by Alan Murray
The point was not lost on the president, or on the vice president. They indicated their assent. Baker and Darman also agreed that fixing the stagger was a political necessity. They knew the rate would probably have to creep up to pay for it. The trade-off had been coming for some time, but no one wanted to be responsible for taking the first step toward higher rates. As Packwood and Rostenkowski worked toward completion of their plan, they both knew and agreed that fixing the stagger would be their final move. The stagger would not be eliminated, but its effects would be moderated, particularly for those in middle-and lower-income brackets. To pay for the change, the rate would rise to 28 percent, and the hidden surtax would be reduced to 4 percent from 5 percent to keep the maximum “phantom” rate at 32 percent. It was the last major decision, and Packwood and Rostenkowski seemed ready to put their seal of approval on a tax plan. They had finished in the nick of time. Congress was preparing to leave for its August recess the next day. It looked like Packwood and Rostenkowski would get final approval from the members of the conference before the recess began.
As the two chairmen worked, however, David Brockway watched with a worried look on his face. For almost two weeks, he had been warning both Packwood and Rostenkowski that the Congressional Budget Office was putting out a new economic forecast in mid-August that would probably cause their proposal to fall short of revenue neutrality. He kept hoping the two chairmen would make allowances for this last-minute deficit, which he told them would range between $15 billion and $20 billion, but his words were falling on deaf ears. Packwood, in particular, showed no signs of acknowledging the bad news. He had been plagued by revenue problems long enough, and he did not want to deal with another one. The chairmen continued to tie up the loose ends of the package, expending scarcely a word about Brockway’s warning.
Brockway was well known as a mumbler; his sentences sometimes blurred together. Often, he would do this intentionally to help conceal a member’s pet tax break. But when it came to the new revenue estimates, he was trying his best to be clear. He knew that his credibility was on the line, and he was getting increasingly worried that no one was paying attention to the impending crisis. On Wednesday afternoon, the day after Long had set the two chairmen off to work out a deal, Brockway finally confronted the chairmen directly. “This is what it looks like,” he said, handing over a new set of numbers. Their plan was $17 billion shy of revenue neutrality over five years.
The package that the two chairmen were putting together was supposed to raise corporate taxes in the neighborhood of $124 billion and lower individual taxes by the same amount. Work was not yet finished on that package, but the new estimates showed the increase in corporate taxes was only $114 billion, and the drop in individual taxes was $131 billion. In other words, the lawmakers still had $17 billion to go. It was the third time that the fateful figure $17 billion had plagued the tax process. The Ways and Means Committee had faced a surprise $17 billion shortfall in November of the previous year, and the Senate had raised $17 billion just a few days earlier to make up for the loss of the IRS trust-fund proposal.
“We still have to deal with this problem,” Rostenkowski acknowledged.
Packwood, however, was not sympathetic. He was tired of the changing revenue estimates, and he wanted to ignore the new numbers. The estimates indicated the tax writers would have to raise individual taxes by $7 billion and corporate taxes by $10 billion to make the plan work, but Packwood knew his senators would never go along with an extra $10 billion hit on business. Before Brockway delivered the bad news, Packwood and Rostenkowski had been fighting to find an extra one tenth of a billion in revenue. Now, suddenly, they were faced with a shortfall one hundred times that large.
“Let’s just not say anything about it,” Packwood suggested. He even telephoned Baker and Darman to ask if they would object if the plan was approved with a $17 billion gap. The Treasury officials, still eager to get a bill, said no, they would not object, but Rostenkowski insisted that the problem must be solved. He knew his own conferees would not buy the subterfuge, and he did not want to be blamed for boosting the budget deficit.
The next morning, Brockway prepared some options to solve the new revenue deficit problem, but Diefenderfer quickly told him that Packwood was buying none of them. He wanted to continue to ignore the problem. Rostenkowski, on the other hand, was more insistent than ever. He had consulted with his conferees, and he realized that he could not possibly sell them a plan that reduced revenues by $17 billion over five years.
By Thursday night, Rostenkowski and Packwood had reached the end of their rope. They sat in Rostenkowski’s H 208 and talked calmly about the outlook. They were tired, they were $10 billion apart, and they were on the verge of giving up. Rostenkowski and Packwood both considered the possibility of trying again after the August vacation, when Congress returned in September, but they both knew that the consequences of delay could be deadly. During the three-week break, lobbyists would be working full tilt, trying to pressure members of Congress to change the tax bill. Tax reform relied on speedy approval for its success; if left exposed for too long the lobbyists could certainly put together the strength to kill it.
To try to clear the air, the two chairmen left H 208 to take a nocturnal stroll through the darkened corridors of the Capitol. “We have to spend some time talking about this,” Packwood said. The two walked toward the Senate chamber. They ambled through the semicircular Statuary Hall, under the great Rotunda, and began to double back through the hall outside the speaker’s inner sanctum. The tenor of their talk was mostly frustration. The new numbers presented an obstacle they were not sure they could surmount.
“Son of a bitch, Bob, I wish it was you, I wish it was me, but it’s the goddamn numbers,” Rostenkowski complained, and Packwood could not help but agree. Packwood, in fact, told Rostenkowski that he had come to believe that the staff was out to get him. Rostenkowski also was angry with the staff, but he knew he could not get away with what Packwood was proposing: pretending the shortfall did not exist.
When the two chairmen returned to H 208, they still had not resolved their differences. They finally broke up their meeting at close to midnight. Reporters who had been waiting outside Rostenkowski’s Capitol hideaway could sense the dejection. “I wish it was Packwood’s fault or my fault. I wish we could blame somebody other than the numbers,” Rostenkowski said as he left H 208. “I’m not saying it’s all over, but it’s a blow to us to have been so close but yet so far.”
“He and I almost cried,” Packwood said.
The next morning, when Ways and Means press aide Jim Jaffe went to pick up Rostenkowski at his apartment near the Capitol, the beleaguered chairman appeared with several shirts in his hand. He was not optimistic about the prospects, and was preparing to abandon the negotiations and head for Chicago for the recess. “We’re going home today,” he told Jaffe dejectedly. Rostenkowski later recalled, “I was ready to sack it.”
Jaffe took the chairman to the Capitol, where he was scheduled to meet Packwood at 7:30 A.M. to pose for a possible cover photo for Time magazine. It was too early in the morning for both men, and they were discouraged by their failure of the night before. Furthermore, they knew Time would use the photo only if they succeeded. The photographer perched the two chairmen next to each other on top of an equipment case and asked them to raise their outside arms to frame the dome of the Capitol. Rostenkowski, who suffered from occasional back problems, was pained by the exercise and quickly grew impatient. When the photo session was finished, the photographer asked both men if they would jump, so he could take a photograph for the famous Time-Life “Jump” series, which includes pictures of famous people going back two decades. Rostenkowski at first thought the request was a joke. When he realized it was serious, he grew angry. “Bullshit,” he grumbled. “I’m not going to jump. What do you think this is, a goddamn Toyota commercial?” He stormed back to his office. Packwood stayed and jumped.
At 10:00 A.M., Packwood ap
peared in the Senate Press Gallery and gave an impromptu news conference. He was still dejected. “I cannot get my fellows to go up again” on corporate taxes, he said. “They will not go up again. Because they know what’s going to happen. We’ll go up to $124 billion and we’ll come back in September, and we’ll be $15 billion short again.”
The senators had been dogged by revenue estimating problems for too long and were fed up. Packwood told of an incident the previous Saturday when the Senate conferees had voted on Bentsen’s amendment to the tax-shelter curbs. Bentsen had been told his amendment would raise $8 billion over five years, but after the vote, Brockway revealed there had been a “sign flip.” In fact, the amendment would have lost $8 billion. The experience left the senators feeling as though they were working with a chimera that changed each time they turned their heads, Packwood said.
Furthermore, all the mistakes were going against the senators. They had gone into the conference thinking they would have to raise the corporate tax take in their bill by only $20 billion to meet the House halfway. Instead, they had already raised the corporate tax hit by well over $30 billion, and now the House was demanding $10 billion more! “It is frustrating when the damn target keeps moving everytime we are both on the target and we are ready to fire,” Packwood complained.
Despite that frustration, Packwood had only kind words to say about Rostenkowski. He called him a “peach,” and praised his patience and willingness to negotiate. He directed his venom, instead, at Brockway and the Joint Tax Committee staff. Throughout the televised press conference, Packwood criticized Brockway and the committee for its estimates. “We’re getting misinformation, inaccurate information, untrustworthy information,” he complained. “We can no longer rely on what we’re getting.”
It was a hard blow. Usually, legislators refrained from blaming revenue estimators for their problems. Estimating revenues was a difficult business, to be sure, but the staff in charge of the estimates was thorough and conscientious, and they did the best that could be expected with a very inexact science. Legislators had long been careful to shield them from criticism so that politics would not slip into their estimates. As Moynihan put it: “Everyone is entitled to his own opinion, but not his own facts.” The revenue estimates, however uncertain, provided a necessary discipline to the tax-writing process.
For the chairman of the Finance Committee to denounce the revenue estimators in a televised press conference was a stark break with tradition. For Packwood in particular to publicly attack Brockway, who had almost singlehandedly saved the chairman from a humiliating defeat in the Finance Committee, was cruel and mindless. Brockway was both angry and hurt. In the frustration of the final negotiations, staff bashing had been taken to astonishing new heights. Packwood never even apologized to Brockway for the harsh words. In fact, when asked about the incident later, Packwood replied, “What did I say about him?”
Still, Packwood and Rostenkowski were not ready to give up. They knew that delaying completion of the bill until after the August recess might spell its death. In a private meeting in Long’s hideaway, the Senate conferees urged the chairman to try one more time. Packwood concluded, “It’s critical that we get this out so the special-interest lobbyists don’t have three weeks to just hit our members over the head and break up the most extraordinary tax-reform package we’re ever going to get.”
On Friday afternoon, the two determined legislators met again in H 208 to renew their quest for revenue. It was a brutal day, with a lot of tough bargaining. Rostenkowski and Packwood spent much of their time in the back room, away from the staff. Both men had to give, and as a result both stood to lose support of some key conferees. Rostenkowski agreed to raise part of the disputed $10 billion by tightening up on individual taxes, rather than corporate taxes. Packwood sacrificed part of a tax break for military contractors that was dear to John Danforth of Missouri. Danforth had been a loyal backer of Packwood’s bill, defending it on the floor of the Senate with passionate zeal, but in the final crunch, something had to give—someone’s tax breaks had to be sacrificed to appease the relentless revenue demands. Danforth’s pet provision was chosen. It was too large a target to miss.
Packwood and Rostenkowski worked until the early hours of Saturday morning. Finally they emerged, haggard but happy. They had reached an agreement. They were not certain they could sell the package to their conferees, but they were going to go home to get some rest and try to tie up the bill Saturday morning.
Packwood called Secretary Baker early Saturday morning. The chairman knew he was going to have problems getting his rebellious senators to accept the package he had negotiated. “I hope you will be strong in the meeting today,” Packwood said.
Baker and Darman left the Treasury to go to Capitol Hill at about 11:30 A.M. in an upbeat mood. They thought the bill was going to be completed that evening and would be chalked up as a triumph for their reign at Treasury. Mentz was supposed to meet the two men at their chauffeured car, but as he walked down the stairs, he saw to his surprise that the car was pulling out without him.
In a moment, the car returned in reverse, with Baker and Darman laughing in the backseat. It had been a schoolboy prank. “Thought we were going to leave you, didn’t you?” joked Baker as the bewildered Mentz got into the car.
The Treasury officials arrived at the Senate Dirksen Office Building and went into the Finance Committee’s exec room, where they planned to meet with the Senate conferees to review Packwood’s plan. Lobbyists and reporters gathered in the hallway, wondering what was going on. For three weeks, they had wandered the corridors, trying to pick up bits of information. Now they knew something was up. In their private meeting, the senators were making one last judgment on the fate of tax overhaul.
“Okay, fellows, you told me to present nothing until I have a package, and I said okay. Now I have a package,” Packwood told the group. He passed out an eighty-three-page summary marked “August 16, 1986, 10:30 A.M.,” and he proceeded to go over the agreement: It would raise corporate taxes by about $120 billion and cut individual taxes the same amount. Depreciation write-offs would be cut back about $13 billion from the Senate bill; oil and gas write-offs would be cut a slight $850 million from the Senate bill. The stagger would be partly fixed by putting the top rate at 38.5 percent in 1987, and assuring that 80 percent of taxpayers would get a tax cut that year. In subsequent years, the rates would be 15 percent and 28 percent for individuals and 34 percent for corporations. The personal exemption would go up to $1,900 in 1987, $1,950 in 1988, and $2,000 in 1989. The special treatment of capital gains and the sales-tax deduction would be eliminated, and the completed-contract accounting method that benefited military contractors would be cut back by $3.5 billion more than in the Senate bill.
The senators scribbled down the details as Packwood reviewed the important provisions in the bill. Then at the end he noted the Senate and the House would each have about $3 billion more to give out in transition rules, in addition to the transition rules already contained in each bill. Packwood made it clear that those who supported the final conference report would have a better shot at the $3 billion pot than those who did not.
“We’ve all got a loser or two in this bill,” he concluded. “Any one of us would have written it differently. But as a whole, it’s a winner for the country.” Baker followed with a strong statement of support, and a warning about the dangers of delay.
As soon as Packwood finished, it was clear that his bill was in trouble. A number of the senators believed that the tax bill ought to be put off until September. Danforth, stung by the huge boost in taxes for military contractors and by other changes affecting universities, was the most strident proponent of delay. Wallop and Bentsen had already left Washington to meet commitments at home, but their aides suggested they also would prefer putting it off until after the break. Chafee was worried about the part of the plan increasing the tax burden on property contributed to charities. Only three of the eleven conferees—Packwo
od, Bradley, and Moynihan—were certain to support the package. Wallop’s aide, Pearre Williams, told the lobbyists in the hallway that six senators—a majority—were committed to putting off the final vote on the report until September.
Inside, Danforth spoke up. He had preached in high moral terms on the Senate floor about the importance of tax reform. Now, he was using equally lofty language to urge its defeat. “Nothing’s to be gained by signing the conference report before the recess,” he argued. “This is a revolutionary change in the law. We need time to reflect.” The United States is a democracy, he reminded the other senators, and in a democracy the people should be allowed to at least look at the tax proposal before the conferees make it law.
Packwood noted that the crowds of lobbyists in the hallway were probably the biggest in the history of Congress. “There are more special-interest groups hit by this than any bill ever,” he said. To let it sit in the open for three weeks and give those lobbyists a chance to work their will would surely destroy it.
The debate was tense. Danforth had turned against the bill for largely parochial reasons. It would hurt McDonnell Douglas, the biggest employer in his state, and its changes in the treatment of bonds would also hurt Washington University in St. Louis, where Danforth’s brother was chancellor. Nevertheless, Danforth couched his opposition in far broader terms. The conference bill was written in secret meetings and no one other than the senators and their aides had seen it, he charged. The “sunlight” of public scrutiny would only help the tax bill, not hurt it.