by Alan Murray
Packwood and Baker knew that Danforth’s priestly rhetoric was a veiled attempt to kill the bill. Baker was especially strong in defending the closed drafting sessions: “It doesn’t seem to me you can look at this like you might look at an ordinary tax bill. It has never happened before. It’s unique. We saw what happened in this committee when we tried to markup a tax bill in public. If we hadn’t gone into back-room sessions, you wouldn’t have ever gotten a bill.”
Then Moynihan, the historian and scholar of the group, spoke up. The United States is not a pure democracy, he said. “We’re a representative democracy, and there are times when we as legislators are supposed to make our own judgments as to what is in the best interests of our constituents. If we don’t act now, we won’t act.”
To ease the tension, Packwood suggested the group take a break. As the senators dispersed, the hallway loiterers thought they smelled encouraging signs of dejection. Diefenderfer seemed glum; others were ill-tempered. Rumors began to fly up and down the hall: The senators wanted to reject the compromise; the senators wanted to put the whole thing off until September. When Long emerged from the exec room, he told reporters that Packwood simply did not have the votes. Asked whether the conferees would complete the bill that night, he laughed and said: “I don’t know about y’all, but I don’t open my presents until Christmas.”
On the other side of the Capitol, Rostenkowski also ran into problems. The last-minute fiddling done by the two chairmen had whittled down the tax cuts given to those families earning $50,000 to $100,000 a year, leaving them perilously close to nothing at all. The Joint Tax Committee estimated that the average tax cut for this group would be only about 1 percent in 1988. Referring to these taxpayers as “middle-class,” House members insisted on bigger tax cuts for the group, and they proposed raising the top rate to 29 percent to pay for it.
When the senators reconvened in the exec room at 3:30 P.M., Packwood reported the House position. “The distribution isn’t satisfactory to the House,” he said. “We’ve got to come up with some way to fix it.”
The 29-percent rate did not appeal to the senators in the least, and Baker said the president was strongly opposed to any further rate increases. Moynihan asked the Treasury officials if they would accept a 29-percent top rate if the bill also indexed capital gains to account for inflation. Baker and Darman both said they would be willing to look at that idea. They were disturbed by the sharp increase in the capital-gains tax, which would jump from 20 percent to 28 percent or higher, and they thought an indexing plan would help. Indeed, they had discussed the idea in private with Moynihan and Bradley during the break and had indicated their support.
But the Treasury team had erred in isolating Mentz from their back-room scheming. When asked about the indexing idea, the assistant secretary told the senators he feared that it would be too complicated to administer. With that, indexing faded away.
As the debate continued, the telephone rang. It was Rostenkowski calling Packwood to ask whether his group would accept 29 percent. As the chairman rose to get the phone, Dole quipped, “Twenty-eight and a half.” Packwood returned from the conversation and said Rostenkowski had also suggested 28.5 percent—seriously. In the final hours, tax reform was becoming like an auction, with each side trying to find out just how high the bids could go, with billions of tax dollars hanging in the balance. Finally the meeting broke up, and a small group—Packwood, Baker, Darman, Bradley, and Diefenderfer—retired to the main hearing room, where they clustered in a small group of chairs behind the Democratic side of the horseshoe table and tried to come up with a solution.
Baker proposed a political solution that he thought could solve two problems at once. Why not delay any cutbacks in IRAs for two years and then repeal them outright? Roth, who was concerned about the proposed IRA cutbacks, would be more willing to support the bill if Baker’s suggestion were accepted, because he knew that in all likelihood Congress would then vote in two years to extend IRAs beyond that expiration date. It was another cynical proposal, an attempt to claim revenue increases that were never going to happen, but Baker was willing to try anything to get the bill through.
Bradley had another idea. Rostenkowski and Packwood had reduced the phantom surtax paid by some upper-income taxpayers to 4 percent from 5 percent. Why not boost it back to 5 percent and use the revenue to give more relief to those earning $50,000 to $100,000. It was a subtle proposal, and Baker and Packwood were slow to understand it. Darman, however, immediately endorsed the idea. “That’ll do it,” he said. “That’s the most efficient way to fix it.”
Unable to decide, Packwood, Baker, and Bradley walked together across the Capitol to H 208 where the House chairman was waiting, and they presented him with both ideas. Rostenkowski rejected the IRA proposal immediately, but was willing to listen to the proposal for an increased surtax. Bradley explained that it was the same as getting a one-percentage-point rate increase, without the political disadvantages. Although Democrats had criticized the phantom rate at the beginning of conference, Rostenkowski was now willing not only to accept it, but to increase it. The average tax cuts for those earning $50,000 to $100,000 a year were boosted to about 2 percent, and although it was a small change, the House conferees were willing to say yes.
At 7:30 P.M. the Senate conferees met again. Danforth continued his objections, but the resistance of the others had eased. Packwood had calmed Chafee by providing Rhode Island with an extra $100 million in authority to issue certain types of private-purpose tax-free bonds. Long argued that the conferees should support the chairman—that the oil-state lawmakers should accept their deal on the industry tax breaks before Rostenkowski reneged. When the vote was taken, only two of the senators—Danforth and Wallop—voted to delay the conference agreement until September, while eight supported approving it right away. The final die had been cast, and tax reform was ready to become law. The senators adjourned at about 8:30 P.M.
The conferees agreed to meet for a final session at nine-thirty that evening. The meeting would be open to the public; it would be the first public session since the three-week negotiations began. The conference had been conducted completely in private. The final meeting would be mere pageantry—a chance for the politicians to speak for the cameras.
Baker, Darman, and Mentz left the Senate conferees’ meeting pleased with their victory and eager to get some dinner before the final act. As they walked toward the elevator, a White House legislative aide ran up with a copy of a statement that the White House staff had prepared for the president. Darman glanced at the paper, and a look of disgust swept his face. The president was about to win one of the greatest legislative victories of his six years in office, but the White House had once again prepared a mush-mouthed, lukewarm statement, which ended by saying, “We look forward to studying it in detail.” Baker immediately asked that the line be deleted. Even without that sentence, the statement was bland. Darman, well-practiced in the art of writing presidential statements, grabbed the paper and scribbled out a new draft. “In my 1984 State of the Union address, I first called for tax reform,” he wrote at the opening, and at the end, instead of the equivocating language that was there, he wrote: “This is a triumph for the American people and the American system.” Handing the paper back to the White House aide, Darman said: “For goodness sake, get the president into this. He’s going to end up supporting this bill, don’t let this one pass him by.”
As the three men left the building, Mentz imagined that they would go to a nice restaurant and perhaps share a bottle of fine wine to celebrate the occasion. Instead, Baker led the three men to a nearby sandwich shop, where they discussed the events of the day over submarine sandwiches.
As the conferees gathered in the high-ceilinged Ways and Means hearing room, lobbyists poured in to get a seat. By this time the news had spread: The conferees had reached an agreement and the last major step in the tax-reform debate was about to take place. Both the House and the Senate would have to give the
ir approval to the conference report after the August recess, but that would be pro forma. This was the lobbyists’ final stand.
Representative Archer used the public meeting to vent the frustrations of the four House Republicans on the conference committee. The men had been completely cut out of the conference. They had made suggestions to Rostenkowski from time to time, but as corporate lobbyist David Franasiak put it, their suggestions “had the half-life of a newt.” They were the orphans of the tax-writing process, and complaining in these rare public sessions was their only opportunity to be heard. One bemused Republican staffer wrote a brief poem that epitomized the isolation felt by the GOP conferees:
Here’s to the tax-reform conference,
Home of low rates and high drama
Where Rosty speaks only to Packwood
And Packwood speaks only on camera.
Danforth also used the open session to make one last plea for halting the measure. “It’s kind of a scientific experiment,” he complained. “When you cross the fair maiden, which is the Senate bill, with a gorilla, which is the House bill, the result is a gorilla.”
Once again, the Missouri senator couched his concerns in almost moralistic terms. His voice was filled with emotion as he spoke:
In the back room of the Senate Finance Committee earlier today, I took the same position I’m taking now. I said that this should be ventilated, and there is no reason not to put it out before the public and give us and our staffs a chance to look at it before we sign the conference report. The position that was taken by our chairman, by Secretary Baker, and several other senators who were present was: “Well, we can’t do that. We can’t put it public, we’ve got to sign the conference report now.” Why? Well the reason given was that if we don’t do it now, people are going to find out what we’re doing before we do it. And if they find out, they’re going to bring pressure on us during the recess. Lobbyists, interest groups, people who have concerns about the bill are going to bring pressure on the Congress, and we can’t have that.
Danforth’s voice began to rise, and he pounded the table as he warmed to his topic:
Now, Mr. Chairman, I don’t understand what’s wrong with a little sunshine in government. I understand in drafting a tax bill there are times when you want to go back in a back room, and we have always done it. But this has been to a fault. Nobody has had any knowledge other than what they read in the newspaper or rumors flying about. And I don’t see any reason at all why we have to proceed to sign this bill tonight.
As he finished his speech, Danforth’s voice grew loud and deliberate:
I don’t see any possible argument why we should sign this tonight, and if anybody has an argument as to why we should do it, I would be very pleased to listen to it.
There was a moment’s pause, and then the lobbyists who filled the room erupted into loud and spontaneous applause. This was their Little Big Horn, and Danforth’s final rousing speech was an acknowledgment of their certain defeat. Rostenkowski, disturbed by the disruption, admonished the crowd and said that no further demonstrations would be tolerated.
“The applause after Danforth’s speech was the last gasp of Washington special-interest dominance of the tax plan playing out,” said Fred Wertheimer, head of Common Cause and a Bradley ally. “It was quite a dramatic moment, a magic moment. Special-interest Washington was filling the room with noise and basically saying they had lost. It was the perfect symbol of what had just happened.”
Before the vote, Rostenkowski turned to Long. He noted that it was Long’s last major tax conference before his retirement at the end of the year. “Before he retreats from this chamber, I want to ask my pal and the former chairman of the Finance Committee to say a few words.” The room burst into applause again, lasting for a full minute, with all the conferees rising to pay tribute to the legendary Louisianan before he spoke. Bradley called it “the longest standing ovation I’ve witnessed since Madison Square Garden.”
Looking down in his customary fashion, scribbling on a pad, Long said:
As all of you know, my father served in the Congress more than fifty years ago. I was about sixteen years old when my father died. But having observed the Congress, I’ve always had an ambition to serve here, and I’ve been watching this Congress for more than fifty years, as one who hoped to serve here and then as one who served thirty-eight years in these halls in Washington.
I’ve had occasion to watch the revenue bills that were passed. As one who served as chairman of the Finance Committee for fifteen years and served on the Finance Committee for more than thirty years …
The Senator paused and looked over toward Rostenkowski.
I didn’t feel this way in the beginning but I really feel this way now, Mr. Chairman, that you, Dan Rostenkowski, and Bob Packwood have brought to us what is probably the best, in fact what I believe will be the best, revenue bill in fifty years.
None of us are going to be entirely pleased with it. They’ll be some things in this bill that I’m going to have to tell people in Louisiana I’m sorry about. I wish I could have had it otherwise. But there are a great number of things in here I’m going to be bragging about along with many others.
The ambition of my life was to serve in this Congress, and after thirty-eight years, I think I’ll find something else to do.
It was a strange swan song for a man who had spent his years in Congress punching the loopholes that tax reform was now going to eliminate, but as always, Russell Long seemed to be speaking from the heart.
Bradley also took the opportunity to speak, his face beaming at his moment of triumph:
You know, this is not just about the economy. It’s about something else that each of us senses. Back in 1982, Dan Yankelovich did a poll and he asked the American people a question: “Do you think you’ll get ahead if you abide by the rules?” Over 80 percent of those who responded said no.
Well I think that what we’re saying tonight is if the question is ever asked again and they say no, they won’t be referring to the tax rules. The result of this bill will be greater trust in government and a strengthened democracy. So, Mr. Chairman, I’m pleased to be a part of this. And I must say to the Chicago Bear, he did a helluva job. Senator Packwood is a remarkable leader. Thank you.
The conference report was approved by a voice vote, with only Danforth and Representative Archer heard saying nay. Rostenkowski gave the final words, leaning forward on the desk, a proud smile twisted across his broad face:
They said out there that it couldn’t be done. Well we’ve done it. We both compromised at the margin, but clung to our principles. Ladies and gentlemen, the political process worked. The center held. Every economic interest in the country has played a role in shaping this package. Some advocated reforms, and others clung to the status quo. I believe history will show that all were treated fairly.
Tonight we will put our names to a new tax code for America. It brings a sense of justice to the way we tax income, and a new sense of confidence from those who will pay. I am proud of what we have done for the last year. We’ve had a lot of help around Washington as well, and appreciate it. But we wouldn’t have come even halfway without the steady, often silent, faith of the millions of average taxpayers who freely comply and expect better. We’re going to give it to them.
Ladies and gentlemen, this conference is adjourned.
Rostenkowski, Packwood, and the rest of the conferees crossed the hall to a room where a late-night party quickly got into full swing. For the photographers, the two chairmen held up glasses of champagne, and Rostenkowski put his arm around Packwood’s shoulders. When the photographers finished, Rostenkowski traded his champagne for a beer. One of the photographers offered the Illinois congressman wishes for a good vacation. “Boy, you bet your ass,” he replied.
Baker and Darman returned to the deserted Treasury building shortly before midnight. The Treasury secretary reached into his refrigerator and pulled out two cans of Budweiser. There were no glasses, so t
he two men clinked their cans in congratulations. After finishing the beer, they walked out of the building together, shook hands, and went home.
The next day, President Reagan, who was vacationing in Santa Barbara, California, issued a statement that ended with the line Darman had penned the evening before:
“This is a triumph for the American people and the American system.”
Epilogue
The final version of the Tax Reform Act of 1986 sailed through both chambers of Congress with little fuss. The House affirmed the conference report 292-136 on Thursday, September 25. Two days later, in an unusual Saturday session, the Senate gave its approval by a vote of 74-23. It was then sent to the White House for the president’s signature.
President Reagan signed the bill on the South Lawn of the White House on Wednesday, October 22. It was a gloriously sunny autumn day, and the Truman Balcony behind him was decorated with rows of bright yellow chrysanthemums. More than fifteen hundred people gathered for the occasion—the largest audience for a bill signing during the Reagan administration. Seated on the podium with the president were many of the key players in the tax-reform drama, including Rostenkowski, Baker, Regan, Long, Dole, and Kemp. Packwood was not there; he decided his time was better spent campaigning for his reelection in Oregon. Bradley, ironically, was also in Oregon, campaigning for Democratic political candidates, and was prevented by fog from flying back to Washington.
For President Reagan, the signing marked a great victory. He had managed to win the most sweeping overhaul of the tax code in the nation’s history. He stood before the signing-ceremony audience proud and triumphant: