I woke up earlier than usual on the morning of June 26, 1990. Nelson Mandela was to address a joint session of Congress that day, after which I would host a luncheon in his honor. I had a lot to do to get ready for the day, including a decision on the sensitive issue of which senators would sit at Mandela’s table. I had just gotten out of bed when the phone rang. It’s early, I thought as I reached for the phone, it must be important. It was.
A White House operator asked if I could speak with President Bush’s chief of staff, John Sununu. He was cordial and direct. The president wanted me to come to the White House for breakfast that morning. Would I be willing to do so? “Of course,” I replied. “I’ll be there in an hour.” I asked who else would be there. From the Congress, Tom Foley, the Democratic speaker of the House, and Dick Gephardt, the majority leader. Treasury Secretary Nicholas Brady, Budget Director Dick Darman, and Sununu would accompany the president. He didn’t have to say anything else. I knew what the meeting would be about.
Bush had been elected president on November 8, 1988. On the same day I was reelected to the Senate and Foley and Gephardt were reelected to the House. But our differences on taxes and the budget had begun before election day.
Three months earlier, in New Orleans, Bush had accepted the Republican Party’s nomination for president. He brought the huge crowd at the Louisiana Superdome to its feet with a dramatic promise: “My opponent won’t rule out raising taxes. But I will. And the Congress will push me to raise taxes and I’ll say no. And they’ll push, and I’ll say no, and they’ll push again, and I’ll say to them, ‘Read my lips: no new taxes.’ ” The last six words were spoken slowly, with emphasis and passion. They ultimately came to define his campaign. Although he didn’t use the word Democrats, everyone knew what he meant; both houses of Congress were controlled by the Democrats.
Bush offered his supporters two comforting reassurances: that the Democrats would want to raise taxes, again and again, and that he would say no, again and again. I recall having a sinking feeling as I watched him speak those words on television. While I understood the political imperative—he was behind in the polls—I felt the pledge was unwise, poor policy that would constrain him and affect the economy. “If he wins,” I thought, “there’s going to be a tough fight on the budget.” And there was. It began early in Bush’s term and continued for two years.
Going back at least to Reagan’s presidency, the Republicans had pummeled the Democrats on taxes, especially federal income taxes, with considerable political success. After gaining a substantial reduction in personal income tax rates in his first term, Reagan initiated an intensive debate on tax reform in his second term. Among other changes, he proposed that the top marginal income tax rate on individuals be reduced to 35 percent.I The House approved a tax reform bill in 1985, but the legislation stalled in the Senate Finance Committee. Faced with the possibility that the failure of the president’s tax reform bill would occur on his watch, the chairman of the Senate Finance Committee, Bob Packwood, a Republican from Oregon, worked with the congressional Joint Committee on Taxation to devise a bold alternative. At first this new approach only attracted the support of a bipartisan, core group of six Finance Committee members who met privately to fine-tune an alternative.II As an early and committed supporter of tax reform, I participated in this core group. After intense discussion, we agreed on a broad reform package. Packwood took the lead and, with considerable skill, got it through the Finance Committee on a unanimous vote. A feature of the proposal was that the top marginal income tax rate on individuals would be reduced to 27 percent (later in the process increased to 28 percent) and that rate would apply to capital gains as well as ordinary income; the capital gains differential was to be eliminated. I told Packwood and the other members of the group that while I would join them in bringing the bill to the full Senate for debate, I disagreed with this provision. I felt then, as I do now, that the top marginal tax rate should be in the mid-30s. I made it clear that I would offer an amendment in the Senate to restore what President Reagan had originally proposed: a top marginal rate of 35 percent. So, when the Senate debated the tax reform bill in June 1986, I offered an amendment that was based on Reagan’s initial proposal: a top rate of 35 percent with capital gains taxed at a lower rate. Then and later, in 1989, when the capital gains tax debate was renewed, I made it clear that I supported the capital gains differential only if certain conditions were met. I believe that in a fair and progressive tax system, a properly crafted differential can provide a modest benefit, especially if targeted to new and small business. But that should occur only in a manner that does not have a serious adverse effect on the budget deficit.
Since my amendment was in many crucial respects identical to what the president himself had proposed, and a lower rate on capital gains had been and remains a critical element in Republican tax policy, I hoped I might gain some support from the administration and some Republican senators. But there was none. The Reagan-Bush administration opposed my amendment. While a slim majority of Democrats voted in my favor, only two Republicans did so; that overwhelming Republican opposition led to the amendment’s defeat. During the debate on my amendment Senator Packwood sharply criticized the entire concept of a capital gains differential: “The biggest loophole for the rich is back. It is capital gains now that we put the rates up to 35 percent. That is a higher rate than most people are willing to take and still invest in risky ventures providing so-called venture capital. So we have brought the capital gains differential back. It is the biggest single loophole for the income class above $200,000.”22 He was joined by Senator Chafee:
The important point I wish to make is that under current law, because of the shelters and because of capital gains, 67 percent of the rich—60 percent of those are now paying less than 20 percent of their income in taxes. In other words, although the top rate is 50 percent, they are not paying it. Sixty-seven percent are paying less than 30 percent of their income in taxes, and 43 percent of the very rich—43 percent of all those with incomes over $200,000—are paying less than 20 percent of their incomes in taxes. Between shelters and capital gains, they avoid taxes and they cruise along very happily at rates far below the maximum, which is 50 percent.23
To say that I was surprised is an understatement. Here were the Republican chairman of the Senate Finance Committee and a senior Republican member of that Committee directly criticizing a tax provision that is a pillar of Republican policy (and that also had the support of many Democrats). Their arguments were directly contrary to what Republicans had said in the past, and often would say again in the future, about the importance of a lower tax rate on income derived from capital gains than on ordinary (or earned) income.
Chafee was a close friend of mine; we worked together on the Clean Air Act and many other environmental issues. Later, after my amendment had been voted down and the bill had safely passed, I asked him what happened. How was it possible that President Reagan and Vice President Bush opposed a capital gains differential? “They want the top rate to be as low as possible,” he explained. “That means more to them than anything. But once they get what they want on the tax rate they’ll come back for a lower capital gains tax as soon as they can, just like you guys will come back on rates.”
That’s exactly what happened. In 1988, when he campaigned for president, Bush strongly advocated a lower tax rate for capital gains. There was a jarring dissonance between what Bush said in 1988 and what Packwood and Chafee, with the support of the Reagan-Bush administration, had said during the Senate debate in 1986. Packwood had called it “the biggest loophole for the rich.” Bush now said it was the way to encourage economic growth. I assumed the earlier decision was merely tactical, as is common on all sides in legislative battles, to accept some provisions you don’t like to get other provisions more important to you.
Bush strongly advocated for a reduction in the rate on capital gains, but his proposal did not meet the criteria on which I had based my support for a capital gains rate differential. While it may have generated a short-term increase in federal revenues, within a few years it would have significantly increased the budget deficit, so I opposed it. A long and intense struggle ensued. The president’s proposal passed in the House by a comfortable margin. In the Senate, where sixty votes were needed, the measure received fifty-one. The year 1989 ended on a down note. The president was upset that his proposal to reduce the tax rate on capital gains had not been approved even though a majority of senators, including some Democrats, favored it. That had taken a lot of work on my part, and I felt much emotion and energy had been unnecessarily expended because no progress had been made on the deficit, which was supposed to be the central concern.
The projections on the deficit by the Congressional Budget Office continued to rise. It seems quaint now, but all of us, Republicans and Democrats alike, were alarmed by the prospect that the deficit could reach $150 billion in the coming fiscal year. When we returned to Washington in January 1990 all of us were determined to do something about the deficit. But the differences on what to do remained great. We knew that if we failed to act by the end of the fiscal year, spending cuts would automatically be imposed under a process known as “sequester.”III
In the presidential campaign of 2012 no issue received more attention than that of taxes, specifically what should be the federal income tax rate on the highest incomes in our society. It was vigorously and sharply debated. For some people, especially those under forty, it may have sounded new. But it was not. For all of 1990 and into the following year the same issue was debated, and the same parties took the same positions. The revenue numbers were smaller, but the passions were not.
Just as we were negotiating with administration officials on the Clean Air Act and other issues, we also were negotiating on the budget. There, however, we made little progress. As is the case today, both the administration and Congress professed to be deeply concerned about the budget deficit and the nation’s rising debt. But, as also is the case today, there was sharp disagreement between the president and the leaders in Congress over how to reduce the deficit. The differences are now familiar to most Americans: President Bush was opposed to any new taxes; we believed that the deficit reduction package had to be balanced: it should include both spending cuts and tax increases.
Month after month our disagreement played out on the stage of national politics. The White House approach was clear and consistent with the president’s dramatic speech at the convention: The Democrats will insist on raising taxes and I will say no. The White House was willing to talk with congressional leaders, but the outcome was known and stated in advance. Sununu later made it public and clear: “We’re allowing them to bring their good arguments for taxes to the table. They were not persuasive last time, and they are likely not to be persuasive again. But if they want to come to the table and say they put tax increases there, it is their prerogative to put them on the table, and it’s our prerogative to say no. And I emphasize the ‘no.’ ”24 It was a skillful political strategy. The president was generally popular; he had extended his hand to us in friendship during his inaugural address, a gesture many found appealing. Later, when the first Gulf War broke out, his popularity soared to over 90 percent. He tried to use his popularity, and his now famous pledge, to get us to drop our demand for a balanced approach and yield to his position of dealing with the deficit solely by cutting spending. We shared his concern about the budget deficit, but his words, actions, and negotiating position led us to conclude that his primary concern was to spur the economy by reducing taxes on the relatively small number of Americans with the highest incomes. Their taxes had been cut in the Reagan administration, and the deficit and debt rose dramatically. Now Bush wanted to reduce their taxes even more, even though the stated goal was reducing the deficit. We believed that a balanced approach was necessary to achieve economic growth and job creation, which all agreed was the most important objective.
The struggle continued in various forms. The cherry blossoms came and went, as did the April showers. A year and a half had passed and the midterm congressional elections were just a few months away.
To deal with the president’s approach we needed a strategy. But there were then 315 Democratic members of the Congress, House and Senate, each elected independently, each believing that he or she had the answer to our nation’s fiscal problems, each seeking an outlet for his or her views. So it would be an overstatement to describe our approach as a strategy. The president had to lead, especially on taxes. We had to exercise restraint, to wait for that to happen. It was, in effect, a default position, the only course for which we had any hope of garnering some degree of consensus from our Democratic colleagues. Though obvious and simple, it was extremely difficult to implement because it required patience, fortitude, and restraint, three qualities in short supply in our political process. Voters like their representatives to be independent, so most members, at least rhetorically, proclaim themselves to be independent-minded. It seemed to me that it would be impossible to get all of the Democratic representatives and senators to refrain from making budget proposals, especially those that included tax increases, at a time when they were bombarded by the press and public with demands to do so. Still difficult, but not impossible, would be getting the Democratic leadership in the House and Senate to do so. So Foley, Gephardt, and I led an effort to persuade our colleagues to let the president take the lead. Both were able, experienced leaders. I liked and respected both and worked closely with them. We had no differences on this issue, which was important because our approach was subject to intense criticism. We were reminded often that when it suited our purposes we had been quick to proclaim that we were elected independently of the president; why weren’t we acting independently now? Why weren’t we leading? The answer, of course, was clear, and later publicly confirmed by Sununu: the White House was using the well-worn and successful Republican playbook of portraying Democrats as tax-and-spend liberals while they were the guardians of fiscal sanity. No doubt they also believed that what they were proposing was best for the economy, but we strongly disagreed. We viewed our policies as best for the economy in the long run.
It’s hard to get members of Congress to act; it’s even harder to get them to say nothing, especially when they are repeatedly asked to speak out. The lure of the camera and of the headline is great. But, somewhat to my surprise, we largely succeeded. It was imperfect; a few committee chairs occasionally didn’t comply with our request. But I knew our approach was working when I was visited by Dick Darman.
He was highly intelligent, articulate, with a wry sense of humor and an occasionally sharp tongue. I liked him and we got along well. I sometimes wished he was on our side. There had been many press accounts, and even more private discussions, about Darman’s unhappiness with Bush’s no-tax pledge. He was reported to have tried to keep the pledge out of the president’s speech, describing it as “stupid and dangerous.”25 But Bush was in a tough election battle and already was suspect to conservatives, so to placate them he made the fateful pledge. Now, nearly two years later, Darman was trying to get him off the hook. We sat in my office in the Senate majority leader’s suite and chatted amicably about our predicament. Darman suggested a high-level meeting from which “an agreement on a tax increase would emerge.” “What do you mean, it will ‘emerge’?” I asked. He extended his arms, placed his hands palms-down on the table, and raised them slowly, making a fluttering motion. As he did so he said, “Well, it will just emerge.” I smiled at his ingenuity and replied, “Well, I’m sorry, but you know the politics of this very well.” I then repeated his fluttering gesture. “That’s just not going to work. The president has got to be clear on it. Then we’ll support it.” We parted amicably, still in disagreement.
Inevitably the administration’s internal differences emerged publicly. At a meeting in early May Bush had suggested that we initiate talks on the budget “with no preconditions.” We would not and could not decline an invitation from the president, so we accepted. The press interpreted the invitation as a softening of his no-tax pledge, and dissension broke out among Republicans. But I took no chances. I told Darman that our position was unchanged. We were not going to walk into a trap. He assured me that was not the case. Almost immediately afterward Sununu told reporters that while Democrats could propose tax increases at the negotiations, the president would reject them. It was “Read my lips” all over again. Sununu’s comments uncorked the dissension that had been building among Republicans. The president’s spokesman, Marlin Fitzwater, emphasized that “no preconditions” meant just that, and some Republican members of Congress criticized Sununu; Vice President Quayle spoke out in Sununu’s defense.
The White House had a problem familiar to everyone who has participated in controversial high-level political negotiations: it was trying to convey two different messages to two different audiences at the same time. To the president’s right were the many members of his party who thought he was not conservative enough; they were passionate about his no-tax increase pledge. To his left were others in his party, the business community, and independents; many of them regarded his pledge as purely political and economically unsound. Sununu was the point man to those who demanded fidelity to the pledge; Darman was trying to assure those who demanded flexibility. It ultimately became evident that it was impossible to please both sides.
The discussions that began in mid-May 1990 were fatally handicapped in three respects: the Democrats were extremely apprehensive and suspicious; the Republicans were increasingly in disarray; and the president, the House speaker, and I did not participate personally. We designated representatives to attend, in my case two trusted and very able senators, Jim Sasser of Tennessee, the chairman of the Budget Committee, and Wyche Fowler of Georgia, a member of the Appropriations Committee. The talks proceeded off and on for several weeks.
On June 20 Darman presented to the negotiators what he termed a new proposal. But when we examined it we found that the only thing new in it was the insertion of the word new in the description. Our expectations declined even further. Darman, clearly alarmed, initiated a flurry of activity to try to breathe life into the talks. He met with the chairman of the Senate Finance Committee, Senator Lloyd Bentsen of Texas, and the chairman of the House Ways and Means Committee, Representative Dan Rostenkowski of Illinois. Bentsen spoke by phone with the president, then met over that weekend with Nick Brady, the secretary of the Treasury, an ally of Darman and a close friend of the president. Bentsen briefed me on his discussions. He said he had been clear and consistent, that the president had to take the first step on taxes, and he thought they had gotten the message. Early in the following week I met again with Darman and Brady. Foley, Gephardt, and I remained in close contact. We sensed that the internal tensions so evident in the White House would soon be resolved. We were determined to maintain our position and our discipline. Then came Sununu’s early morning call.
I immediately called Foley, who confirmed that he and Gephardt would attend the breakfast meeting. We decided to meet at the Capitol in forty-five minutes and ride to the White House together. On the way we agreed on our approach: Foley would speak first and in detail, then Gephardt and I would follow with brief comments. There was no difference in our positions and we would be careful not to let any emerge in the discussion. Sununu had been clear about his expectations. We had to be equally clear about ours.
Over a breakfast of scrambled eggs, toast, and coffee, the discussion was civil, even low key. The president was accompanied by Sununu, Darman, and Brady. Bush spoke first. He calmly stressed the importance of dealing with the growing budget deficit, the threat that high interest rates posed to the economy. He had described the problem before, in public, and there was nothing with which we disagreed. We all knew that we had a problem; we had to work together to solve it. Darman followed with a fact-filled presentation that supported and amplified the president’s. Foley responded. Speaking as calmly and persuasively as had the president, he set forth our position on the scope and significance of the problem. He also broke no new ground. He concluded by repeating what we had said many times: we were prepared to strongly support the president once he took the lead in making clear that a balanced approach, which included taxes, was needed to address the problem. I and then Gephardt spoke very briefly, supporting Foley. There was a short pause. Then the president said, “Okay, let’s go ahead.” That was it. There had been no loud voices, no banging on the table, no threats or ultimatums. It was as though we had ratified a prior decision, not reached one during our meeting. The president then turned to Sununu and Darman and asked them to go into the next room and draft a statement. For the few minutes they were gone the rest of us engaged in pleasant, social conversation, as though nothing of significance had happened or was about to happen.
Sununu and Darman returned so quickly with a typewritten statement that I assumed they had prepared it in advance. They handed out copies. I read mine quickly. It was just four sentences long:
STATEMENT BY THE PRESIDENT
I met this morning with the Bipartisan leadership—the Speaker, the Senate Majority Leader, the Senate Republican Leader, the House Majority Leader, and the House Republican Leader—to review the status of the deficit-reduction negotiations.
It is clear that both the size of the deficit problem and the need for a package that can be enacted require all of the following: entitlement and mandatory program reform; tax revenue increases; growth incentives; discretionary spending reductions; orderly reductions in defense expenditures; and budget process reform—to assure that any Bipartisan agreement is enforceable and that the deficit problem is brought under responsible control. The Bipartisan leadership agree with me on these points.
We have further agreed that the budget negotiations should reconvene promptly with a view toward reaching substantive agreement as quickly as possible.
Before anyone else spoke I said, “Mr. President, this is very positive. But before we respond I’d like the opportunity to meet for a few minutes privately with my colleagues.” The president agreed and Foley, Gephardt, and I went into an adjoining room, where we had a general discussion. We each had a positive reaction, but we also had some concerns. In the second paragraph, the only substantive part of the statement, I thought the words to me should be added after “It is clear,” so there could be no doubt that it was the president himself who believed that tax revenue increases were required. The second was the phrase itself: tax revenue increases. Our preference would have been to delete the word revenue. “But,” I said, “I think they believe this will get them off the hook with their right wing. So they’ll probably insist on it. We should let them have it because it won’t save them. They won’t get anywhere trying to explain it away by the use of the word revenue.” Foley and Gephardt agreed. We also suggested a minor change in the last paragraph. After a further brief discussion we reached full agreement; I took out my pen and wrote the changes on the typewritten draft.26
We returned to the breakfast table and I read our proposed changes aloud. I told the president that if he agreed to make that statement public we would return to the Capitol building and within five minutes of its release we would hold a joint press conference at which we would express our agreement with and support for his statement. I then handed him my copy so he could see the changes on paper. He read it, looked up, and repeated what he had said earlier: “Okay, let’s go ahead.”
The storm broke quickly. Some Republican leaders tried to hold back the tide by arguing that the statement was not a change in policy. But, as we anticipated, their words were drowned out by the protests of disbelief and dismay that reverberated across the country. For all the attention the statement received, Americans would have been justified in thinking that the budget crisis had been resolved. But in fact the struggle continued and even intensified. The president’s statement had acknowledged that “tax revenue increases” were necessary, but he had not been specific about which taxes. This led to a long and intense disagreement. The president was stung by the strong reaction to his reneging on his “Read my lips” pledge. This increased his determination to exclude any increase in income taxes from the negotiations and from any agreement. He might agree to other tax increases, but at this point he was adamant on income taxes. He obviously was well aware, as we all were, of how Reagan had handled the issue.
In 1981, his first year in office, Reagan had proposed and gained early enactment of a substantial reduction in federal personal income tax rates. Then, in the summer of 1982, with interest rates and the deficit rising, he supported legislation that cut federal spending and increased taxes. But it was personal income tax rates that were crucial to Reagan, and those were not included in the 1982 bill. On the day the House passed the bill, Reagan said, “I want to thank the Members of both parties . . . who made today’s victory possible. . . . A bipartisan majority bit the bullet and voted for the revenue increases and spending cuts we so urgently needed to get deficits and interest rates down, and Americans back to work.” He was questioned by reporters who referred to the bill as a tax increase and asked if he was concerned about losing conservative support. In response Reagan said, “To even have referred to this as a tax increase, I think, was wrong, because it was an adjustment of the tax cut that was passed last year.”27
Describing the tax increase as “revenue increases” and “an adjustment” of the previous year’s tax cuts enabled Reagan to maintain that he had never raised taxes. Bush now had a similar problem, but in much more difficult circumstances.
Our negotiations continued for several more months. There would be many more controversies and many headaches before an agreement was reached. Through the summer and into autumn frustration rose, as did the deficit projections. When we began, the deficit in the next fiscal year was projected to be less than $150 billion; now it was over $200 billion and climbing. In mid-September I joined about two dozen of the other negotiators—congressional leaders and White House aides—at nearby Andrews Air Force Base in what proved to be a vain hope that isolation would induce compromise. But the differences were narrowed only slightly, and after ten days we returned to the Capitol, where the process ground on.
From the time I entered the Senate I returned to Maine almost every weekend, to be with my family and to meet constituents. The disagreement with the president over taxes and the budget was widely reported, of course, and my weekend meetings with constituents grew increasingly contentious. At one such meeting a large crowd, disproportionately elderly, gathered. As was my practice I made no opening speech; I wanted to hear from them, I said, as I invited statements and questions. The first person to speak was an elderly man, well-dressed and articulate, who thanked me for coming and said he wanted to make a statement and then to ask a question. His statement was a sharp denunciation of me for what he described as “excessive partisanship” and an unwillingness to compromise. “The people of this country want you to work with the president,” he said to growing applause. “Stop bickering, get together and compromise, settle this like gentlemen.” When he completed his statement many in the crowd stood and applauded vigorously. Then he said, “That’s my statement. Here’s my question: All we get from the TV and newspapers is politics. What are you people arguing about? What are the issues?”
I briefly explained, as best I could, the major issues: taxes and spending cuts, including Medicare. When I finished he jumped to his feet, pointed his finger at me, and said, with much more emotion than before, “Senator, this is a democracy. You represent us. And we’re telling you now, loud and clear, you go back there and don’t give an inch on Medicare. We’ve earned it. Neither you, the president, or anyone else can take it away from us.” With that the entire crowd stood and gave him an ovation that far exceeded in length and intensity their previous applause. So I went back to Washington with two clear messages from that group of constituents. The problem, of course, was that the messages were somewhat contradictory.
Finally, after a few more weeks of contentious wrangling, we reached agreement in early October on a package that would have reduced the deficit by $500 billion over five years. It included some painful and politically difficult provisions. Federal excise taxes were raised on beer, cigarettes, gasoline, and a host of so-called luxury goods. The cap on income subject to the Medicare portion of the payroll tax was increased, so those with higher incomes had to pay more. At the same time the Medicare premium paid by all of the elderly was increased. Bush had prevailed on personal income tax rates. Try as we might we could not get him to agree to an increase in the top marginal rate above 28 percent. However, from the president’s perspective the package was still disappointing because it did not include a reduction in the tax rate on capital gains, which also remained at 28 percent. Spending was cut on a range of programs, including defense, farm support, student loans, and civil service pensions.
As soon as the details were released many members of Congress, in both parties, who had demanded deficit reduction came out against it. Everyone is for reducing the deficit in concept, but not everyone will support the painful specific actions necessary to do so. In the House Newt Gingrich led the opposition to the package because it included some tax increases, thereby defying the president and Bob Michel, the Republican leader in the House. Many Democrats also opposed the bill because they were concerned that the tax increases would hit lower- and middle-income households harder than those with higher incomes; to offset that effect they felt the top income tax rate should be higher than 28 percent. The president delivered a nationally televised speech in favor of the package, and in what was billed as the televised “rebuttal” I supported the president and the package. Tom Foley, Dick Gephardt, and Bob Michel led the effort in the House. But when the vote in the House took place, on October 5, a majority of Democrats and a majority of Republicans voted no; the bill was defeated, 254 to 179.
Exhausted, apprehensive, angry, we resumed the negotiations. Foley and his Democratic House leadership team went back to the drawing board. They concluded that there was no possibility of getting support from most House Republicans, so they put together a package that would attract most of the Democrats. It included a top marginal tax rate of 33 percent, with a surtax of 10 percent on incomes in excess of $1 million, for an effective top rate of 36.3 percent. Since there were only fifty-five Democrats in the Senate we could not pass the House bill. We needed sixty votes to overcome a filibuster. So we started with the bipartisan package that the president and we supported but the House had just defeated. With a few changes I thought we could pass it in the Senate.
As the dispute dragged on, across the country the political tide had begun to shift, slowly at first, then with gathering momentum. Throughout the negotiations each side had regularly requested analyses of the effects of their proposals from the Congressional Budget Office and the Treasury Department. The closer we got to the end of the process, these analyses, in the form of “distribution tables,” made it increasingly clear that the president’s proposals—mainly to keep the top marginal income tax rate on earned income at 28 percent while lowering the rate on unearned income through capital gains to 15 percent—when combined with increases in excise taxes on gasoline, alcohol, tobacco, and other items, would have the effect of providing a tax cut for the wealthiest of Americans while raising taxes for almost everybody else. The media picked up on this conclusion and hammered away at it. The midterm elections for a third of the Senate and all of the House were just weeks away. Republican congressional leaders, concerned about the adverse effect on their candidates, became increasingly frustrated with the White House’s rigid insistence on its position. Harsh words were exchanged in private, and the tensions made their way to the press. “By Tuesday, September 25 the animosity between Congressional Republicans and the White House was barely disguised.”28
Foley and Gephardt then successfully led the Democratic bill through the House, and we squeezed the compromise package through the Senate. That was a difficult and unpleasant task for me. As I had on the Clean Air Act a few months earlier, I opposed amendments offered by Democrats even though I personally favored some of them. I believed we had no choice. We had to compromise. A failure to act could have been disastrous for the economy. So I argued, “We must recognize what the realities are.” I pointed out that the president had committed himself to vetoing the House bill that raised the top marginal personal income tax rate from 28 to 33 percent. “I don’t agree with the president, I think he’s wrong. But that is the reality.” Long after midnight weary senators passed the bill, fifty-four to forty-six.
Shortly thereafter I told Darman that while I accepted the president’s veto threat on a 33 percent rate, even though I strongly disagreed with it, there was room above 28 and under 33 for a compromise in the conference committee that would be needed to iron out the differences in the House and Senate versions of the bill. On the two biggest issues of the year, Clean Air and the budget, I had been out front, on the Senate floor, in opposing Democratic amendments that I personally favored because I believed that compromise was necessary and I thought the president was sincere and acting in good faith. I admired his courage in reversing himself on his tax pledge and had said so publicly, even though he had created the problem for himself by making the pledge. But we had been at this budget effort for nearly two years, during which time the administration was increasingly focused on provisions that would reduce the tax burden on the wealthy; we didn’t doubt his sincerity in believing in the theory that this was the best way to spur the economy, but we strongly disagreed with the validity of that theory. It may have made sense when the top marginal rate was 90 percent, or 70. But it made no sense when the top marginal rate was in the mid-30s. And, I emphasized, it was President Reagan who initially proposed a 35 percent rate. Their approach to that issue had to change, I told Darman. Otherwise the whole painful effort had been in vain. We knew and agreed that there had to be cuts in spending. But there had to be a balanced plan. Darman made no substantive comment in response. At least I had gotten my message across and I knew Darman would repeat it to the president.
Whatever the reason, the conference committee soon reached a compromise that was balanced, though unpleasant in some respect to both sides. It included an increase in the top personal income tax rate from 28 to 31 percent and new limitations on the ability of high earners to claim personal exemptions and itemized deductions. Taxes went up on gasoline, alcohol, tobacco, and so-called luxury goods. There were reductions in a range of programs, from Medicare to farm subsidies. Late on the evening of Friday, October 26, 1990, the House passed the conference report, 228 to 200. The next day, Saturday afternoon, the Senate approved it, fifty-four to forty-five. On November 5 President Bush signed it into law.
When measured against the needs of the country it was a modest result. When measured against the difficulty of adopting anything that inflicts sacrifice on any segment of society it was a significant accomplishment. I hoped that from the pain and bitterness of our experience we all had learned valuable lessons that we could apply to better effect in the future. But obviously that didn’t happen.
I. In 2014 individuals filing a joint return were subject to a top marginal tax rate of 39.6 percent on that portion of their taxable income that exceeded $406,750.
II. Members were Packwood, Republican senators John Chafee of Rhode Island and John Danforth of Missouri, and Democratic senators Daniel P. Moynihan of New York, Bill Bradley of New Jersey, and I.
III. The budget process had been changed in 1985 as a result of legislation authored by Senators Phil Gramm, a Texas Republican, Warren Rudman, a New Hampshire Republican, and Ernest Hollings, a South Carolina Democrat. As the September 30 end of the fiscal year approached, concern over the pending sequester increased; that was a factor in our ultimately reaching an agreement.