by Alan Murray
It was an extraordinary situation: Tax reform was the top domestic priority of a president who had been reelected a year earlier in a forty-nine-state landslide; yet his own troops in the House were now going all out to bury it.
The year had been a particularly trying one for the underdog House Republicans. A minority for three decades, they had long felt stifled, and 1985 brought those feelings to a peak. The year opened with a knockdown battle over whom to seat in a disputed Indiana congressional election. Republican candidate Richard D. McIntyre was certified by the Indiana secretary of state as the winner with a razor-thin thirty-four-vote margin. Citing election irregularities, a House task force recounted the votes and named Frank McCloskey, a Democrat, as the winner. Exercising their power to settle election disputes, the House Democrats voted to seat McCloskey rather than McIntyre, and the angry GOP members, in a rare and dramatic demonstration, walked out of the House chamber as the vote was taken. “Mr. Speaker, you know how to win votes the old-fashioned way,” complained embittered Republican Representative Bob McEwen. “You steal them.”
The House GOP also felt ignored throughout the year by their own Reagan administration. The Republicans had worked closely with the White House in 1981 to push through the president’s economic program, forming alliances with conservative Southern Democrats. But in the 1982 elections, Republicans lost twenty-six House seats, and they regained only fourteen in the 1984 Reagan landslide. The ability of the minority Republicans to form a voting majority coalition with Democrats was weakened, and their power in the House had dwindled accordingly. The White House increasingly cut its deals with Republicans in the Senate, who, by contrast, were in the majority; the House Republicans seemed irrelevant. The National Journal magazine called them the “Rodney Dangerfields of American politics”—they got no respect.
The more moderate leaders of the House GOP, like Minority Leader Robert Michel, were still inclined to work with the administration and, when possible, with the House Democrats. But Michel’s leadership was under challenge by a cell of younger, feistier Republicans—called by some the “bomb-throwers”—who thought confrontation was the only way to get noticed. Rifts within the party ran deep and added to the problems.
Tax reform stoked this fire of frustration. As the Republicans saw it, Baker and Darman had cut a devil’s deal with Rostenkowski. The Treasury officials allowed the Democratic chairman to plow ahead with a bill that rolled right over the Republicans and their constituencies. It was the ultimate insult. The tax-reform bill struck at too many of the groups that they felt bound to protect. Despite the president’s stumping around the country in favor of reform, the public seemed uninterested. The administration had put the Republicans in an untenable position by championing this awkward issue, and now they wanted to fight back.
The White House could have softened this rebellion if it had made its strong desire for tax reform known as soon as Ways and Means completed its work; the president’s influence over his party was still enormous. But Regan and Thomas made a critical error in judgment: The ten days of foot-dragging clearly fed the rebellion. Even Baker and Darman began to fear that Regan and his staff had decided to let the bill die and just were not telling them. “After a while, we came close to concluding that they couldn’t be that dumb, that they must be planning to dump the thing,” Darman said.
Earlier that year, Darman had given a speech in which he compared the perilous course of tax reform to a target bear in a popgun shooting gallery. “It gets hit,” he said. “It rises, pauses, turns a bit—and then keeps on going”—nothing was able to stop it.
This time, however, the tax-reform effort was under attack from the White House itself. The bear had taken one in the back, and the injury looked like it could be fatal.
Tuesday, December 3, ten days after Rostenkowski’s committee finished its work, the White House finally began to put out the word that it was still interested in reform. President Reagan met privately with GOP congressional leaders and told them he was “committed to keeping tax revision alive in Congress.” The next day, the White House released a tepid statement saying the president believed that “the legislative process must be allowed to go forward.”
The president’s weak statement was rendered even weaker by his refusal to choose between Rostenkowski’s bill and the House Republicans’ own alternative. The Republican plan was thrown together by Ways and Means Republicans who by and large opposed reform, and it was not considered a serious document. It appeased an array of Republican interest groups by retaining major deductions and credits, including the investment tax credit, but it trimmed the value of all those breaks to pay for a reduction in the top tax rate to 37 percent—a transparent attempt to do the Ways and Means bill’s 38-percent top rate one better. The plan had no chance of passage; by suggesting he might favor it over the Rostenkowski bill in the December 4 statement, the president only contributed to the impression that he did not care much about reform.
Republican opposition to the Rostenkowski bill solidified. “House Republicans believe that the promise of tax reform has been betrayed,” Kemp said. “The hard truth is that the Democratic bill is anti-family, anti-growth, and anti-investment.” Kemp had staked out tax reform as a key issue in his efforts to win the 1988 GOP nomination for president, but after the Rostenkowski bill came out, he quickly changed course. That was in part because of serious problems he had with the Rostenkowski bill, but also because, as chairman of the Republican Conference, he could not easily defy that group’s wishes.
The president kept promising to improve the bill in the Senate, but the promise had a hollow ring. Senate Republicans were even less interested in reform than House Republicans. “The phrase the ‘Senate will fix it up’ is the moral equivalent of ‘I’ll respect you in the morning,’ ” said Ways and Means Republican Bill Frenzel.
Rostenkowski was having trouble keeping the Democrats in line, as well. Tax reform, like so many previous tax bills, was splitting the House not just along party lines, but also along regional lines. Democrats from oil states opposed the measure, arguing the committee’s concessions to the oil and gas industry were insufficient. Many Democrats from timber-producing and heavy-industry states also thought that Rostenkowski’s bill was too tough on them. Most Democrats still supported the measure, but it was unlikely that Rostenkowski could carry the full House without at least some Republican help. Speaker O’Neill warned that the president had better start lobbying intensely “if we are to accomplish the historic, bipartisan overhaul in the tax system that he has promised.”
Business lobbyists worked busily behind the scenes to defeat the measure. The legislation was opposed by the Chamber of Commerce of the U.S.A., the National Association of Manufacturers, the Business Round-table, the National Association of Home Builders, the American Bankers Association, and a long roster of representatives of corporate America. They believed that the bill would harm the economy—and not coincidentally do damage to their own members’ profit-and-loss statements.
But a small group of businesses endorsed Rostenkowski’s plan and diluted the influence of the naysayers. Two groups—the Tax Reform Action Coalition and the CEO Tax Group—decided to lobby strongly for the measure, after a momentary hesitation when the corporate rate rose to 36 percent from 35 percent on the last night of the markup. Their members included such powerhouse companies as General Motors, IBM, and Procter & Gamble—as well as such organizations as the American Electronics Association and the National Association of Wholesaler-Distributors. Still, in the scheme of things, the corporate opposition to Rostenkowski’s bill was immense.
Worried that the president’s chief domestic initiative might falter, White House officials belatedly tried to step up their campaign. On Friday, December 6, Reagan’s aides telephoned Rostenkowski to tell him they would turn up the heat on House Republicans the following week. On Saturday, the president used his weekly radio address to push for reform: “I hope the House will vote yes next week
and allow the Senate to consider, debate, and to improve this important measure.” On Monday, he sent a letter conveying the same message to each member of the House. Though support among Republicans still lagged, most Washington observers thought the popular president would be able to rally the necessary support. Noting the president’s increased activity, O’Neill told reporters on Monday, “I would think we will pass it.”
A vote was scheduled for Wednesday, December 11, on the “rule,” which needed to be adopted before debate on the bill could begin. Rules are a crucial part of the legislative process in the House, and they are particularly important for tax bills. In the Senate, debate on a bill is virtually unlimited and amendments are offered without restriction. But in the much larger House, most bills cannot be considered without a rule, which sets the length of the debate and often restricts the amendments that can be offered. Tax bills generally are considered under “modified closed” or “closed” rules, which allow few or no amendments on the floor. These rules provide an important discipline to the tax-writing process. The alternative would be chaos. Without such a rule, each of the House’s 435 members might be tempted to try and dip into the tax cookie jar to get favors for constituents.
Rules are written by a small panel known as the Rules Committee, which, because of its unique function in the House, exercises significant power. The Rules Committee is, in a sense, the gatekeeper for the House floor, deciding which bills will or will not be voted on and how they can be altered. In the late 1950s and the 1960s, the panel became a cemetery for civil rights legislation and other liberal initiatives, when Rules Chairman Howard W. Smith, a conservative Virginia Democrat, refused to act on measures drawn up by his Democratic colleagues. More recently, the committee has become an instrument of the House speaker, peopled largely by party loyalists, but its power remains substantial. Powerful chairmen of other committees are often reduced to beggars before the panel as they seek a favorable rule to guide debate on their bills. “You have a lot of leverage with the committee chairmen,” says Democrat David Bonior of Michigan, a member of the panel. “Those guys are always looking to please us.”
The rule approved by the committee for tax reform allowed only five hours of debate, an exceptionally brief period for a bill that promised to be the most far-reaching measure considered by the House in years. That was because the legislative session was nearly over, and members were anxious to leave for the holidays. Moreover, the rule allowed only three amendments to be offered on the floor. One was the Republican alternative, a salve to the disaffected Ways and Means Republicans. Another created a generous, expanded tax credit for campaign contributions to candidates for the House or Senate. The third amendment was a minor measure affecting the tax codes of U.S. island possessions—a proposal that was added to assuage some jurisdictional squabbles between Rostenkowski and other committee chairmen.
The rule also made one important change to Rostenkowski’s bill in an attempt to douse a simmering controversy. The Ways and Means bill repealed a provision in existing tax law that allowed all federal retirees to get tax-free payments from their pension plans in the first three years after retiring. Rostenkowski had quietly slipped in a line exempting members of Congress and their staffs from that change—a relief to Speaker O’Neill, who was planning to retire at the end of 1986, and to many others as well. Rostenkowski hoped no one would notice the self-serving provision, and his staff had drafted it in such a way that it was very difficult to find in the tax document. But on December 7, The Washington Post ran a story pointing it out. Anxious to avoid further public embarrassment, the Rules Committee wrote the rule so that when members voted for it, they would also be voting to strike the exception.
Because the rule was largely a procedural vote, it was expected to create little controversy; such measures usually win enough Democratic support to guarantee a majority. Treasury officials thought this rule in particular would be easy to pass, because members who voted against it would, in effect, be voting for the provision that exempted them from the pension change—a self-serving vote which could easily be flaunted by election opponents.
But on the morning of the vote, several Democratic lawmakers began attacking the rule. They charged that the change in the treatment of federal pensions ought to be dropped from the tax bill entirely. For the most part, these complaints came from members whose districts had large populations of federal workers, but their position was winning sympathy from other members who knew that their own retirement benefits would be hit as well. What’s more, some Democrats saw the pensioners’ issue as a good excuse to vote against the bill.
Huddled in a tiny room off the House floor, a group of Republican leaders—including Robert Michel, Trent Lott, Dick Cheney, and Jack Kemp—listened intently as one Democrat after another rose to criticize the rule. They recognized in the budding Democratic dissent their own opportunity to attack the bill. Lott remembered that in 1983, the Republicans had defeated a Rostenkowski tax bill by going after the rule; perhaps this time, they had an opportunity to do it again. Representative Newt Gingrich, a Georgia Republican who joined in the discussions, recalls, “It suddenly hit us at 10:30 A.M., if we pushed hard enough, we could defeat tax-overhaul.”
Thanks to Bob Packwood, the House Republicans were more eager than ever to scuttle the tax measure. The Senate Finance Committee chairman had appeared on television that morning and shattered the administration’s promise to “fix the bill in the Senate.” He told a television interviewer that he doubted his committee would make many changes in the bill if it passed the House—a comment that reinforced the worst fears of the Republicans. It was a blatant and disingenuous attempt to kill the bill. Packwood knew his committee would substantially alter the measure if it ever reached the Senate, but he apparently hoped to contribute to its problems in the House so he wouldn’t have to deal with it.
The rule was a tempting target for the Republicans. Members were hesitant to vote against the bill itself, fearing they might be saddled with the blame for killing reform, but the rule offered a chance, as Lott put it, for members “to get rid of the bill without putting their fingerprints on the trigger.”
For the next hour and a half, the GOP leaders worked feverishly to get out the message: “Defeat the rule.” Republican Whip Lott was responsible for rounding up votes for the GOP leadership. Usually, his fine-tuned whip organization promoted the president’s initiatives; this time it was launching a guerrilla attack against the White House and against Rostenkowski. “It was one of those occasional cavalry charges that the House Republicans make to let everyone know they still exist,” Lott says.
Working out of his chandeliered Capitol office (located down the hall from Rostenkowski’s), Lott sent out a flurry of messages to the GOP members through a “rotary” phone system, similar to the kind used by volunteer fire departments to call firefighters during an emergency. An electronic beeper-system used by many members also conveyed the message. A meeting was hastily convened of the twenty-one members who served as part of the whip organization. “We have an opportunity to kill this snake before it gets out of the hole,” Lott said and began to array his troops.
When the vote was called for shortly before noon, Lott’s whip team was ready. The fifteen minutes allowed for the vote were a critical time, and Lott’s fine-tuned machine took full advantage of it. He stationed members at each door of the House chamber to collar their colleagues as they entered and urge them to oppose the rule. Lott coordinated the effort from the “well” of the House, standing in front of the Speaker’s podium and dispatching his two lieutenants, who stood at either shoulder. He had to keep as many of his Republicans from supporting the rule as possible, and he assigned members of his team to put pressure on anyone who wavered.
From his position near the center of the semicircular House chamber, Lott knew where almost all of the 435 House members could be found. To his right, at about the three-o’clock position, was the so-called Pennsylvania corner, where rus
t-belt Democrats tended to congregate. To his left, at the nine-o’clock position, were the Northeastern Republicans, who tended to be the moderates in the wide spectrum of the House GOP. In the back of the chamber, to the right of the high-noon position, just next to the narrow aisle that separated the two parties, were the “boll-weevil” Democrats, the conservative Southerners. This group was critical to Lott’s effort; they were less tied to the Democratic leaders of the House than were many of their colleagues and more prone to support the GOP in a party-line procedural vote. Lott dispatched his skilled deputy, Republican Representative Tom Loeffler of Texas, to work this group of renegade Democrats and to help win over their support.
As members voted on the House’s electronic system by inserting credit-card-like devices into designated slots along the aisles, Lott’s lieutenants brought him reports from a vote-counting computer located in the center of the Republican side of the chamber. They carried up-to-the-minute tallies that told him precisely how every member was voting. The count looked good. The GOP was holding firm; only a handful of Republicans were supporting the rule. Oil-state and boll-weevil Democrats were also opposing the rule, as was the entire Maryland Democratic delegation, whose members were concerned about the federal-employee pension change. Seeing the frantic activity in the well, Rostenkowski walked up and asked, “Lott, you rascal, what are you doing to me?”
But it was too late. The surprise attack had been a success. Lott and his lieutenants had defeated not only their Democratic rivals, but also their own president. The rule went down by a vote of 223-202. All but fourteen of the Republicans voted with Lott against the rule, and against Reagan.
As he was leaving the podium after the vote, O’Neill turned to his trusted aide and strategist, Kirk O’Donnell, and said, “Today Ronald Reagan became a lame duck on the floor of the House.”
As the vote was being tallied, Rostenkowski put in an urgent phone call to Secretary Baker, who was attending a lunch at the State Department. The Ways and Means chairman had frequently complained that Baker participated only in the big battles and was never around for the many smaller ones. “He doesn’t watch the guys fight to get the pennant,” Rostenkowski said, “he just goes to the World Series games.” When the secretary picked up the phone, Rostenkowski spared no words. “Goddammit,” he shouted, “the rule is going down.”