by H. W. Brands
“The president was humiliated, and angry,” Baker recalled. Yet the revolt focused the administration’s attention. Baker urged the president to put his whole weight behind the proposed reforms. “Tax reform is one of your top two domestic priorities,” Baker wrote to Reagan (the other priority being spending cuts). “It will likely die if you do not support moving the Ways and Means bill forward … You must keep the process moving forward.”
Reagan agreed, and after O’Neill, who supported reform, challenged the president to deliver at least fifty Republican votes, Reagan resorted to retail politicking. He went up to Capitol Hill and met with the House Republicans. “It was a straight talk session with all sides having their say,” Reagan recorded afterward. The opponents aired their grievances, which Reagan said he shared in some cases. But he said the bill could be fixed in the Senate. His strategy was subtle. He asked the representatives to vote for a bill he said he would veto if it arrived on his desk in its present form. Yet if they passed it, its flaws could be fixed in the Senate.
The maneuver worked, but barely. A head count revealed that forty-eight Republicans would side with the president. This left him two shy of the demand of O’Neill, who appeared unwilling to relent. Baker summoned reinforcements. “We assembled a team in the office of my old friend, House Minority Leader Bob Michel, and started working the phones,” Baker remembered. “It took a lot of calls and a lot of horse-trading. I even agreed to come stump for one representative.” But finally they secured the needed votes, and the measure passed the House.
More months were required before the two houses came to agreement, but the result was the most sweeping revision of the tax code since World War II. The top rate on personal income taxes fell to 28 percent, down from 50 percent (and from 70 percent when Reagan entered office). Four-fifths of Americans would fall into the expanded 15 percent bracket. The top corporate rate was slashed from 46 percent to 34 percent. Capital gains would be taxed as ordinary income, eliminating the incentive to shift compensation from the latter category to the former. Many of the most popular tax shelters and deductions were abolished, while the standard deduction was raised and the personal exemption was nearly doubled.
The losers didn’t abandon their fight. Representatives of manufacturers forecast that the curtailment of investment tax credits would prevent needed modernization, with baleful consequences for the entire economy. Erstwhile recipients of other tax favors predicted similar ill effects.
Dan Rostenkowski, the Democratic chairman of the House Ways and Means Committee, whose backing for the bill had been vital to its passage, acknowledged the complaints but refused to reopen the issue. “Let the bill take effect and let the American people and businesses make their adjustments,” he said. Congressman Richard Gephardt of Missouri, another Democratic supporter of the reform, waved aside the criticism as predictably self-serving. “I think this bill will be blamed for everything, including the common cold,” Gephardt said.
Reagan appreciated the unaccustomed Democratic support, and he similarly dismissed the carping. “The journey’s been long,” he declared at the signing ceremony. “Many said we’d never make it to the end. But as usual the pessimists left one thing out of their calculations: the American people.” He called the new tax code pro-business, pro-labor, pro-family, and pro-liberty. He acknowledged the vital contributions of members of both parties in Congress to the success of the tax bill. “I feel like we just played the World Series of tax reform and the American people won,” he said, to laughter and applause.
TWO WEEKS LATER the president signed another landmark reform. Immigration had never been a priority issue with Reagan, certainly nothing like taxes. But as California governor he had grown aware of the tension between federal law on immigration and the economic law of supply and demand in unskilled labor. California’s southern border, like the borders of Texas, New Mexico, and Arizona, had long been porous, allowing Mexicans eager to work in the United States to slip across without acquiring the documents to make their entry and subsequent residence legal. The system suited employers—agricultural concerns chiefly, but also construction companies and other enterprises—as it provided a pool of low-cost workers who could be counted on not to report mistreatment or unsafe working conditions to authorities. It suited the employers’ customers—consumers of farm products, purchasers of new homes—who paid lower prices for goods and services than they would have otherwise. It suited the immigrants themselves, who wouldn’t have come to America if it didn’t.
But it didn’t suit labor unions, which decried the depressing effect the immigrants had on wages. It sometimes didn’t suit state and local authorities, who had to provide social services for the immigrants. And it didn’t suit the many people in America who thought border laws ought to be enforced or who worried that heavy immigration from Mexico and countries farther south would dilute the traditional character and mores of the American people.
In 1985, Alan Simpson, a Republican senator from Wyoming, sponsored a bill to curtail illegal immigration and bring existing undocu mented immigrants in from the cold of illegality. Simpson had tackled immigration before without success, but this time he got essential help from Romano Mazzoli, a Democratic congressman from Kentucky. The Simpson-Mazzoli bill aimed to curtail illegal immigration by imposing stricter border controls and, crucially, penalties on employers who knowingly hired illegal immigrants. It meanwhile would provide a path to legal residency for many of the undocumented immigrants already in the United States.
The bill had to overcome the opposition of employers who liked the status quo or feared being held liable for honest mistakes in screening job applicants. Other skeptics fretted that the bill would become the entering wedge for a system of national identity cards—“papers” of the kind Americans often associated with police states. But Simpson, especially, and Mazzoli answered the objections, sometimes with logic, sometimes with amendments to their bill, sometimes with quid pro quos, sometimes with what Greg Leo of Reagan’s Immigration and Naturalization Service later called Simpson’s “velvet-hammered charm.”
Reagan let Simpson and Mazzoli do the heavy lifting on immigration reform, but as the bill gained momentum, he assured the sponsors he was with them. “Al Simpson came by to see if he had my support,” Reagan recorded in October 1986, shortly after the measure cleared the House. “They have one or two amendments we could do without but even if the Senate in conference cannot get them out, I’ll sign. It’s high time we regained control of our borders and his bill will do this.”
The bill passed the Senate, and Reagan duly signed. “It will remove the incentive for illegal immigration by eliminating the job opportunities which draw illegal aliens here,” he said in a written statement. The legal residency route provided by the law was scarcely less important. “The legalization provisions in this act will go far to improve the lives of a class of individuals who now must hide in the shadows, without access to many of the benefits of a free and open society. Very soon many of these men and women will be able to step into the sunlight and, ultimately, if they choose, they may become Americans.”
The immigration law elicited controversy at once. Some Latino groups embraced it enthusiastically. Manuel Lopez of the Mexican American Political Association likened the measure’s amnesty provision to the Emancipation Proclamation. “It enables millions of persons who came to this country as economic refugees to find a better way of life and be free,” Lopez asserted. Other provisions of the law inspired ambiva lence among Latinos, however. Many legal residents hailed the employer sanctions as protection against low-wage illegal immigrants, but others feared that the sanctions would simply discourage employers from hiring Latinos altogether. Employers complained that the burden of protecting the borders was being pushed onto them. “It turns a personnel manager into a special agent of the INS to help stem the tide,” a Chicago labor-law specialist declared. Lawyers and officials who dealt with immigrants predicted a boom in forged documents purpor
ting to show the residency required for employment and amnesty. “I think the only people who may ultimately benefit from the legislation will be the people in the business of manufacturing fraudulent documents,” Linda Wong, an attorney with the Mexican American Legal Defense and Educational Fund, said. Officials of communities with large Latino populations complained at the prospect of having to raise taxes to pay for services to newly legal residents. “It is another disappointing chapter in Congress’s failure to address a major national issue in a meaningful way,” the supervisor of Los Angeles County said. Carlos Castaneda of the Carnegie Endowment for International Peace called the new law worse than useless for raising expectations it couldn’t fulfill. “The act will undoubtedly exacerbate the racist, xenophobic sentiments that are increasingly common in border areas and other regions with large Mexican communities,” Castaneda declared.
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NO MATTER WHAT else he was working on, Reagan never forgot the American hostages in Lebanon. “He worried about them personally,” John Poindexter recalled. George Shultz put the matter in stronger terms. “Reagan was agonized over the hostages,” Shultz said. “It was deep in his gut.” The president of the United States was the most powerful man in the world, yet he was helpless in this crucial matter. “It just drove him crazy,” Shultz said. “There were these hostages in Lebanon, Americans being tortured, and he couldn’t do anything about it, and he’s their president.”
And he constantly searched for ways to secure the hostages’ release. Two weeks after visiting the grave of Robert Stethem and greeting the survivors of the TWA hijacking, Reagan wrote in his diary, “Some strange soundings are coming from the Iranians. Bud M. will be here tomorrow to talk about it. It could be a breakthrough on getting our seven kidnap victims back. Evidently the Iranian economy is disintegrating fast under the strain of war.”
Bud McFarlane had been pondering Iran for some time. He assumed that the Ayatollah Khomeini wouldn’t live many years longer and that his successors, presumably more moderate, might seek the protection of the United States against the Soviet Union, as Khomeini’s predecessors had. McFarlane made contact with certain Israelis, whose government likewise looked toward moderate elements in Iran for balance against Iraq, Israel’s nearer threat. The Iranians, for their part, engaged in the desperate war against Iraq, sorely needed parts and replacements for the American-made military equipment they had acquired under the shah. McFarlane envisioned encouraging the Iranian moderates by supplying them weapons. The shipments would have to be secret, as any revealed contact with the U.S. government would compromise the Iranians involved. Arms shipments, moreover, would violate America’s policy of neutrality between Iran and Iraq, as well as its embargo on weapons to terrorist-sponsoring states, among which the Reagan administration loudly and repeatedly included Iran.
McFarlane tested his idea on top officials of the administration. William Casey liked it, but George Shultz and Caspar Weinberger judged it harebrained and counterproductive. “To reverse our present policy and permit or encourage a flow of Western arms to Iran is contrary to our interests, both in containing Khomeinism and in ending the excesses of his regime,” Shultz wrote to McFarlane. “It would seem particularly perverse to alter this aspect of our policy when groups with ties to Iran are holding U.S. hostages in Lebanon.” Weinberger denounced the plan with equal vigor. “This is almost too absurd to comment on,” he wrote on the note transmitting McFarlane’s proposal. “It’s like asking Qaddafi to Washington for a cozy chat.” In a separate memo Weinberger was equally categorical. “Under no circumstances should we now ease our restrictions on arms sales to Iran,” he declared. The proposed reversal of policy would be seen as “inexplicably inconsistent by those nations whom we have urged to refrain from such sales,” and it might well simply strengthen the Khomeini regime.
Shultz and Weinberger thought their combined opposition, at a time when they agreed about little else, killed the plan. The president’s public statements certainly suggested as much. In a speech to the American Bar Association, Reagan explicitly identified Iran as a sponsor of the intensifying campaign of global terror, which he called “a new, international version of Murder, Incorporated.” In a news conference he reiterated his unyielding opposition to any compromise with terrorists. “America will never make concessions to terrorists,” he said. “To do so would only invite more terrorism. Nor will we ask nor pressure any other government to do so. Once we head down that path there would be no end to it, no end to the suffering of innocent people, no end to the bloody ransom all civilized nations must pay.”
McFarlane persisted, however, cloaking his initiative in deeper secrecy. Secrecy suited McFarlane’s personality, Weinberger thought. “McFarlane is a man of evident limitations,” Weinberger wrote later. “He could not hide them, but he did attempt to conceal them, by an enigmatic manner, featuring heavily measured, pretentious and usually nearly impenetrable prose, and a great desire to be perceived as ‘better than Henry’ ”—Kissinger, the orchestrator of the opening to China in the early 1970s. “He was very secretive,” Weinberger continued. “He seemed to feel that what he did was too important or classified to be discussed with anyone else.”
McFarlane took his plan to Reagan, who was then in Bethesda Naval Hospital following his cancer surgery. Records and recollections of the meeting subsequently differed. Don Regan’s notes summarized: “Middle East/hostage release/problem.” Regan afterward explained, “The hostages were discussed in a general way. The sense of this part of the conversation, as well as I can remember it, was that the Iranians, who had already been helpful in connection with the TWA hijacking, might be disposed to be helpful in other situations if we were more friendly to them.” Regan recounted that Reagan had paid close attention to McFarlane’s description of the initiative and had asked several questions. The president approved the plan, telling McFarlane, according to Regan, “Yes, go ahead. Open it up.”
But Reagan, when asked, said he had no memory of the hospital meeting with McFarlane. His diary nonetheless confirmed and slightly elaborated Regan’s recollection. “Bud came by,” Reagan wrote on July 18, 1985. “It seems two members of the Iranian government want to establish talks with us,” Reagan recorded after the meeting. “I’m sending Bud to meet with them in a neutral country.”
McFarlane did not, in fact, meet with the Iranians at this time. He engaged intermediaries instead. One was David Kimche of the Israeli Foreign Ministry, who suggested that Israel would transfer American-made missiles to Iran if the United States would replace them. McFarlane said he would forward the suggestion and return the administration’s response.
In early August, McFarlane met with Reagan at the White House. He told of his conversation with Kimche and of the suggestion of the missile transfer from Israel to Iran. As George Shultz, present at the meeting, recalled, McFarlane talked of a strategic opening to Iran but also spoke of the hostages. McFarlane said the Iranians with whom he had been in contact could secure the release of four of the Americans. Shultz argued against the proposal, saying that arms transfers to Iran would be a serious mistake. “I thought that the president agreed, though reluctantly,” Shultz wrote.
But Reagan had not agreed, as a diary entry a short while later indicated. “I received a ‘secret’ phone call from Bud McFarlane,” the president, then vacationing at the ranch in California, wrote. “It seems a man high up in the Iranian government believes he can deliver all or part of the seven American kidnap victims in Lebanon sometime in early September. They will be delivered to a point on the beach north of Tripoli and we’ll take them off to our Sixth fleet. I had some decisions to make about a few points—but they were easy to make. Now we wait.”
Reagan’s decisions involved the transfer of TOW antitank missiles from Israel to Iran. McFarlane notified the Israelis, who during the first two weeks of September 1985 delivered some five hundred TOW missiles to Iran. On September 15, one American hostage, the Reverend Benjamin Weir, was release
d.
Reagan hoped the other hostages would follow. “A call from Bud M. on the secure phone,” he wrote in his diary on Sunday, September 15. “Rev. Weir, the Presbyterian minister, has been delivered to our embassy in Beirut and is now aboard the U.S.S. Nimitz. We’re trying to hold it secret because of the other kidnap victims. An unverified source says they will be delivered in 48 hours. Everything is top secret but suddenly on the TV talk shows they quoted a Reuters story that an anonymous call had reported Weir’s rescue. But of course we are stonewalling.” Two days later Reagan recorded, “Rev. Weir and his family are at a ‘safe house’ here in our country. His family was a little hard to handle. They insisted on going to a hotel but we managed to move them when he arrived. So far the secret is holding and they are all together. We’ve been told by the mystery man in Beirut the others (hostages) will follow.”
THE OTHER HOSTAGES did not follow. They remained in captivity when a separate event distracted Reagan while confirming his resolve to bring the hostages home. On October 7 an Italian cruise ship, the Achille Lauro, was hijacked off the coast of Egypt by four men affiliated with the Palestine Liberation Front. The hijackers demanded the release of various Palestinians detained by the Israelis. Reagan’s diary reveals that he followed every detail of the hijacking with great care, all the more because the hostages included dozens of Americans. He directed the U.S. Navy to ready a rescue team.
