis with ten years of historical data we would like to be using.”
Despite their shortcomings, such studies played an important role in the tax debate. “I know they’re hired guns,” said Connecticut Democrat Barbara Kennelly, a member of the Ways and Means Committee, “but I’ve got to tell you that I was just putting one of those studies in my stuff to read tonight. I feel nothing wrong with reading them. Are they slanted? Of course. But you know that, and at least they give you a glimpse of how the plan will affect an industry.”