Showdown at Gucci Gulch

by Alan Murray

  Rostenkowski made clear that the document was only a starting point and that he expected it to be changed by the committee. In fact, many of the provisions were written with the understanding that they would eventually be watered-down. But the vehemence of the complaints provoked by the plan took the chairman and his staff by surprise. It was clear that a deeper resistance to tax reform lay at the root of the grousing.

  Rostenkowski needed help. His efforts to appease his members had fallen flat, and members outside the committee were even less impressed. During lunches with lawmakers from various geographical regions, the chairman got almost no positive reactions. If constituents did not clamor for the bill, and many of the affected groups only complained, many members asked, “Why bother?” To help answer those questions, Rostenkowski turned to his friend in the Senate, Bill Bradley.

  When he played basketball, Bradley was known as one of the best in the game at moving around the court without the ball. This was an attribute that proved helpful in Congress as well. As a junior member of the Senate and the Finance Committee, Bradley was seldom in command. As the result of the institution’s seniority system, he had limited ability to advance legislation and was beholden to more-experienced lawmakers to achieve many of his goals. He was forced to believe in the adage that there’s no end to what a person can accomplish if he lets others take credit. When it came to taxes, he well understood that Rostenkowski was, as he put it, “the king.” Tax measures originate in the House, the Ways and Means Committee writes the laws, and Rostenkowski was its chairman.

  Even before Treasury I was unveiled, Bradley tried assiduously to arrange a meeting with the chairman. While giving a speech at a hotel in New Jersey in November 1984, Bradley finally got word that Rostenkowski, who was in Chicago at the time, would see him. Standing at a bank of pay telephones in the hotel, he tried to make arrangements for the meeting on one phone while booking an airplane flight to Chicago on the other. Two hours later, he was on his way, and he met with Rostenkowski in downtown Chicago that very same day. Bradley told the chairman he was willing to help in any way he could. It was an important meeting that helped both men advance their thinking about how desirable and doable tax reform was.

  Bradley also tried to keep in close contact with the Reagan administration. Shortly after Christmas in 1984, Bradley drove from Palm Beach, Florida, where he was vacationing with his parents, up the coast to John’s Island, where Regan had a home. The two men talked for three hours, first at Regan’s house, then over lunch at the nearby golf club. Bradley went away convinced that the Reagan administration was serious about reform; Regan left feeling certain that the New Jersey Democrat would help the president’s effort. “We had an understanding there that we could and should push tax reform,” Regan said later. “It was a very significant meeting.”

  Bradley lobbied for his brainchild in numerous meetings with senior members of the House. Picking his targets with the aid of Ari Weiss, a tax-reform advocate who was one of Speaker O’Neill’s top aides and an expert in the workings of the House, Bradley met with the speaker, House Majority Leader Jim Wright of Texas, House Whip Thomas Foley of Washington State, and Representative Tony Coelho of California, who chaired the House Democrats’ campaign fundraising organization. When deliberations at Ways and Means heated up later in 1985, Bradley placed himself at the disposal of Rostenkowski. The senator’s top aide, Marcia Aronoff, was in constant contact with Charles Mellody, one of Rostenkowski’s top men. Together they would decide where the senator could be best utilized. He met with almost every Democratic member of Ways and Means, and as well as many others not on the committee, including the liberal Democratic Study Group (DSG). He helped persuade DSG members to back the bill, despite their doubts about lowering tax rates at a time when budget deficits were pressing.

  It is extraordinary for a senator to try to influence the members of the House in such an overt way. The Senate considers itself the upper chamber and its members, many of whom graduate from the House, often think of themselves as superior. Not so with Senator Bradley. At one point, in the House gym, Bradley played his first serious game of basketball since ending his professional career. Many of his opponents were Ways and Means Democrats. He took care not to humiliate his less-athletic rivals, but he still wound up popping a leg muscle. He did not much mind; at least he scored some points for tax overhaul.

  On September 30, the eve of the first drafting session, Rostenkowski invited Bradley to deliver another pep talk to the Ways and Means Democrats. Such a visit from a senator was exceptional and his message was partisan. Tax overhaul, he argued, is a natural Democratic issue. If the Democratic-controlled House passed a bill, he asserted, tax reform would be labeled a Democratic initiative no matter what the Republican-controlled Senate did. And, he added pointedly, “Republicans in the Senate don’t want to have to deal with the issue.”

  Bradley wanted tax reform to become law and hoped the Senate would somehow find a way to pass it. Rostenkowski, however, never believed the strongly pro-business Senate would swallow a tax-reform bill, and he used that belief to try to persuade his members to keep his own bill alive. Republicans would have egg on their faces when the Senate killed tax reform, he told his colleagues, and the Democrats would score a public relations victory. Bradley’s comments provided a first-hand account of just how hostile the other chamber was to reform.

  The Ways and Means Committee finally got down to serious work on the tax-reform plan on Tuesday, October 1. All of the chatter and complaining about the legislation began to come home to roost. This was the moment of truth. Members had to put their votes where their mouths were.

  Drafting sessions, known on Capitol Hill as “markups,” were held behind closed doors, and neither the press nor the armies of lobbyists were allowed in the ornate Ways and Means Committee room. The room, which was numbered 1100 and dominated the first floor of the Longworth House Office Building, looked more like a vast, gilded arena than a hearing room. Dangling from the center of the nearly forty-foot-high ceiling was a gigantic, triple-tiered chandelier, topped by an eagle. There were statues of eagles, too, atop twin pillars in each recessed corner of the room. Everywhere there was gold. The eagles in the corners were gilded, and a gold-colored velvet curtain concealed the wall behind the double-terraced dais where the thirty-six Ways and Means members sat.

  For the tax-reform markup, the members’ seats were arranged in a wide circle on the hearing-room floor so that they could face each other—a sign that Rostenkowski meant to get down to business. Despite the closed doors, the lobbyists and their assistants crowded the halls, waiting desperately for any brief opportunity to corner committee members or their aides. To get in and out of the closed meetings, members had to run the gauntlet of these highly paid loiterers. Lobbyists would try to hand the members position papers or urge on them a point or two.

  Although they were closed out of the markup, these denizens of the hallway still made their presence felt. Many of the committee members worked hand-in-hand with certain favored lobbyists, presenting problems for the beleaguered chairman. Staff aides emerged periodically to brief the lobbyists on issues that were important to their clients, and the lobbyists passed instructions back into the room for members who were championing their causes. Sometimes, a representative would walk out of the hearing room, crook a finger in the direction of a lobbyist in the hallway, and then disappear for a few minutes into a back room for a strategy session.

  Many of the committee members, in fact, eagerly became the standard-bearers for issues that lobbyists pushed. Often, the member’s interest coincided with his or her constituency. Representative Barbara Kennelly, Democrat of Connecticut, who was otherwise a rigorous reformer, for example, defended the tax breaks that helped the insurance companies that resided in great numbers in her district. Representative James Jones, Democrat of Oklahoma, was one of several oil-state lawmakers who fronted oil-company causes. Other members backed issues that were broader than their own d
istricts. Bob Matsui of California, for example, was the tax-exempt-bond man, and Ronnie Flippo of Alabama championed commercial banks.

  These allegiances made many Ways and Means members reluctant reformers at best. Each of them had a few key interests that they felt bound to protect from the tax-overhaul knife. As a result, Duncan said at the beginning of the markup that there were not enough votes to pass a bill. Rostenkowski was quick to defend the effort, however. “Don’t let yourself get misled by the negative rumors,” he told a group of health-industry executives. “The tax-reform train is moving. It is picking up speed, and there’s a real danger that doubters will be left behind at the station.”

  The train was painfully slow in leaving, however, and the panel’s reluctance to move ahead sprang to the surface immediately in the form of “staff bashing,” a term turned by David Brockway, the moon-faced staff director of the Joint Tax Committee and one of those who was most often bashed. Brockway served as Congress’s chief tax expert and had an uncanny ability to formulate policy proposals that fit political needs. He played a critical role in fashioning the House bill, and later, the Senate bill. Members did not want to criticize Chairman Rostenkowski directly, and they were loathe to take on the smooth-talking Treasury secretary, who also attended the early meetings. Instead, Brockway and other staff aides became the natural focus for their generalized complaints about the proposal, about the process, and indeed about the entire tax-reform enterprise. The staff was accustomed to criticism from members, but this time the attacks were more severe than usual. “It was the worst I’d ever seen it, really, at Ways and Means,” Brockway said.

  The harshest words came from Representative Sam Gibbons of Florida, the panel’s second-ranking Democrat and an unbridled opponent of reform. Gibbons got so upset at times that he threw temper tantrums. His face turned red and he pounded the table to complain about this or that point in the proposal, almost all of which he abhorred. Such outbursts from Gibbons became commonplace during tax-reform sessions. Other members also complained about the details of the plan as the staff read through the proposal.

  As the time drew near for actual voting on the plan, members switched their complaints from substance to procedure. The enemies of reform attacked the manner in which the legislation was to be considered and won a major victory right off the bat.

  Rostenkowski believed that the rules of procedure should require that any amendment be revenue neutral—any proposed change that would lose revenue had to be paired with another change that would raise the same amount of revenue. The chairman thought his members had agreed to that procedure at their Airlie House conference. The rule would place a difficult burden on any member who wanted to alter the package. If members wanted to help out one particular interest group, they would have to pare back the benefits of some other group.

  The restriction proved too harsh for Ways and Means members. They wanted more freedom to fiddle with the proposal. They did not want so massive a measure to be simply dictated to them by the staffers who were its prime authors. They were members of Congress, with no lack of pride and self-esteem, and they wanted to place their imprint on the document. So, on October 2, the proposed rule was cast aside, making the chances of holding the plan together slim.

  Members were clearly being dragged kicking and screaming into tax reform. Led by Gibbons, a group tried that same night to get Rostenkowski to accept a second, and even more menacing change in procedure. They argued that the committee should use existing law, rather than the staff option, as the starting point for its deliberations. That procedure meant the committee would have to vote to curtail or eliminate each and every tax preference in the code necessary for reform, and each vote would subject them to severe lobbying pressure. In contrast, if the staff option were used, members could simply accept it as a package and not be forced to go on record offending individual interest groups. Votes would be taken only if someone on the committee demanded that a particular tax break be restored. Furthermore, since amendments can be defeated by tie votes, if the committee started with existing law, tie votes would favor the status quo. If it started with the staff option, tie votes would be votes for reform. There was a world of difference between the two procedures. By taking the Gibbons approach, the tough task of writing a tax-reform bill would become even tougher.

  In a lapse, Rostenkowski agreed to the damaging procedure. He was immediately rushed by his frantic staff into Dowley’s office across from the hearing room. “Look, you can’t do this, this is bullshit,” Brockway said. “You’re not going to be able to markup under this set of rules. It’s going to be a goddamn disaster.” The aides importuned the chairman to reverse himself and start with the staff option. Also, they said he should stop calling it the “staff” option; he should accept it as his own to give it the credibility it needed to move forward.

  The next day the chairman worked to reverse the decision to accept the damaging procedure. Baker, sensing serious trouble for tax overhaul, even urged Republicans on the committee to support the chairman’s package as the starting point. After a long day’s effort, the procedure was changed, and the staff option—which from then on was called the “Rostenkowski plan”—became the basis for the committee’s work.

  The bill got off to an agonizing start. The committee made a few small gestures in the direction of reform: It voted one day to tax all unemployment compensation benefits, and on another day to repeal income averaging, which allowed people to offset taxes on high incomes in one year by averaging them with low incomes in other years. But for the most part, the committee seemed more eager to abandon the chairman’s reform proposals than accept them. When the first vote to go against the chairman’s package was taken—a vote to exclude from taxation workman’s compensation and black-lung disability benefits—several members applauded. The panel then went on to expand a tax break for racing horses. Rostenkowski carefully skirted the big issues, fearing he would lose and thus endanger his entire effort. For two weeks, the committee nibbled about the edges of reform. Support for the chairman remained tentative, and the lack of action led to rumblings that the bill was dying a slow death.

  The final straw for the dying plan fell on Tuesday, October 15, the day after Columbus Day, thanks to an amendment offered by Alabama Democrat Ronnie Flippo. The son of a working-class family, Flippo had been a construction worker, even though his father died doing the same job. He might have remained an ironworker all his life had he not, as a young man, plunged fifty-five feet onto a concrete floor and been confined to bed for eighteen months to heal his broken bones. Afterward, he was prevented from lifting and hauling, so he set out instead on a new life. He was elected to Congress in 1976 after proving himself the top man in a ten-person field.

  A trained accountant, Flippo was sympathetic to the arguments of banks that they would be hurt by proposals to cut back on the bad-debt-reserve deduction, the biggest tax break enjoyed by financial institutions. He offered an amendment that went in the opposite direction, actually expanding the bad-debt-reserve tax break. The amendment was the antithesis of reform; it represented old-time tax legislation at its worst, giving out goodies to favored interests rather than taking them away. If the amendment succeeded, it would be clear to the world that this tax bill was no different than any other. It would be clear that the Ways and Means Committee had no desire to enact real reform.

  On the Thursday before the vote, Frank Toohey, an aide to Flippo, met another tax aide and a curly-haired bank lobbyist named David Rosenauer in the hallway outside of room 1100. Rosenauer joked that the amendment Toohey’s boss was pushing to help commercial banks did not stand a chance, but Toohey disagreed. With tax reform adrift in the committee, he thought, even the generous new tax break for banks might succeed. “If you get off your ass and do something we can win this thing,” Toohey told Rosenauer. Flippo himself conveyed the same sentiment to bank representatives during a meeting on the brown-leather chairs in the room behind the dais of room 1100.

/>   Flippo’s banking amendment was the first order of business on Tuesday. Over the long holiday weekend, home-state bankers had busily telephoned members of Ways and Means and their staffs to seek support for the proposal. Even Toohey got a call. The previous week, Toohey had counted only about a dozen votes for the proposal on the thirty-six-member committee. By Tuesday afternoon, he had a feeling it had a chance.

  When the chairman called for a vote on Flippo’s amendment, the ayes started coming from unexpected directions. First he tried a voice vote, then a show of hands, and finally a roll call. Each time the outcome was the same. Rostenkowski’s aides, who usually stood over his shoulder like falcons ready to be dispatched by their falconer, went swooping down on members who had voted for the outrageous amendment. Even traditional Rostenkowski backers, like Matsui and Downey, were supporting the banks. Something was seriously awry.

  The Flippo amendment was adopted 17-13. It ripped a gaping hole in the Rostenkowski tax plan, losing $7.6 billion in revenue over five years compared with the plan’s targets. More important, it served as a measure of the discontent that had been festering in the committee from the very beginning. Eleven of the panel’s twenty-three Democrats either didn’t cast a vote or voted for the amendment. Downey voted aye because he wanted the chairman to know how strongly he felt about the deduction for state and local taxes. Matsui voted aye because he didn’t know where the effort was going; he did not want to cast a hard vote for an effort that was bound to fail. All but one of the Republicans voted aye, because they felt left out of the process. Others had similar stories. The bank vote proved that the chairman needed to gain control of his committee if he was going to get a bill.

  The chairman was livid and threw down his pencil in disgust. He told Deputy Treasury Secretary Darman to look at the vote count and see for himself that only one Republican, Gradison, had backed his position. “If the administration wants this tax bill, they had better get us Republican votes,” Rostenkowski shouted. Flippo approached Rostenkowski and tried to assure him that he had not expected his amendment to win. Ways and Means aides scurried to try to change some votes around.