The Negotiator

by George Mitchell

  It took nearly two years and an override of a presidential veto to get the mammoth bill through the Senate, and then through a conference with the House, made necessary because the House and Senate bills were not identical. Through it all Moynihan maintained his composure and good humor as we reached agreement with one state after another. After the bill became law we went to the Senate press gallery to engage in the pleasant process of self-congratulation. We were feeling very good when someone asked Moynihan which state fared best in the battle over the funding formula. Without hesitation, and with only the sparkle in his eyes betraying humor, Moynihan answered, “The State of Altoona.” I have always regretted that I wasn’t present when Shuster was told of Moynihan’s comment; his laughter must have shaken the Capitol dome.

  “AN INVESTMENT IN OUR NATION’S FUTURE”

  For several years I devoted a great deal of time and effort to Maine projects. One of them was in Brunswick, for many years the daily scene of Maine’s worst traffic jam. In the late afternoon thousands of day-shift workers from the Bath Iron Works got into their cars to drive home, as did thousands of military and civilian employees of the Brunswick Naval Air Station, located just a few miles away. And they all came together with the always heavy traffic on U.S. Route 1, a busy summer tourism route, which passes through Brunswick and Bath. On the many occasions I visited the area, or any town within a radius of thirty miles, people expressed concern, frustration, even anger over the daily gridlock. After years of debate and study, state and federal officials came up with a plan to deal with the problem: it included a bypass highway around Brunswick and new approaches and ultimately a new bridge in Bath to replace the old structure that crossed the Kennebec River there. The cost of the bypass was estimated at $15 million and improvements for the Bath bridge at $10 million.

  I lost count of the many meetings members of my staff and I had with other members of the Senate committee and relevant House members on this project. I was assisted by Grace Reef, an able and hardworking member of my staff who never took no for an answer. Her determination and skill were evident by the time she was twelve years old. A skilled baseball player, she was denied the opportunity to play in the Little League in her hometown of Portland. She sued the national organization, won, and became the first girl ever to play in the Little League.21 She was as tenacious and successful on the Brunswick bypass. It was a long and difficult struggle, but by 1987 the project was included in the Senate transportation bill. It was, however, not included in the House bill, so Grace and I had to work very hard at the conference to keep it in.

  During the process the Reagan administration expressed opposition to funding for mass transit and to some of the projects in the bill. At one meeting with some of the conferees, an administration official identified a list of projects the president wanted deleted from the bill. We had no way of knowing how much involvement, if any, the president himself had in the details. I thought it unlikely. To my dismay Brunswick was on their hit list, as were many of the projects proposed by congressional leaders. Then an eagle-eyed congressional staff member noted that under the administration proposal most of the projects in the president’s home state of California remained in the bill. The official was asked to explain why the projects in our states were unacceptable to the president, but those in California remained in the bill. In response he said, with a straight face, “We approve those we believe to be investments in our nation’s future.”

  After much wrangling we reached a compromise, but because of continuing disagreement over other provisions, including mass transit funding, the president vetoed the bill when it reached his desk. At first we failed by one vote to override it, but a second try succeeded. Grace and I had to do another round of meetings but were able to keep Brunswick in, and I heaved a huge sigh of relief when the bill became law.

  Not long afterward I was invited to speak to a business group in Brunswick. I accepted gladly, eager to get credit for my work on the bypass. In the question-and-answer period after my speech, one man delivered a sharp denunciation of “out-of-control pork-barrel” spending by the Congress. When he finished I asked him if he considered the Brunswick Bypass to be “out-of-control pork-barrel” spending. “No,” he replied. He calmly cited the important work on navy ships at the Bath shipyard and the Atlantic Ocean submarine patrols by navy planes from the Brunswick Naval Air Station, and concluded by describing the $15 million to be spent on the bypass as “an investment in our nation’s future.” From California to Maine the refrain is the same: My project is an investment in our nation’s future. Yours is pork.

  Among other large projects we were able to keep in the bill were two of great immediate significance to Maine: full funding for a new bridge over the Fore River connecting Portland and South Portland and for a new bridge over the Kennebec River connecting Waterville and Winslow. Both bridges were subsequently constructed and have had a positive effect on the communities and the state as a whole.

  There was a smaller project of less immediate significance that has had an even larger impact on the state. Passenger rail service to Maine was discontinued more than fifty years ago. By the time I got to the Senate Maine was one of only two of the forty-eight states in the continental United States without such service. Wayne Davis, a Maine man with large vision and uncommon energy, led an effort by a coalition of Maine groups and individuals seeking to restore passenger service. I had worked with and gotten to know Graham Claytor, a resourceful executive who was then running Amtrak. Grace Reef and another talented young member of my staff, Sandy Brown, were able to gain inclusion of funding for the first in a series of feasibility studies, all of which were positive and promising. Claytor then authorized the track improvements and running equipment (all of it used but clean and functional), and passenger rail service was restored. The results have been spectacular, exceeding even the most optimistic projections. Today the Amtrak Downeaster carries thousands of passengers each day from Portland to Boston and back, and service has been extended north from Portland to Brunswick.

  It is undeniable that the legislative process was later abused. The number of projects in the highway and other bills rose from dozens to hundreds to thousands in a few decades. The type of project expanded with the number and the costs, and the “earmark” era resulted. Yet it also is undeniable that many of the projects were appropriate, even necessary. No one has yet been able to figure out how to objectively decide which is appropriate and which is not in a society in which “an investment in our nation’s future” is widely used to justify a project for my state but not for yours. Perhaps the most useful approach would be to subject each project to a separate vote in the House and Senate; while that method would itself be imperfect, at least it would require the approval, out in the open, of a majority of members of each house of Congress for each project.

  READ MY LIPS

  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 t
he 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.