Juggling Budget Numbers and Votes: How the Tax Reform Act of 1986 Made It Through Conference and Into Law

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Tax Legislation

In the last of three articles that detail the congressional maneuvering required for passage of the Tax Reform Act of 1986, former Finance Committee Chairman Bob Packwood (R-Ore.) explains how he worked behind the scenes with then-Ways and Means Chairman Dan Rostenkowski (D-Ill.) to reach a formula that would pass the conference committee, and then the House and Senate. Packwood and Rostenkowski “hadn't worked together much,” the author writes. “The tax reform bill would mark the first major bill in my tenure as chairman.”

Bob Packwood

By Bob Packwood

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

Even as I looked forward to conference on the tax reform bill, I was aware that Dan Rostenkowski (D-Ill.), chairman of the House Ways and Means Committee, and I hadn't worked together much as I had only become chairman of the Senate Finance Committee 18 months earlier. The tax reform bill would mark the first major bill in my tenure as chairman.

However, I felt hopeful that we would work well together. I recalled Danny’s phone call to me several months earlier before the bill had even cleared the Finance Committee.

Diary, Thursday, May 1

He had said: “Pal, I’ve been thinking of coming over there, without fanfare, without press, just to say ‘I’ve been through it. I know every day you go through troughs and you’re on hills and I’ve been bleeding for you but I think what you’ve got in terms of tax reform is the best thing this Congress has seen in ten years. You get that through the Senate and between the two of us, we’re going to put out a bill that for a generation or longer America will look to as a pinnacle.”

Due to start on July 17, the conference was composed of 21 House and Senate members. Nothing worthwhile could come out of a committee that size, which both Danny and I knew. We also knew that we had to humor our members to keep them happy. Therefore, we met with our staff on July 15 to see if we could lay down parameters.

Agreement With Rostenkowski
Diary, Tuesday, July 15

“We tentatively agreed on four things …. One, we accept the Senate rates. Two, we accept the House’s dollar amounts on giving back to middle income. Three, we finance the more money for the middle income by increasing the taxes on business. Four, we accept the Senate’s position on the hits on the rich.”

After Danny and I agreed, it became very clear to me that the real problem in this conference wasn't going to be between the House and the Senate.

Diary, Wednesday, July 16

“It will be [Treasury Secretary James] Baker who is pro-energy, pro-Texas, and pro-depreciation.”

I had already given the oilies what they wanted in order to secure their votes on the individual retirement account amendment. Now they saw an opportunity and were prodding around trying to get more. Jim Baker was their spear carrier.

As Danny and I had had numerous invitations to appear jointly on the principal news shows, we decided to accept the offers so that we could make our main point—the rates.

Diary, Thursday, July 17—7 a.m

“Good Morning America, the ABC AM Show. Danny and I again were on, each of saying that what we’ve been saying—if we’re going to put back in the goodies, we’re going to have the raise the rates. Pay your money and take your choice.”

Diary, Thursday, July 17—8:30 a.m

Meeting at the White House: “It was the President [Ronald Reagan], the Vice President [George H.W. Bush], Secretary Baker, Don Regan [White House chief of staff], Will Ball, the current White House principal lobbyist and then Danny Rostenkowski and me.”

The president was quite cooperative. He reminded us all of his filming days when the top tax rate was 94 percent. As we left the meeting, the president took Danny and me aside and very quickly, very quietly said, “If you can keep the bill revenue neutral, get the rates as low as you can get them—and I don’t care how you get there—you’ll have my support.”

Danny and I thanked the president very much, but politely asked him not to make any public statements while we were attempting to harmonize the differences between the House and Senate bills.

Conference Begins

With Danny as chairman, the conference started.

Diary, Thursday, July 17—10 a.m

“I can see a slight box coming, but I know which way I’m going. Jim Baker, [and Sens.] Russell Long [D-La.], Lloyd Bentsen [D-Texas], and Bob Dole [R-Kan.] don’t want to hit business too hard and they don’t want to hit oil hard at all. I’m willing to sell out oil—they deserve to be whacked …. The more we can take it out of the old established corporate sector the better I like it.”

Diary, Thursday, July 17—4 p.m

“Danny and I taped with Dan Rather.”

Diary, Thursday, July 17—6 p.m

“Danny and I did ABC with Peter Jennings.”

A desultory week passed with occasional conference meetings. But as Danny and I knew, nothing could be accomplished with a 21-person committee. Members on both sides lobbed grenades back and forth. While aware of it, Danny and I let it go on. We needed our men to get it out of their systems.

Two more weeks passed with Danny and I almost in total agreement. We had a few minor points between us, but both of us knew that those could be ironed out. Really our problem was the revenue estimates.

Diary, Wednesday, Aug. 5

“Spent the rest of the day frustrated, waiting for the [g*****n f*****g] figures from the Joint Committee on Taxation on our proposal. I looked over the proposal in the morning …. God, it’s frustrating, these are the dog days of reform. The days when Russell Long and Bentsen are carping because their staff isn’t there and [Sen. Jack] Danforth’s [R-Mo.] carping because we’re going to hit business too much and [Sen. John] Chafee [R-R.I.] is carping about the federal employees. I’ll get there and there will be that wonderful accolade again about ‘Packwood, good job.’ You just want to be loved while you’re doing it and that isn’t part of leadership. You don’t have to be hated while you’re doing it. I’m not hated. But leadership is no fun. The result is worth the pain, the grief, and the loneliness because it helps the country. But it is so much easier to be a nit-picking, fly-specking, dart-throwing follower than to be the one who has to face the bull.”

Recess Looms

Danny’s and my problem wasn't that we disagreed on any of the major points. It was that we were pushing up against the month-long August recess. If we couldn't finish our conference report in two days the members of the committee would go home and be hit by every interest group possible wanting to try to undo our work, seeing it as savagely unfair.

It was also apparent to Danny and me that the 21 conferees weren't going to reach any conclusion on their own.

Diary, Tuesday, Aug. 12

Russell Long, the senator from Louisiana, could sense Danny’s and my frustration. So in mid-afternoon, Aug. 12, when the conference was meeting he said: “I think we should delegate to the two Chairmen that they get together and see if they can write a bill and bring it back to us and see if we can agree with it.”

That was the unloosening Danny and I needed. From 5 p.m. Tuesday night until around 10 p.m. Danny and I and our staff met in secret.

Diary, Tuesday, Aug. 12

“I’m going to take a big gamble. All along, as anyone who has listened to this diary knows, I have liked the House’s loophole closings on corporations. I’m going to give Danny most of them. I’m going to take a big chance that Treasury will stand behind us, that the President will stand behind us, and even though I hit corporations harder than my committee wants, I can sell it to the committee …. God, it’s exciting. Here are Danny and I … writing the most revolutionary tax code in 50 years, doing it privately in a back room and on occasion shooting from the hip, but our intuitions are right. For both of us they’re right. He knows that the loopholes ought to be closed on business. I know that they ought to be closed. Those brigands have been getting away with economic murder too long. They’re crybabies and they don’t deserve the breaks they’ve gotten.”

By Thursday, Aug. 14, Danny and I solved most of the major problems and were simply waiting for the revenue estimates to show us how to reach neutrality. But Danny was also aware that his conferees had to be convinced he was still fighting hard for them. He called me.

Diary, Thursday, Aug. 14

“He said he had talked with his guys and he’s said, ‘Now listen, [G*******t], I may not be able to get everything you guys want because Packwood’s got a tougher time than I do. You guys will take what I give you. He’s got to work out a consensus. You’ve got to give him a little room and you’ve got to let me take what I can get and nothing more and if you don’t like [it], shut up.’ ”

$10 Billion Shortfall

At the start of the weekend we still had no revenue-neutral estimates. I finally suggested that we simply send out a bill with a $10 billion hole. Treasury Secretary Baker said he would accept that. My argument was by the time we returned in September the numbers would no longer be accurate. I figured I could sell it to my guys anyway.

Diary, Thursday, Aug. 14

“Danny says, ‘I can’t sell it to mine. I’ve got [Rep.] Jim Wright [D-Texas] chewing on my ass. He’s talking about needing a tax increase. He’s talking about the damn Republicans and Gramm-Rudman and the Republicans holding the Democrats’ feet to the fire and complaining that we’re not reducing the deficit and I bring out a bill that’s got a $10 billion deficit. I’ll never get it through my conferees.’ I suggested bringing down $124 billion to $114 billion by simply reducing the individual tax cut. Danny said he couldn’t get that through his conferees. And with that we shook hands, with almost tears in our eyes. And before we broke up Danny says, ‘come here,’ and he took [me] in the back room …. ‘Bob, let me tell you my problem and I don’t think my problem is as great as yours. If worse comes to worse, I can jam my program down the throats of my guys. They won’t like it but I can do it. I know that you’re not in a position to jam your program down the throats of your guys because you have a more disparate collection than I do. You’re going to have to do it by consensus and coalition. I can do it by force. Let me tell you something. One of the reasons I’m going to retire is that I’m tired of people saying I’m grumpy. That I don’t say hello to them. Every time I’m on that [G*****n] floor some guy’s handing me a letter for some transition rule and complaining that I’m not taking care of them. If I’m willing to take an 80 percent hit on oil instead of 100 percent, the [f*****g] Black Caucus tells me I’ve sold out to the racists. If I’m willing to take a $10 billion hit on the defense contractors … then the bomb-throwing left-wing radicals say I’ve sold out to the defense establishment. People used to say I’m a nice guy. They’d smile at me in the hallways. They’d say, “Hi, Danny.” They’d invite me in for a drink and we had a lot of fun. When I was a junior member I used to look at this anteroom that we’re sitting in now when [Rep.] Wilbur Mills [D-Ark.] was chairman and think boy, what fun it would be to have that power and what excitement. Christ, I never get any time to be in this anteroom now except when I’m talking with you. Those sons-of-bitches around here think I’ve got nothing to do but take care of their every want and it isn’t even their every need.’ Then he kind of paused and said, ‘Pal, let me tell you something. You and I have a chance to do something that is never going to come again to a Chairman of a Ways and Means Committee and Finance Committee and I don’t care whose toes I step on or what I’ve got to do to get this. We’re going to leave a bill the country can be proud of.’ He paused again and he said, ‘You know I’ve been high enough up on the seniority list that I’ve been on all the Conferences on the Democratic side since 1972. I’ve worked with Russell. I’ve worked with Bob Dole. I’ve served under Wilbur Mills and [Rep.] Al Ullman [D-Ore.]. You’re the best. No one keeps their word better. No one knows more of what they’re talking about. No one is more open and up front about what he has to have and what he can’t give. If you Republicans keep control of the Senate and you remain as Finance Chairman, I may keep running. Dealing with you is fun and honest and a pleasure. But if I had to deal with anybody else now it would be a come down and I don’t think I’d run again.’ I couldn’t ask for more than that. With that we broke up. The House and Senate had gone out.”

An example of the politics in play involved Dave Barrows, who was a college fraternity brother and lifelong friend of mine. When I first ran for the Oregon Legislature in 1962, my campaign committee went out door to door 20 nights. Dave went 19 of them. He was then starting out as a lobbyist for the state legislature. By 1968 he had a very successful lobbying practice. When I ran for the Senate in 1968, Dave was the only lobbyist of any consequence to publicly endorse me. Lots of others encouraged me. Lots of others somehow gave us money. But only Dave would publicly endorse me. And he had clients that had federal interests.

Dave also represented the state savings and loan association—not the federal association, but on occasion the federal organization, knowing Dave knew me well, would call him and ask him to contact me on something.

When we were in conference on the 1986 tax act, Dave called me and asked if we could put in something for the savings and loan association. I don’t recall what it is now, but I thought I would do Dave a favor. I asked Danny if we could put it in.

Danny turned to his aide Rob Leonard and said, “What do you think, Rob?”

Rob said, “Mr. Chairman, first the Treasury Department is opposed to it and secondly it’s not in either bill. And if you start putting things into this conference report that are not in either bill, you’re going to have an awful lot of your fellow members coming to you and demanding the same kind of treatment.”

So Danny says “no.” I report to Dave. He asked if I would approach Danny once more. I did. The same answer, although this time emphatically “no.”

I called Dave. He didn’t ask me to approach Danny again. But a day later I thought I would give it one last try.

I approached Danny. He said, “[G*******t], why are you bothering me about this all the time?”

I said, “Danny, I owe a favor to Dave Barrows. He was my college fraternity brother. We played intermural football together. When I ran for the legislature he went out door to door for me 19 nights. When I ran for the Senate, he was the only well-known lobbyist in Oregon to support me. I owe him one.”

Danny says, “Well, for Christ’s sakes why didn’t you explain it that way before? Done. You’ve got it.”

Favors never go unrepaid, however. A few days later, Danny wiggles his finger and has me come into a little alcove in his Capitol Hill office. He says to me, “You remember your friend in the savings and loan institute?” I said, “Yes.” He said, “I’ve got a friend.”

Well, his friend was a lot more expensive than my friend, but what am I going to do, say to him my friend is more important than your friend? I had to give it to him.

Friday, Aug. 15

Danny and I stayed closeted all day. We agreed on everything but we weren’t revenue neutral.

Saturday, Aug. 16

We waited into the early hours of Saturday morning without receiving our numbers. At about 5 a.m. on Saturday morning, Danny and I went for a walk alone in the Capitol. The press followed us around, but kept their distance as they knew we wanted to talk. Finally, we both decided that nothing more was going to happen, it was 5 a.m. on Saturday. We needed some sleep. I headed home, got about three hours, and returned to the office.

Final Formula a Success

At 5 p.m. Saturday afternoon, I called Danny to say I wanted to come over and show him the new formula that might get us the revenue neutrality that we needed. He showed it to his staff. In unison they said, “It looks good to me.” Then came an excruciating 45-minute wait for the estimates. Finally, about 6 p.m., David H. Brockway, the Joint Tax Committee chief of staff, came back and said the figures were revenue neutral. It was a formula neither Danny nor I was wild about, but it was Saturday night, Congress had adjourned. We had to finish or we would be dead.

Diary, Saturday, Aug. 16

“Danny looked at it and said he could accept it. And the way he said [it] I knew we were there. The moment had arrived.” It arrived in stillness. Without cheers of triumph from Danny, me or the few staff who were with us. We were too exhausted for any celebration. The committee was called together at 8:45 p.m. Saturday, Aug. 16.

Diary, Aug. 16—9 p.m

“The conferees got together and apart from long, winding statements from all of the conferees, save me, it was done. Danforth pounded the table and railed about [how] unfair this was. ‘We’re afraid to let a little sunshine in. We’re afraid to let people see the light.’ And pounded the table again. When he finished there was applause from the room. Applause from the lobbyists who couldn’t give a rat’s ass about daylight. They would love this bill done in secret if it favored them. They didn’t want daylight. They wanted time. And if we signed the Conference Report tonight, there was no time. At 12:00 a.m. we had signed.”

The August recess intervened. Every member got hit on many parts of this bill, but it was too late.

In September, the conference report passed the House and the Senate with overwhelming support.

In October the president signed the bill.

A bill written in the Senate by a little bipartisan band of seven people—three Democrats and four Republicans—and then in conference revised by two men, a Democratic leader from the House and a Republican leader from the Senate, working in harness secretly to make the final adjustments, was now law.

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