by Alan Murray
And the battle had hardly begun.
Chapter 7
The Bear Takes One in the Back
As the Ways and Means Committee neared completion of its monumental tax-overhaul bill, President Reagan and his chief of staff were meeting in Geneva with Soviet leader Mikhail Gorbachev. It was the first summit conference in six years between leaders of the world’s two most powerful nations, and it was an exhausting event. The return trip was especially grueling; the president had a twenty-hour day on Thursday, flying to Brussels to brief allied leaders on the meeting, then flying home for a late-night address to Congress. Both President Reagan and Chief of Staff Regan were tired; their minds were on questions of war and peace. Neither had thought about taxes for days.
The next day, still suffering from jet lag, the president and Regan met with Baker and Darman. It was Friday, November 22, and Chairman Rostenkowski was just twelve hours away from completing his massive rewrite of the nation’s tax laws. The meeting was held in the White House Oval Office, and the four men gathered around the president’s desk along with White House legislative strategist Dennis Thomas and chief congressional lobbyist M. B. Oglesby. It was an important meeting. The fate of tax reform once again rested in the hands of the president; his handling of the explosive issue would determine the bill’s prospects on the House floor. During the next four weeks, the president and his men would first bungle the delicate effort, driving tax reform to the edge of extinction, and then launch a desperate, eleventh-hour effort to rescue it.
Dennis Thomas played a crucial role. As one of Regan’s most trusted aides, he acted as the chief of staff’s eyes and ears on Capitol Hill. The forty-one-year-old former congressional aide was a mild-mannered man with wire-rimmed glasses, a rapidly receding hairline, and a low-key attitude that was often a welcome antidote to Regan’s impulsive nature. He had worked for Secretary Regan at the Treasury Department and returned to Regan’s White House staff in mid-1985, after doing a brief stint as a lobbyist with the accounting firm of Touche Ross & Company. His cautious manner sometimes served as an even keel that helped keep the stormy White House crew afloat. But on other occasions, Thomas was far too cautious and prevented decisive action. This Friday would be one of those occasions. The yellow lights were flashing in his head. He had been listening to House Republicans complain vehemently about the Rostenkowski plan, and he was worried. Nevertheless, he sat through the meeting with the president without expressing those fears.
Baker and Darman gave the president a brief overview of the bill that was about to be approved by the Ways and Means Committee. To be sure, they said, the measure fell short of the president’s goals. The top tax rate for individuals was not 35 percent, but 38 percent, and the bill offered very little in rate cuts for many middle-income taxpayers. The $2,000 personal exemption, which had been a battle cry of pro-family conservatives, was limited to taxpayers who did not itemize deductions—those who itemized would get only $1,500. There was little reform on the personal side of the tax code: Most of the deductions, exclusions, and credits enjoyed by individual taxpayers were left untouched. On the business side, the plan was far tougher than the president wanted, raising corporate taxes by about $140 billion over five years, rather than the $120 billion hike in his own plan.
Nevertheless, Baker and Darman argued, the fact that the House panel was approving a bill at all was a tremendous accomplishment. Only a few weeks earlier, around the time of the bank vote, the common wisdom in Washington was that tax reform was dead. Now, Rostenkowski was completing a measure that included many of the same reforms that the administration had sought, particularly on the corporate side of the ledger. More important, the bill brought down tax rates considerably, which was what the president wanted most.
The choices for the president were clear: He could either withdraw his support for the bill and blame the Democrats for ruining tax reform, or he could back the bill despite its flaws and hope to do better in the Senate.
Without the president’s support, tax reform would die. Rostenkowski would have a tough—perhaps impossible—time getting the measure approved by the full House if members thought the president had abandoned him. Even if the House passed the bill, it would be ignored by the Republican Senate, whose leaders were not about to invade the hornet’s nest of tax reform unless the president was with them.
On the other hand, a nudge from the president would probably entice some House Republicans to support the bill and provide enough votes to send it to the Senate. The administration could then work with senators to fashion a measure more to its liking. House approval was only the first step in the process, the Treasury officials argued, and it was important to keep the bill moving. “This had been our strategy from day one,” Baker said. “Get the best bill we could in the House, keep the process alive, and improve on it in the Senate.”
For the president, still eager to be history’s premier tax-rate cutter, the choice was easy. He decided not to embrace the bill itself, but to urge his party to support it and send it to the Senate to keep it from dying. The president had a “decision memo” on the table before him, and he wrote his initials—RR—in the box next to the first option. He was still firm in his quest for tax reform.
The group then agreed upon a plan of action. They decided that the president would personally call the ranking Republican on the Ways and Means Committee, John Duncan, at six o’clock that evening to convey his intentions. In addition, a letter from the president would be delivered to all the committee members. These two gestures, Baker and Darman knew, were extremely important. The president’s efforts might secure as many as eight of the thirteen GOP votes on the committee for Rostenkowski’s bill, and that in turn would encourage a good many Republicans to support the measure on the House floor. Without the president’s backing, however, there would probably be only two or three Republican votes in Ways and Means and equally sparse support from Republicans on the floor.
After the meeting, Darman sat down outside the Oval Office and began drafting the president’s letter. The president, weary from his travels, left the office early to retire to his residence. Darman finished the letter, checked it with Baker, and then handed it over to the White House staff. Everything seemed set for that Friday evening, November 22, the final night of the Ways and Means markup. As he returned to the Treasury Department, Darman felt satisfied with the administration’s plan of action. He would never have guessed that the carefully laid strategy was about to be undercut by the White House staff.
Following the script, Bruce Thompson, the Treasury’s top lobbyist, called Duncan aside at 5:45 P.M. and asked him to come into a back room where he was to receive the president’s phone call. Thompson and Duncan waited for thirty minutes, but the call never came. Thompson was confused, wondering what had gone wrong. For the taciturn Duncan, it was just another insult in a long day filled with insults. He and his fellow Republicans already believed they were being steamrolled by Rostenkowski, who was working out the final details of the tax plan in private caucus with his Democratic colleagues. And Duncan was getting no help from Baker and Darman either, who seemed to him to be too eager to assure Rostenkowski’s success.
Finally, at 6:15 P.M., Oglesby, the White House lobbyist, walked into the room where Thompson and Duncan were waiting. “It ain’t coming,” he said. The White House had changed its plan.
It was an astonishing reversal. When Darman heard about the foul-up at his Treasury office, he was furious. He knew the president had approved the call; he had even written Call Duncan in the margin of his decision memo. Still, Darman thought, all was not lost. The letter to the committee members was more important than the call to Duncan. It would be a strong and clear statement of the administration’s position; after all, he had written it.
An hour and a half later, word filtered to the Treasury that there would be no letter either. Dennis Thomas, the cautious legislative strategist, had convinced Regan to withhold any sign of support.
Thomas had shown no visible signs of dissent during the meeting with the president earlier that day, but after the meeting, he had gone to talk to Regan. He pointed out that all of the top House GOP leaders were complaining about Rostenkowski’s bill, including Minority Leader Robert Michel of Illinois, GOP Whip Trent Lott of Mississippi, and Republican Policy Committee Chairman Dick Cheney of Wyoming. The grousing was coming as well from tax-reform proponent Kemp, who felt the Ways and Means bill fell far short of his own reform goals. On top of that, bitter Ways and Means Republicans thought that Baker and Darman had been co-opted by Rostenkowski. Thomas asserted that it was dangerous to ignore all of these people. The Treasury had only to worry about the tax bill, he reasoned, but the White House had a much bigger array of issues on its plate. It could scarcely afford, in one blow, to knock for a loop every influential Republican in the House of Representatives.
“The question wasn’t one of whether to withdraw support or hold it back; it was a question of timing,” Thomas said later. “We wanted to get a better idea of what the bill was going to look like through that night and then make a final determination in a way that involved the House Republicans. The Republicans felt terribly alienated by Rostenkowski—and, I think unfairly so, by the Treasury Department.” By withholding any immediate sign of support for Rostenkowski, Thomas hoped to mollify the House GOP.
Regan was willing to go along with the delay, in part because he resented Baker and Darman trying, as he saw it, to force a plan down his throat. His resentment for the Treasury team had continued to fester during the tax debate, and he welcomed the opportunity to exert his power. “I hadn’t had time to study the plan,” he said later. “I had been back less than twenty-four hours. And the fact that the Republicans were growing more and more intolerant and were hitting the flash point seemed to have escaped the notice of some people”—meaning, of course, Baker and Darman.
The two Treasury officials were incensed. In private, they had often questioned the wisdom and judgment of the new White House team. Baker, always the diplomat, had been very careful to keep his feelings out of public view; Darman had been somewhat less discreet. But this time, the actions of Regan and Thomas were too much. The president needed to send a strong signal to keep the bill on track. After all, if the chief executive was not sure he could support the bill, why should GOP members of Congress support it? It was sheer stupidity not to make a statement, Baker and Darman thought.
A series of heated telephone conversations ensued. Darman spoke to Thomas; then Baker spoke to Thomas. Baker asked to speak with Regan, but Thomas said the chief of staff had gone home exhausted from his postsummit travels and should not be disturbed. By 10:00 P.M., there was still no word from the White House, and Baker was growing impatient. The Treasury officials did not want to return to Capitol Hill until they knew what to tell Rostenkowski about the president’s stance. In a conversation with Thomas, Baker exploded: “I’m not going forward on the strength of your say-so to announce an administration position. I want at a minimum to talk with Regan, and if I’m not satisfied, I’ll talk with the president.”
A few minutes later, Regan called Baker at the Treasury. The conversation was tense, but civil. An agreement was finally reached between the two men, but it was far less than Baker thought was adequate. There would be no letter or phone call from the president that night; he had already gone to bed. Baker would be allowed to inform committee members of the administration’s support for the process, though not for every specific provision of the bill itself—provided there were no major changes in the legislation before it was approved. The president would then make a strong statement either in his regular Saturday morning radio address or in a press release on Monday morning.
It was not a good compromise, Baker thought, and would probably weaken support for the bill in the House, but it would have to do. The only alternative was to wake the president and get him to reverse the chief of staff’s decision. “I started to call the president, and then I thought, no, life is too short to call him and wake him up. We’ll clean it up ourselves,” Baker recalls.
At about 10:15 P.M., Baker and Darman returned to Capitol Hill. The Ways and Means Democrats were still meeting in a private caucus, and the Republicans, feeling totally cut out of the tax-writing process, were steaming. It looked as though even the one or two GOP members who backed Rostenkowski’s efforts might vote against the chairman out of anger. The Treasury officials hoped that word of the president’s conditional endorsement would calm them down.
When Rostenkowski finally emerged triumphantly from the Democratic caucus, having temporarily quelled the revolt over his proposal to tax life insurance fringe benefits, Baker was waiting to see him in Joe Dowley’s office across the hall from the hearing room. The president had his problems with the measure, Baker said, and wanted a chance to rework it in the Senate, but he planned to call the bill a “good start,” and urge its approval. Provided there were no major changes, he said, Darman would make a statement to that effect when the committee completed its work.
For Rostenkowski, that was good news. He needed to have the president’s support; without it, he knew, his bill might be viewed as a charade and go down in defeat on the floor of the House. Baker left the Ways and Means deliberations shortly after that conversation. He planned to go goose-hunting early in the morning on Maryland’s Eastern Shore, and he wanted to get a couple of hours’ sleep. Darman remained to see the bill through, and to read the administration’s statement at the end of the markup.
Not long after Baker left, Rostenkowski’s fringe-benefit deal exploded. The proposal to tax life insurance fringes was dropped, and the corporate rate was boosted one percentage point. It was not a huge change, but it was enough to convince Darman that he could not speak for the administration. It was too late to call Regan or the president, so Darman said nothing. He urged Rostenkowski to put off the final, recorded vote on the package until after the Thanksgiving break. By then, Darman assured him, the president would have made his statement, and the Republicans would have cooled off. The chairman agreed; his plan was approved in a preliminary way by voice vote, and a final, recorded vote was delayed.
Relations between Regan’s White House and Baker’s Treasury were stretched to the breaking point. On Saturday morning, after a few hours of sleep, Darman called Oglesby to ask if the president needed some information for his radio address encouraging support for the Ways and Means bill. Oglesby said no, the president was not going to make any kind of statement about the tax bill that morning. Darman then talked to Thomas. Did he need help putting together a statement for release Monday morning? Thomas replied that it might be better to wait until Tuesday, because the House Republican leaders would be meeting that morning and would have an opportunity to express their views before the president spoke out. On Tuesday, the delays continued. Treasury officials asked, “When will a statement be coming out?” White House officials replied, “Maybe tomorrow or the next day or the next.” For ten long days, there was no word from the president. No statement was made, and newspapers were filled with speculation that the White House was going to let the measure die. Rostenkowski put in a call to President Reagan, demanding to know where he stood, but for several days the president did not even return the call.
The press, lobbyists, and legislators were stunned by the White House silence. The president had launched the tax-reform effort. He had carried it this far. And now it seemed he was ready to drop it. Darman recalls it this way:
The president at this point should have been advised to lead, not follow. His failure to be out-front was interpreted by everybody as a signal that he was about to pull the rug on tax reform. It emboldened the Republicans to organize against him—and reform. Politicians are extremely sensitive; their antennae are attuned to political signals. The last time they’d seen the president and Rosty talking about tax reform, they’d seen them both on TV, going forward together to the nation. Afterward, the president even advertised “Write
Rosty.” This time, though, Rosty comes forward, announces a tremendous victory, and there’s dead silence from the president. No comment. As it continues for several days, the political world interprets this as a big, big, big signal. If anybody’s thinking of running away from reform, then they’d better run because the president’s about to saw the limb off.
Run they did. The vast majority of House Republicans wanted nothing to do with the bill. They certainly were not going to take on the army of special-interest lobbyists opposing the measure if they did not at least have the president backing them up.
The revolt was officially launched on the Tuesday after the Ways and Means Committee bill was completed, when the House Republican Conference voted overwhelmingly to oppose the measure. The conference includes all the Republican members of the House and is the forum they use to select their leadership and to consider party positions on major pieces of legislation. It was chaired by Kemp, and its vote to oppose the tax bill was a powerful statement.
When Rostenkowski finally held a roll-call vote on the bill in his committee on December 3, he got the support of only five of the panel’s thirteen Republicans. Outside the committee, GOP support was even weaker. Every member of the House GOP leadership had vowed to work against the bill. Bruce Thompson, the Treasury lobbyist, tallied votes that same week and came up with an incredible result—only six Republicans in the entire House were definitely planning to vote for the tax bill, and only eight more were leaning toward supporting it. The remainder of the 182 GOP members were either undecided or opposed; and those opposed were not the least bit reserved in their opposition.