by Alan Murray
The chairman used a more direct approach to win the support of Matsui, leader of the bond rebellion. One morning, after the full committee approved the bond changes, the chairman telephoned Matsui to say he wanted to talk. “I want to see you right away,” Rostenkowski said. “I’ll be right over.”
The chairman stormed into Matsui’s small office, sat down on a chair, and said, “I’m going to have to rely on you.” He went on to pitch tax reform as “one chance in a lifetime” and, as at the Airlie House retreat, expressed his outrage at the idea that his daughters paid more in taxes than their bosses or large and profitable corporations.
“I’m going to need your help,” he said with feeling. “I’m asking for your help.”
Rostenkowski did not need to push too hard, especially since he already had defeated Matsui’s effort to preserve markets for certain tax-exempt bonds. “Mr. Chairman, I’m going to help you,” a flustered Matsui replied. “I sure appreciate your asking me.” In return for Matsui’s loyalty, Rostenkowski aides offered to preserve a break for a type of bond used frequently in California to finance urban redevelopment. Matsui told them he didn’t need the quid pro quo, but the bond change was made anyway.
As Rostenkowski slowly gathered his reluctant members into the tax-reform corral, a bill began to take shape. The chairman kept the tax writers in town during the weekend of October 26 and 27—a beautiful fall weekend—and made substantial progress. The full committee not only voted to approve the bond provisions, but also agreed to clamp down somewhat on the use of the tax laws to subsidize low-income housing and to make it more difficult for wealthy families to avoid taxes by shifting income to their children. The decisions were made by members wearing casual attire, amid the pervasive odor of aging empty pizza boxes.
After that weekend, the process continued to be one of careful compromise, with favors being granted to those who played along with the chairman. The corporate advocates of “reform” found that they were granted special tax breaks that weren’t reform at all, in return for their support. To cement the support of small-businessmen, for instance, the committee voted for special low rates and a new, generous accounting system for smaller companies. To reward big corporations that supported the reform effort, like Procter & Gamble and IBM, the committee agreed to accept a scaled-back version of the president’s proposal to allow corporations to write-off a portion of the dividends they pay.
Even when it agreed to cut back breaks, the committee still inserted provisions carefully targeted to benefit certain favored constituents. A compromise that chopped timber-industry tax breaks didn’t harm a sliver of businesses owned by relatives of Representative Beryl Anthony of Arkansas, who proposed the compromise. Cutbacks in estate taxation included a “Gallo amendment”—an exception sought by the famous owners of the Ernest and Julio Gallo Winery in California that would allow their grandchildren to inherit more than $80 million without paying a proposed generation-skipping tax. The progress of that amendment was closely monitored by Representative Tony Coelho, who was the Gallo’s local congressman and the chief fundraiser for the House Democrats. (The Gallo clan had contributed more than $130,000 to the Democrats during the previous four elections.) The amendment was offered by the wily Ed Jenkins of Georgia, who claimed at the time: “I don’t know Mr. Gallo [which he mispronounced gay-low], never met him. Are there more than one of them? Are they brothers?”
At times, the committee moved faster than members imagined possible for such a weighty piece of legislation, and in the process, some reform proposals were shunted aside, particularly if they didn’t lose much revenue. Representative Anthony expended many words defending an amendment to restore a tax break for employee stock-ownership plans, only to have his amendment accepted by a perfunctory voice vote. He turned to a colleague after the vote and said in astonishment, “Did you see that?”
Rostenkowski pulled his committee forward, taking big swipes at some interest groups while steering clear of others. The committee voted to repeal outright the investment tax credit, as well as the completed-contract method of accounting used by military contractors to postpone taxes. It put new restrictions on another accounting practice that enabled many businesses to defer taxes, but excepted doctors, lawyers, and accountants from the tough new restrictions. It also extended the credit for research-and-development expenditures and preserved the write-off for mortgage interest paid on second homes. Some real estate tax breaks were cut back, but not as much as the chairman had proposed. Said Representative Stark, who chaired the real estate working group, “I was just outgunned by a real estate lobby that knows no limits to its greed.”
Tax reform was moving ahead, though in the rough fashion demanded by the nature of Congress. “We’re doing some good,” concluded Democratic Representative Byron Dorgan, a former tax commissioner from North Dakota, “but we’re not doing as much reform as I had hoped. It’s a little disappointing.”
Still, a new mood had taken hold. Members no longer questioned the seriousness of the effort; they were finally convinced that Rostenkowski could not be stopped. The chairman publicly predicted a conclusion to the markup by Thanksgiving. Those on the committee who had battled against the chairman tooth and nail, like Sam Gibbons, had reason to fear they might be the subject of the chairman’s revenge in the final bill. Representative Harold Ford of Tennessee, who had frequently opposed the chairman, commented to other members during a weekend session, “Boy, am I in a lot of shit with the chairman right now.” Representative Charlie Rangel, who overheard the comment, shot back, “If you’re in shit, you’re standing on Sam Gibbons’s shoulders.”
The Republicans on the Ways and Means Committee watched the bill progress with a feeling of helplessness. They were a powerless minority, outvoted nearly two to one by the Democrats on the committee. Few of them had any real interest in reform. They were, for the most part, conventional Republicans, not members of the new supply-side breed, and they believed in retaining many of the business tax breaks that Rostenkowski was paring down. They had not sought seats on Ways and Means to take away tax benefits; they were there to promote breaks that helped their business constituents.
The alienation of Ways and Means Republicans was especially intense because Treasury officials were working more closely with the Democratic chairman than with the members of their own party. Adding insult to injury, the Republican National Committee sent letters into the home districts of a number of Ways and Means Republicans urging voters to complain to them for failing to support tax reform. McGrath’s mother was one of those who received a letter. “Pretty shabby work,” groused Bill Frenzel of Minnesota.
Baker and Darman tried to assuage the group’s hurt feelings, but their efforts were viewed, in the words of one member, as “a little too little too late.” The GOP members did not trust the Treasury officials and expressed anger at being left out of the process. During the course of the markup, Republicans endured the defeat of amendment after amendment as the committee worked long hours late into the night. “You could hear taps being played whenever they offered an amendment,” Representative Tom Downey said. Frenzel became physically ill from the frustration. “The Republicans are spectators mostly,” he lamented. “There is a feeling that whatever comes out of committee, the Treasury will support. The Treasury seems willing to support almost anything just to keep a bill alive. They’re more interested in working with the chairman than with us.”
Most of the Ways and Means Republicans simply did not want reform, and Rostenkowski was getting predictably little support from them. On a good day, only four of the thirteen Republicans would vote with him on any given issue; on most days there were only two, Gradison and McGrath. The chairman worried that Baker and Darman couldn’t deliver any more Republicans for the final vote. What was worse, he realized it would be difficult, if not impossible, to get the bill through the House without the support of the president and some members of the GOP. So in early November he decided he needed to speak to t
he president directly to test his sentiment and to warn him about his own Republicans’ resistance to the reform cause.
Rostenkowski and the president earlier had made an agreement of silence about the drafting sessions; the White House would refrain from criticizing the committee until its work was through. But with the Republicans so distressed, Rostenkowski wanted to make sure that the president would not pull the rug out from under his bill.
Rostenkowski called Don Regan. As he recalls it, the conversation went as follows:
“Don, I have to see the president.”
“Well Danny, what is it you want to see him on?” Regan asked, obviously hesitant to grant the request.
“Do I have to tell you?” Rostenkowski responded.
“Well no, but the president’s preparing for the summit,” Regan said referring to the president’s upcoming meeting with new Soviet leader Gorbachev, which was less than two weeks away. Rostenkowski was fully aware of this, since he had just returned from a visit to the Soviet Union himself.
“Well Don, I’m not getting any support from the Republicans, and I think I ought to share that with him. It’s his bill,” Rostenkowski insisted.
“Well Dan, Jesus, I don’t think we can squeeze it in.”
“Don, I can do the Today show and Good Morning America, get on and say I’ve spent four and a half hours with Gorbachev, and he’s only been the general secretary of the Soviet Union for about three weeks. I can say that I’m the chairman of the Ways and Means Committee, and I can’t even get in to see the president of the United States, and I haven’t even been in his company for more than two hours in the five or six years that he’s been president. I could say that.”
“Can I get back to you?” Regan asked.
“Don, listen to me, nothing technical,” Rostenkowski assured the chief of staff. “I just want him to know who it is that he’s screwing with, I want him to know who I am and what I am. I want to talk to him about the lack of Republican support, but I promise you there’ll be nothing technical.”
“Call you back,” Regan said and hung up.
The next afternoon at about three o’clock Rostenkowski went to the White House. He hoped he could wrest some secret assurance from the president that it was okay to allow the full deduction of state and local taxes or that the top rate could rise above 35 percent. He first went to Regan’s office, to be briefed in preparation for his visit with the president. Then he rode up the small elevator to the president’s private residence.
President Reagan was waiting at the doors of the elevator, and he warmly greeted the Ways and Means chairman. The two men went into a living room, and Rostenkowski sat on a flower-print sofa while the president sat in a chair to his left. The president served Rostenkowski a cup of coffee, and then they began to talk. Although originally scheduled for only fifteen minutes, the meeting went on for nearly three quarters of an hour. A presidential aide opened the door occasionally to remind the president of the time, but Reagan waved him away.
Rostenkowski recalls the conversation. “Mr. President,” he said, “you know you’re talking about state and local taxes—I can’t go with it. I can’t get any place. You told me that I couldn’t get down on the rates and not have state and local taxes, and I’ve done it. But I’ve got other complications, and I’m not really getting a lot of help from your people. And I can’t do it without going to thirty-seven percent.”
“Oh, no, thirty-five percent,” the president said and recounted again the stories about his days in Hollywood, when he and other actors were faced with marginal tax rates exceeding 90 percent.
“Well, I can’t do it,” Rostenkowski said. “But you know, Mr. President, you and I have come to power at the same time. We’re really defining the economic destiny of this country. Are you suggesting that two percentage points are going to deny you and me a place in history? I can’t believe that—two percentage points?”
Rostenkowski remembers that the president just sat there, somewhat uncomfortable. “Mr. President, two points—thirty-five percent to thirty-seven percent—history—two Illinois members of government. Mr. President, just don’t say no.”
“This is presumptuous of me,” Rostenkowski recalled later, “but I think he enjoyed my company, because I sure enjoyed his—even though I didn’t get a goddamn thing from him.”
In fact, Rostenkowski got less than nothing. Despite the plea for help, Reagan broke radio silence and criticized Rostenkowski and his committee a few days after the White House meeting. “We need the kind of tax reform we originally proposed, and not some of the waterings-down that are taking place as they discuss it up there,” the president said. The comment was only a glancing blow and didn’t hinder progress, but soon thereafter Treasury officials indicated Baker was “boycotting” the Ways and Means drafting sessions because he was angered over the retention of the state and local deduction. Ways and Means aides tried to make light of the situation by saying they did not know about any such boycott and had not much missed the secretary anyway, but a rift with the Reagan administration was a serious problem.
Relations between Rostenkowski and Baker grew even more strained on Monday evening, November 18, when the Treasury secretary weighed in against the chairman on one of the most contentious issues of the entire tax debate: oil and gas. While still boycotting the committee meetings, Baker was invited by oil-state lawmakers to meet with them and a group of oil-and-gas lobbyists on Capitol Hill to discuss their negotiations with Rostenkowski. Baker did not hesitate to attend, and when he got there he was not the least bit shy about saying where he stood. He was so much a booster of oil drillers’ views that members would often remark sarcastically that he must harbor ambitions of running for governor of Texas. Baker had already defied Rostenkowski once by largely preserving the industry’s tax breaks in the president’s proposal. Now he was fighting to keep them during the Ways and Means markup too. On that Monday night, before this group of oil-industry lobbyists and their partisans on the Hill, Baker pledged his help and said flatly that he would not ask the president to sign any bill that contained the harsh cutbacks in oil tax preferences that the chairman sought.
Fights over oil and gas are always among the liveliest in Congress. On few other issues is the nation so clearly divided along geographical lines: the Northeast and Midwest against the South and Southwest. Word of the oil meeting enraged Rostenkowski. Baker had been avoiding the Ways and Means Committee for more than three weeks, and the first time he came back to the Hill was to try to undercut the chairman on this bellwether issue. “It stinks,” fumed one of the chairman’s top staffers.
Baker returned to his office after the meeting and telephoned Rostenkowski. “I’m going to have a very difficult time delivering votes,” Baker warned the chairman. “You and I are going to have to sit down and talk energy.” Rostenkowski launched into extended shouting, and Baker removed the phone from his ear to wait for the barrage to stop. Rostenkowski demanded that the energy industry pay its fair share of the cost of reform, and Baker shot back, “Why don’t we have energy pay as much as state and local.” The chairman complained that GOP members weren’t supporting the reform effort, and the secretary groused, “I can’t deliver Republican votes when you won’t give on Republican issues.”
Baker and Rostenkowski spoke by telephone several times the next day, and negotiations continued between the oilies and Rostenkowski’s staff. The meetings were turbulent. In the middle of one, Rostenkowski stormed out of his Capitol Hill hideaway, leaving behind a flabbergasted phalanx of congressmen. As the chairman strode down the hallway toward the House chamber, he shouted back: “This is the last time I’m speaking to them. If they want to beat me, they can beat me. The bottom line is right there.”
The bottom line was a compromise, agreed to the next day, that trimmed oil-and-gas tax incentives by $4 billion over five years, which was less than half of the $9 billion cut originally backed by the chairman and a fraction of the $40 billion cut proposed in Tr
easury I. It was approved with bipartisan support, 29-4. With so large a vote, Rostenkowski and his aides believed—incorrectly—that their oil problems were behind them.
The toughest issues were saved until the last few days of the markup, and the period could not have been a harder one, personally, for Chairman Rostenkowski. His youngest daughter, Stacy, had long suffered from kidney problems and earlier in the year had rejected a transplant. During the last week of the markup, Rostenkowski and his family were shaken by the news that none of them could serve as a suitable donor for her.
The chairman wanted to give her his kidney, but was told he could not. At the time of the markup, the family was caught between doctors and conflicting advice about how to improve Stacy’s faltering health.
During the same period, Rostenkowski faced other troubles as well. He and his committee were under heavy pressure to produce budget savings to help reduce the deficit and also to help draft the controversial deficit-reduction law called Gramm-Rudman-Hollings. “I’ll be surprised if I don’t have a nervous breakdown,” he confided to his colleagues.
The most severe tests of the drafting session began on Thursday, November 21—just one day before Rostenkowski hoped to finish the bill. That evening, the committee took up the chairman’s proposal to allow deductions for only 75 percent of the cost of business meals, and for only 50 percent of entertainment expenses, such as theater or sports tickets. The proposal was opposed by an extremely powerful coalition, which included big companies like American Express, as well as unions, hotels, professional sports teams, and the tourism bureaus of some of the nation’s largest cities. So heated was the lobbying that the issue was taken up in full committee without the recommendation of a working group. The coalition’s members worked hard. One New York representative was told by an executive in the Mets baseball organization that the team might have to sell Dwight Gooden, its star pitcher, if the deduction were cut back too far. Opponents of the Rostenkowski plan argued that thousands of jobs and billions of dollars of business would be lost from their arenas and restaurants.