Showdown at Gucci Gulch

by Alan Murray

  The White House still needed to nail down fifty firm ayes, and it had little time left. Many GOP leaders who normally corralled votes for the administration were unwilling to help this time; indeed, most of them were still rounding up opponents to the bill. That meant the Treasury and the White House had to hunt for votes themselves.

  Baker, Darman, Thompson, and Oglesby set up shop in an office in the corner of the Capitol, off the rotunda, that housed the staff of Minority Leader Michel. They worked the phones, calling those members they thought might be willing to support the president. “Anyone who didn’t tell us to go to hell, question our ancestry, and throw us out of the door, we put down as undecided,” Dennis Thomas recalls. Even with such a broad definition of undecided, the undecideds and supporters together totaled only sixty-five names. The administration had to win over fifty of those into the solid supporters’ column.

  The Treasury and White House officials called every lawmaker on their list. When members said they were still undecided, they would get another call in thirty minutes to see if they had decided yet. If members could not be reached by telephone, White House lobbyists would wander the hallways and catch them as they went to vote, or as they left the House floor to go to the rest room. Baker did much of the calling himself, contacting more than twenty members in the few hours before the deadline. In his calm Texas style, he let the Republican members know the consequences of defeating the president’s top priority. He was not harsh or demanding, but he was persistent. “The president really needs you,” he would say. “We can’t be the ones to kill the bill. We’ll fix it up in the Senate. And if we don’t fix it up, let me tell you right here, I’ll recommend a veto.”

  Members who were still sitting on the fence saw this as an opportunity to swap their votes for favors from the White House, and they began horse trading. Eager to get fifty supporters, the administration team was more than willing to deal. Representative Steven Gunderson of Wisconsin said he would support the tax bill if President Reagan would promise to sign the farm legislation his rural district needed; the White House agreed. Representative George Gekas of Pennsylvania said he would change his vote if the administration would take a look at his proposal to have staggered filing dates for tax returns; Baker agreed. Representative Nancy Johnson of Connecticut promised to switch if the cabinet would consider placing import quotas on machine tools; Baker promised to look into that as well. California Representative Al McCandless asked for Treasury figures showing how typical taxpayers in his state would fare; Thompson had those quickly prepared. One congressman asked Baker to come to his state and help in his reelection campaign; Baker said he would. “Boy, they weren’t bashful,” Baker recalls.

  The count fluctuated from moment to moment. Sometimes, a member would agree to vote for the bill, but then word would leak back down to the administration head-counters that he had changed his mind. Names came on the list, then went off again. Getting a firm count proved exceedingly difficult. Representative Marjorie Holt told the White House she would vote for the rule, but only if her vote was absolutely necessary to make the goal of fifty. “It was an excruciating process,” recalls Oglesby. “We didn’t have many happy voters.”

  By 6:00 P.M., the administration team had rounded up forty-eight votes. They were still two votes down, and they were running out of possibilities. Despite the shortfall, Baker called Regan to tell him they had the votes and to have the president call O’Neill. Baker pushed for the call because time was running out and he was reasonably confident that he could make the promise of fifty votes come true, but, as Lott would say later, tax reform at that point was within two votes and two hours of death.

  Shortly after six o’clock, the White House operator made a call to O’Neill’s office, saying the president wished to speak with him right away. Aides promised to get the message to the speaker, and finally got through to the telephone in his car, but O’Neill did not call back. The eight-o’clock deadline passed, and no return phone call came from O’Neill. Another hour went by; still there was no call. For nearly four hours, the president and his aides waited, not knowing where the Speaker was or why he was refusing to return the call. Baker was nervous; he felt certain the speaker had decided to let the bill die. Why else would he ignore a call from the president of the United States? The strenuous effort of the last week seemed ready to go up in smoke.

  Finally, at 10:00 P.M., the Speaker returned the president’s call. He had been dining at the University Club with a friend, his aides said later, and had taken his time in calling back. Said O’Neill, “I didn’t call back because I had other things to do at that particular time.” The two aging symbols of their respective parties spoke only briefly. President Reagan said he had the fifty votes; O’Neill said, “Okay, Mr. President, we’ll bring her up tomorrow.”

  A meeting of the Rules Committee was hastily convened for that night, and at 11:45 P.M. a new rule—virtually identical to the first one except that it allowed a vote on the nonbinding Michel resolution—was approved by the committee and sent to the House floor for action the next day.

  Earlier that same evening, the White House sent a letter to Kemp and Michel, promising not to sign any bill that failed to meet certain minimum requirements. The letter had been worked out over several days between Darman and the two House members. Treasury was particularly anxious to have the support of both men—Michel, because he was minority leader; Kemp, because he was, in Darman’s words, “the Republican definition of tax reform.” In the letter, the president promised not to sign any bill that did not establish a $2,000 exemption “at least for those individuals in the lower and middle income tax brackets.” He also said he would not accept a bill that did not include basic tax incentives for American industry or that had a top individual rate higher than 35 percent. Baker and Darman later boasted privately that the letter committed them to nothing new: The president was already adamant about the 35-percent top rate, the “lower and middle income” language gave them plenty of room to compromise on the personal exemption, and “basic tax incentives for American industry” was vague enough to allow almost anything. Nevertheless, the letter provided important cover for Kemp, whose Republican conference was still insistent upon opposing the bill and who still needed a reason to reverse his prior position. With the president’s letter in hand, Kemp decided to change course and support the measure.

  Still, the game was not over. There would be three votes the next day: one on the rule, one on a motion to recommit the bill to the committee for further work, and one on final passage. The administration had to keep its fifty reluctant Republican supporters in line throughout all three votes. That was not going to be easy, especially with Lott’s efficient whip group doing all it could to win the fifty back.

  To police the floor the next day, Baker decided to put together his own ad hoc whip organization. He chose the members for the group carefully. There were three pro-reform members of the Ways and Means Committee who knew the substance of the bill: Guy Vander Jagt of Michigan, Hal Daub of Nebraska, and Bill Gradison of Ohio; moderate Republican Claudine Schneider of Rhode Island, who would help bring in other Northeasterners; and a few older, well-respected members of the party like Henry Hyde of Illinois and William S. Broomfield of Michigan.

  Before the voting began, O’Neill came down from his podium, stepped into the well, and gave a moving speech. The chamber was filled; they all knew that a historic vote was about to happen. When the speaker began to talk, the large room fell silent.

  Before I came to Congress, when I was actively interested in politics, I remember the Tax Department during the war coming up with a comprehensive tax-reform bill. It was during the war, so it never saw the light of day.

  People clamored for it, and people said we needed it. Wilbur Mills, during the 1950s, held hearings. The hearings got nowhere. My own beloved Jack Kennedy came forward with a tax bill—tax reform and a tax cut at the same time. In order to stimulate the economy at that time, Congress approv
ed the tax cut but forgot about tax reform. Jimmy Carter, his heart and mind set on tax reform, did not get it. We came out with a tax cut. That has been the history of tax reform for the last forty years. We are closer to it now than we have ever been before.

  The result of forty years of only talking about reform is that the American people have lost confidence in the fairness and the integrity of our tax laws. Our country used to have the greatest voluntary tax system in the world. Americans paid their taxes with pride. But along the line, this voluntary tax system of ours has been threatened, threatened by a widespread perception that some segments of our society are not paying their fair share of the costs of this Democracy.

  Let me say this to you, Republicans on that side and Democrats on this side: All of us Americans, America, the people are crying for fairness in our tax code…. I ask you to vote for the rule. I ask you to vote for the bill. I ask you to send it to the other body so that ultimately both parties can work out the final passage.

  Any misgivings the speaker had about the tax-reform effort had by that time disappeared. The rule passed 258-168, with the help of seventy Republicans—including Michel and Kemp. A solid majority of Democrats backed the rule, though fewer than half of the Republicans did the same. A few hours later, the Republican effort to “recommit” the bill, or send it back to the Ways and Means Committee, was defeated 256-171, with only forty-nine GOP members voting against it.

  Then came the day’s unexpected climax. At 10:55 P.M., the speaker, now in his chair looking over the House floor, called for a vote on the bill. As is customary, he called first for a voice vote, expecting the Republicans would then demand a recorded vote. “The question is on the bill,” he said in a perfunctory manner. “All those in favor say aye, opposed no, the bill is passed.” He then looked to the Republican side of the chamber, expecting to see a Republican member rise and call for a roll call, but no one moved. The speaker banged his gavel, and it was done.

  The Republicans, in a moment of confusion, had missed their only opportunity. A few Republicans made a show of complaining that the speaker had gaveled too quickly, but any fair witness could see that the Republicans had simply made a mistake. Six days after the president had suffered an ignominious defeat, the overhaul of the nation’s tax system—numbered H.R. 3838—was approved by the House of Representatives without even a recorded vote.

  The House action defied the predictions of countless pundits. The bill was less than most reformers had hoped for, to be sure. It left many tax breaks untouched, and many others were only slightly trimmed. It was, in many ways, a massive halfway measure. But the House bill had shown that under the right conditions, members of Congress would cast a vote for a tax bill that was in the general interest, even though it went against the wishes of legions of powerful lobbyists. It showed that, under the right circumstances, the special interests could be defeated.

  After the vote, Rostenkowski held a press conference and a celebration. Secretary Baker, who stood near the chairman, was asked if he wanted to join the festivities. “No,” he replied, “this is Rosty’s night.”

  At the press conference, Rostenkowski raised a glass of champagne, poured for him by a lobbyist from his pro-reform coalition, and gave the following toast: “To an accomplishment of the House of Representatives and to a bumpy ride in the Senate.”

  He, like many other students of Congress, thought the Senate would be the graveyard for tax reform.

  Chapter 8

  The Gucci Boys Revenge

  As the House thrashed over tax reform on the night of December 17, Senator Packwood hosted his office Christmas party. It was a festive event, held in the Commerce Committee hearing room, just a few steps down the hall from Senator’s personal offices in the Russell Building. The congressional session had lasted far longer than anyone expected that year, and the last few weeks had been hectic. The year-end recess was finally about to begin, and Packwood’s staff was ready for a celebration. The beer and wine flowed freely, and staffers gathered around a piano, filling the room with slightly off-key renditions of popular Christmas carols.

  But the senator, who usually had a hearty appetite for such parties, was out of sorts. He joined the caroling only in spurts. Every few minutes, he drifted away from the lighthearted crowd and walked down the hall to his office, where a television set was tuned to the raging debate on the House floor. For a long time, Packwood had tried to ignore the tax bill, judging that its chances for survival in the House were slim. Now the House was about to finish its work, and the political hot potato was going to be tossed into his hands. Neither he nor most of his Finance Committee members wanted anything to do with the controversial legislation, but once the House passed the bill, they would be under pressure to act. “We held our breath to the last minute,” an aide recalls, “hoping something would go wrong.”

  The House passed the sweeping measure that evening, denying Packwood’s Christmas wish and putting him on the spot. He and his committee had to fashion a tax-reform bill of their own now, or they would be accused by the president and the press of scuttling reform. Few people in the Senate seemed to have any interest in tax reform, but institutional politics dictated that the Senate, and Packwood in particular, somehow produce a bill. The Finance Committee chairman had been backed into a corner, and for the next six months, he would be consumed with the effort to extricate himself from that uncomfortable position. The odds were against him, and it would be only with great difficulty, after coming perilously close to failure, that he would succeed at the task.

  The smart money in the Washington establishment was betting against Packwood. His Finance panel was a bastion of pro-business sentiment, heavily favored with the attentions and cash of the nation’s wealthiest business executives and special-interest groups. There was no place in Congress where tax breaks were more treasured or where a corporate tax hike of the magnitude proposed in the House bill—$140 billion over five years—was less welcome. The committee had traditionally been a lobbyists’ haven, and the opponents of reform knew it was their last and best chance to stop the bill. They had never expected tax reform to pass the House, but they felt certain that an all-out lobbying effort could halt it in the Senate.

  The amount of time, money, and effort expended on tax lobbying throughout 1985 and 1986 was enough to overwhelm even the most cynical congressional observer. With billions of dollars of tax breaks on the line, major corporations, trade associations, and pressure groups hired the biggest names in Washington to protect themselves. The result was perverse: The populist tax bill, an all-out attack on the special interests that swarmed over the nation’s capital, was producing a huge windfall for the lobbyists who represented those interests. Some wags began to refer to the bill as the “Lobbyists’ Relief Act of 1986.” Fred Wertheimer, president of the citizens’ lobby Common Cause, quipped, “It’s not clear yet what the tax-reform fight is going to mean for the average taxpayer, but Washington special-interest lobbyists have just landed in hog heaven.”

  Many of the lobbyists were former members of Congress and former aides, whose stock-in-trade was their expertise in the system and their access to old colleagues and bosses. The lucrative allure of tax reform caused ever more of these people to join the lobbyists’ ranks. Congressional and administration officials were transformed, almost overnight, from being the people sought out for tax favors to the people who were doing the seeking. They traded power for money. Two of Rostenkowski’s former top aides—John Salmon and James Healey—were included among their ranks; both had left the Hill after many years to earn the big bucks of lobbying. Salmon represented a liquor company and one of the nation’s largest tax-shelter syndicators; Healey worked for Allied Signal, Exxon, Johnson & Johnson, Chrysler-Mitsubishi, Union Pacific, Bethlehem Steel, and the investment banking house Salomon Brothers. Buck Chapoton, the former Treasury tax official, also used his expertise to secure a highly paid lobbying position for commercial banks. Roderick DeArment, formerly Dole’s staf
f director on the Finance Committee, lobbied for a group of chief executive officers who favored reductions in corporate tax rates, as well as for the Solar Energy Industries Association and for a trade association of cellular-telephone companies.

  Tax lobbyists were a virtual who’s who of the once-powerful in Washington. There were mini-alumni associations that comprised lobbyists who had once worked in the Senate for Russell Long, Bob Dole, or Lloyd Bentsen of Texas. Their world was a kind of inbred village, in which everybody knew everybody else, and in which information swirled like gossip. It was a tightly knit network of tax insiders and former insiders. Everyone talked the same language and sought the same facts. “All of us have just come off the Hill. We worked with the people we lobby. They’re our friends,” explained lobbyist Denise Bode, a former aide to Senator David Boren, Democrat of Oklahoma.

  There was plenty of work for everyone: U.S. Steel hired Kip O’Neill, the son of House Speaker Tip O’Neill; Senator Dole’s daughter worked as a lobbyist for the real estate sales firm Century 21. Companies were tripping over each other to get their points across. The law firm of Patton Boggs & Blow, which was run by Tommy Boggs, the son of late House Majority Leader Hale Boggs, housed two hostile, corporate coalitions: the Coalition to Reduce High Effective Tax Rates, which favored reform’s goal of abolishing tax breaks to pay for lower rates, and the Basic Industries Coalition, which favored retaining corporate tax breaks, even if it meant higher rates.

  There was so much business that the best-known lobbyists in town complained about a flood of new competition. J. D. Williams, a former aide to the late Senator Robert Kerr of Oklahoma, groused that he was losing business to upstart “boutique” lobbying firms. “They are doing well because the established firms are getting more business than they can possibly handle,” he said.