Juggling Budget Numbers and Votes: How the Tax Reform Act of 1986 Passed the Senate

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Tax Legislation

In the second of three articles that detail the congressional maneuvering required for passage of the Tax Reform Act of 1986, then-Finance Committee Chairman Bob Packwood (R-Ore.) explains how individual retirement accounts became a central issue on the Senate floor—and how his feint on the sales tax deduction kept the overhaul legislation on track. “If the IRAs were put back, the bill would die,” he writes. “But if we beat the amendment, the rest would be easy.”

Bob Packwood

By Bob Packwood

Former Sen. Bob Packwood (R-Ore.) was chairman of the Finance Committee from 1985 to 1987.

As the Finance Committee's bill went to the Senate floor, I was as ready as possible. We had rounded up 32 senators who promised to vote against any amendment.

The Senate was first televised in 1986 on the day we started on the floor on the tax reform bill. Everybody wanted to be on TV. Thus a bill that should have taken no more than a week on the floor took three weeks.

I felt that no amendment could give me trouble with the exception of the effort to put the current law on individual retirement accounts (IRAs) back in the bill. If the IRAs were put back, the bill would die. But if we beat the amendment, the rest would be easy.

Diary, Tuesday, June 3—1 p.m

“Policy lunch. The entire time was spent on taxation. I had no difficulty defending myself. I now know the bill well. The only difficulty is with the IRAs and the difficulty is that facts don’t matter. The members have gotten hit over and over and over, they think, by the great middle class who’ve been telling them ‘keep our IRAs.’ … The trouble with Senators is that they don’t talk to enough people in coffee shacks and they talk to too many people at cocktail parties. There is no justification for keeping the IRAs or lots of other deductions when we get the rates down to about 15 percent for 85 percent of the people. I think that’s the only amendment I may lose on the Floor.”

Diary, Wednesday, June 4—9:45 a.m

We start debate on the floor of the Senate: “I gave a 45-minute opening speech. A damn good speech. As usual historical. I went back. Said the first tax bills were passed in 1913, after the constitutional amendment—a 1 percent corporate tax and for most individuals a 1 percent individual tax, but if you got above $500,000, and this is in 1913, the tax went up to 7 percent. There were no significant deductions …. Congress some years later put in the charitable deduction and the capital gains deduction. From that time to this it’s been adding one deduction after another so we could accomplish certain kinds of activities we regarded desirable that would otherwise be impeded by high rates. For the first time, we’re going to try to eliminate deductions and lower the rates.”

There now followed a week of desultory debate.

Diary, Tuesday, June 10—12:30 p.m

Another Republican policy luncheon: “Still a lot of flap on the IRAs … [Sen.] John Heinz [III (R-Pa.)] passed out a poll from the Senatorial Committee. Lots of questions on tax reform but everything was popular in the bill but the IRAs. They were behind 56-36.”

Finally D-Day arrived.

IRAs and Sales Tax States
Wednesday, June 11

The vote to table the IRA amendment started aye, nay, nay, aye, aye, aye, nay, nay. It was close. Sen. Lloyd Bentsen (D-Texas) was holding his oilies together. They were voting as a block against the amendment, but I sensed it was going to be too close—I couldn’t risk that.

I knew I had to do something now, immediately, while the vote was going on! There were three Republican senators who were good friends—Phil Gramm, of Texas, and Dan Evans and Slade Gorton of Washington. They wanted to support the bill, but the bill had eliminated the deduction of state sales taxes and their states had high sales taxes. I needed their support.

Diary, Wednesday, June 11

“God, it was a heady, wonderful, exciting day, however. The worst is now over. I’ve beaten the toughest amendment. I may have to accept an amendment from Evans and Gorton giving them either the alternative to deduct sales or income taxes. I had to give that deal because I needed their votes to defeat the [Chris] Dodd [D-Ct.]/[Donald] Riegle [Jr. (D-Mich.)], et al amendment and as we defeated it only 51-48 and would not have defeated it without the Evans and Gorton switch, I felt it was worth the trade I’ve now got to tell [Sen. “Bill”] Bradley [D-N.J.], [Patrick] Moynihan [D-N.Y.] and the others to resist that amendment.”

Diary, Thursday, June 12—11 a.m

“11:00 through about 10:00 on the Floor on the tax bill …. I’ve gotten in trouble on the sales tax because I told Gorton and Evans after they voted 51-48 on my side of limiting the IRAs … that we had kind of a deal that if they supported me I’d support them on the sales tax. I carefully crafted my answer to mislead them. I said I would support them. I didn’t say I would rally my troops. I didn’t say I would speak for them. They would have my vote. When Evans brought up his motion to put back in the sales tax … I vacated the Floor, left it to [David] Durenberger [R-Minn.] or [Jack] Danforth [R-Mo.] or somebody, came back to my office and worked and listened. It was unmerciful. It was so bad they withdrew the amendment. I then went back to the Floor. Gorton and Evans were furious. They felt they had been double-crossed. Slade said, ‘Well, I thought you’d bring your coalition.’ I said, ‘Slade, I said I’d give you my vote.’ They have a right to feel aggravated. But having won this, we’ve now won the toughest of the battles.”

Bill Passes 97-3

The rest of the action on the floor was routine. Amendments were offered and easily beaten. We were now on a downhill slope, although it would still be almost two weeks before we had final passage.

Diary, Tuesday, June 24

“At 3:15, we started the closing comments. Ten minutes by Bradley, five minutes by [Howard] Metzenbaum [D-Ohio], five by [Robert] Byrd [D-W.Va.], five by [Robert] Dole [R-Kan.], ten by Russell [Long (D-La.)] and then I closed very emotionally. Not with saying what the bill is but saying what it means for America. I got very choked up. Came the vote. Jesus. 97-3 … Howard Greene [principal Republican staffer on the Senate floor] came by and said ‘In the 19 years I’ve watched this place, I’ve never seen a major bill handled so deftly.’ And he said, ‘Congratulations, Senator. I know there is admiration, envy, and bit of jealousy every place.’ ”

It was now onto the conference with the House to reconcile differences between the two bills.

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