Yeas 238-Nays 195 | TIME

Reagan caps his revolution with the country’s largest tax cut

Champagne corks were popping merrily in the Oval Office late Wednesday afternoon when the call came from the vanquished to the victor. “Well, Mr. President, you’re tough,” said Dan Rostenkowski of Illinois, chairman of the House Ways and Means Committee. “You beat us.” Indeed he had, and with surprising ease. In the final legislative battle over Ronald Reagan’s economic program, 48 House Democrats had deserted their party to help the President win a 238-to-195 victory on a vote for a bill that provides the largest tax cut in U.S. history. The same day the Republican-controlled Senate endorsed a similar measure, 89 to 11. House and Senate conferees then stayed up all night smoothing out differences between the two versions, and the President could sign the final bill this week. Reagan will also get to put his signature on the other key part of his economic program: a budget that will slash nearly $140 billion in funding for federal programs over the next three years.

“We have made a new beginning,” exulted the President. If not a revolution. Not since the first six months of Franklin Roosevelt’s Administration has a new President done so much of such magnitude so quickly to change the economic direction of the nation. Reagan not only won 90% of his economic program, but did so with a display of political organization and savvy that left his opponents reeling in disarray. For a President supposedly untutored in the ways of Washington and suspected by some of lacking the acumen and the energy that the Oval Office demands, Reagan has proved to be astonishingly sure-footed and dynamic. As House Majority Leader Jim Wright of Texas told him in a congratulatory phone call: “We can see you’re ready for the big time.”

Reagan transformed an election victory that was largely a repudiation of his opponent into a mandate to revitalize the economy and reverse the trend toward ever greater reliance on federal handouts. He adroitly utilized the wave of sympathy that followed the assassination attempt to build up support for his budget proposals. Having won that confrontation, he built upon it for the showdown over taxes.

For all the potential ramifications of the tax bill, last week’s battle was essentially a struggle for power between the White House and the leadership of the House, and politics more than principle was involved. In negotiations last June to produce a bipartisan bill, the Democrats had agreed to accept many of the basics of Reagan’s plan, including a massive, multiyear tax cut and accelerated depreciation for businesses. “We have won the tax debate,” said White House Chief of Staff James Baker after hearing of the concessions made by Rostenkowski’s committee. Nonetheless, the Administration decided to hang tough for everything it wanted. Said one top Reagan adviser: “All the Democrats achieved by compromising was to undercut their own arguments against our position.”

The Administration thereupon proposed what they called a “bipartisan” alternative to the Rostenkowski bill, sponsored by Republican Barber Conable of New York and Democrat Kent Hance of Texas. A bidding war ensued as each side turned its version of the bill into a “Christmas tree”—adorned with concessions designed to attract special interests. Complained House Speaker Tip O’Neill: “In this bidding contest, no commodity straddle was too generous, no oil depletion allowance too high, and, yes, almost no feature of the Democratic proposal was so ill-conceived that it could not be added to the Republican substitute.”

In the end, the differences between the two bills turned out to be relatively minor. The Democratic version was tilted more toward tax relief for individuals earning less than $50,000 a year. The Republican bill provided for three years of tax cuts totaling 25%; the Democratic version would permit a third-year cut only if certain economic conditions were fulfilled by the end of 1983. The Democratic version also did not provide for indexation, which pegs tax brackets to an inflation index so that rates do not creep upward. The Administration was initially opposed to indexation, partly because Reagan had planned to introduce this provision as part of a separate tax bill next year, and partly because the idea was anathema to some Southern Democrats who feared that too large a tax cut could lead to unmanageable deficits.

One White House aide conceded that the Administration would have no ideological problems in endorsing the Democratic plan. Reagan nonetheless decided on a full-court press for a political triumph. Chief of Staff Baker masterminded the pressure campaign along with Ken Duberstein, the Administration’s chief lobbyist in the House. As his Administration’s most effective salesman, Reagan did much of that telephoning and personal cajoling himself. After a hard day of wheeling and dealing with wavering Democrats at a Camp David picnic, a jovial but weary Reagan joked to his aides: “After we get through with this, I never want to have to ask a Congressman for anything ever again—except maybe to impeach me.” Following the tally, Political Aide Lyn Nofziger took the opportunity to counter charges that Reagan keeps bankers’ hours: “Not bad for a lazy President.”

The keystone of the campaign was Reagan’s 22-min. nationally televised speech. In one characteristic touch, Reagan urged people to emulate the farmer who, during a discussion of the economic program, told his Congressman, “Don’t give me an essay. Are you for him or against him?” The President also used two simple—some might say simplistic —charts to show the difference between the two bills. A dispute arose among his advisers over whether Reagan himself should point to the charts; there were those who were fearful that this might distract him from his text. The President silenced them with a bit of Hollywood lore: “Listen, I once made a movie with Wallace Beery. After that, nothing could distract me.”*

The networks offered Democrats time for rebuttal. Looking prophetically grumpy, Rostenkowski and O’Neill asked their $50,000 question: Would not voters in the 95% of the nation’s households that earn less than that amount be better off with the Democratic version? But the tide had clearly begun to turn. O’Neill phoned potential defectors until midnight on Tuesday, trying vainly to keep his colleagues in line. But the next morning the Speaker admitted the imminence of defeat, blaming it on “a telephone blitz like this nation has never seen.” Afterward, however, the Speaker joined Rostenkowski in phoning the White House. Said the President: “This is most gracious, Tip.”

Some moderates and liberals blamed the loss on the leadership’s auction-block approach to shaping a tax bill. Led by Arizona’s Morris Udall, a handful of liberals had proposed an alternative one-year tax cut that was easily voted down. Said John Conyers of Michigan: “We can’t out-Republican the Republicans and then beat Reagan.” Other Democrats were ready to punish the party rebels, such as Texan Phil Gramm, who sat in on Democratic budget caucuses while working with the White House, and Hance, who not only co-sponsored Reagan’s tax cut bill but also won $40 in a White House staff pool by correctly guessing the number of Democrats who would bolt with him.

For O’Neill and his allies, the string of Reagan successes raised the specter of an imperial presidency that could dictate legislation from the West Wing. But there is some question as to whether the same coalition that voted for his economic program will follow the President’s lead on controversial social issues, like outlawing abortion, or on tough foreign policy questions, like selling AWACS surveillance planes to Saudi Arabia.

The biggest question of all involves the impact of Reagan’s radical economics. His tax bill is based on untried “supplyside” theories that were rejected two years ago even by the Hill’s senior Republicans when first proposed by Congressman Jack Kemp of New York and Senator William Roth of Delaware. “Pray God it works,” said Pennsylvania’s Joe McDade, a G.O.P. moderate who voted for the bill with his fingers crossed. “If this economic plan doesn’t jell, where are we going to get the money for anything?”

Reagan, ever optimistic, sounded reflective when asked after the vote when he expected to see results. His answer: “The effect of the tax cuts and putting money back into the economy, well, those can’t be seen until the money is invested. And, of course, the budget cuts will be felt as they take place in 1982.” That year will mark the first electoral test his Republicans face. Should Reagan’s revolution work out the way he hopes it will, those congressional elections may well entrench the Republicans as the party of the ’80s. If not, and if inflation is inflamed by federal budgets wallowing in red ink, the President will have to shoulder most of the blame. —By Walter Isaacson. Reported by Douglas Brew and Neil MacNeil/Washington

* A notorious scene stealer, Beery played a lovable Mexican bandit in The Bad Man (1941). Reagan was the rancher he befriended.

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