The Negotiator

by George Mitchell

  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.

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  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.

  TWO MINOR BILLS THAT HAD A MAJOR IMPACT

  On the many occasions I’ve been interviewed about my service in the Senate, almost all of the questions understandably have focused on major, highly publicized matters like the Clean Air Act and the several battles on the budget. I was involved in many other legislative efforts, however, two of which were, in my view, noteworthy because of the major and continuing effects they have had.

  One has come to be known as the Low Income Housing Credit. I have already described briefly the tax reform effort of the late 1980s, initiated by President Reagan. The motivating principle was that the tax code had become far too large and complex. Filled with credits and preferences, it distorted economic decisions and inhibited the working of the free market economic system which had proved so beneficial to our society. The thrust of reform was to eliminate all, or as many as politically possible, of the many distorting preferences. The motive was valid and the method sound. As a result the code was trimmed. But, as with all human eff
orts, it was imperfect. Some preferences that should have been eliminated were retained, while others that should have been retained were eliminated.

  Why should any preference be retained? A good question to which there is a good answer: because there are some areas of our economy where there is no market in which profit-seeking enterprises can operate successfully. One such market is in the provision of housing for families with very low income. This was not clear, or at least not accepted as clear, when the Tax Reform Act of 1986 was being considered and debated. I was convinced it was a valid position, and I led the affordable housing effort in the Finance Committee and in floor debate. But I had a hard time convincing other members of the Committee. That was understandable because the very idea of a new or expanded credit was contrary to the primary objective of tax reform.

  The Housing Credit is a complicated program but has a simple construct. It is designed to substitute equity capital for debt capital that is typically used to build and acquire real estate. The equity capital is raised from corporations, which receive a return in the form of tax credits on their investment. Almost all real estate—whether a single-family home, an apartment building, or an office building—is largely financed by borrowing money, which requires monthly interest payments to service the debt. But there is much less capacity to borrow money to finance affordable housing because the cash flow from rental income is limited to make the property affordable to lower-income families. There must be a substitute source of capital to keep debt low; that is where the Housing Credit program comes in. It enables a developer to raise equity capital from corporate investors, largely banks, who receive a return from the tax credits on their equity rather than from interest payments on debt. The Finance Committee’s initial tax credit proposal included some unrealistic limitations on the Housing Credit that would have made the program unusable. Among other problems, the finance bill would have prevented the use of the new tax credit program with any other federal housing subsidy.

  Bob Rozen, a very able member of my Senate staff, spent a lot of time working with the affordable housing community and the Senate Finance and Joint Tax Committees. As a result during the debate on the Senate floor I offered an amendment with nineteen cosponsors, five of them Republicans. The amendment made a number of changes to the Finance Committee bill, including changes to facilitate use of the new program with existing affordable housing programs offered through the Department of Housing and Urban Development and with tax-exempt debt, and to encourage participation in the program by nonprofit organizations. The amendment was approved unanimously in the Senate. But this was a new concept, and more design work was needed in a short period of time to make sure the program that emerged from the tax reform conference committee with the House would be an effective tool to develop affordable housing. In conference we modified the basic subsidy credit rates in the program, changed the income rule to target farther down the income scale, and refined the rules for use of the program with other housing programs.

  When tax reform was enacted, with a temporary three-year life for the Housing Credit, many in the industry doubted it would work. That was a reasonable concern because it was a new approach that had not been the subject of hearings, academic study, or industry debate. In the first year of the program’s existence, only about 20 percent of the Housing Credit authority was used, mostly by developers who had projects in the works that for the most part had sufficient subsidies to develop without the credit. The states were ill-equipped to manage the allocation of tax credits. It was clear the program needed to be reviewed and reimagined if there was going to be any chance to extend it beyond its 1989 expiration date.

  In 1987 Senator John Danforth, a moderate and articulate Republican from Missouri, joined me on this effort. We put together an industry task force to review the program and make recommendations for improvement. The task force proposals were largely enacted into law in 1989, along with a temporary extension of the program. The 1989 changes kept the basic design of the program but reworked many aspects of the law, especially giving more responsibility to state housing finance agencies to manage the program by establishing annual housing needs assessments, creating competition among developers for credits, and providing effective oversight of the financing and management of developments. These changes helped make the program successful, and further improvements were made in 1993, when the program was made permanent.

  Over the years the program has had strong bipartisan support in Congress and in the affordable housing community. The Housing Credit is now the primary tool by which the federal government supports the production and preservation of affordable housing in this country. Since enactment, about 2.5 million affordable apartment units have been developed, averaging about 100,000 units annually. The Housing Credit is a job creator, generating about $7.1 billion in economic income and about ninety-five thousand jobs each year. Over the first twenty-four years of the program’s existence it financed more than sixteen thousand properties across the country. During that period, according to a recent study, only ninety-eight properties experienced foreclosure, an extraordinarily low aggregate foreclosure rate of about .006 percent.

  The Housing Credit is proof that it is possible to design a federal program to meet a clear public need and to do so in an efficient and effective manner. It also demonstrates that bipartisanship can pay significant policy dividends. Some of the most important and enduring acts of Congress, including the Tax Reform Act of 1986 itself, have been the product of vigorous bipartisan negotiation and have enjoyed strong bipartisan support.

  The other minor bill that had a major effect dealt with major oil spills. Shortly after I entered the Senate I was surprised to learn that there was no comprehensive federal law protecting against or responding to oil spills in American waters.I Maine had such a law (as did three other states), enacted in 1969 in reaction to an oil spill along our coast. For a long time Portland was the fourth largest oil-importing port in the country, being at one end of a large pipeline through which crude oil was pumped to Montreal for refining and use in eastern Canada. Concern about spills in and around Portland harbor led the Maine Legislature to enact the law.

  The realization that almost all of the harbors in the United States were largely unprotected led me to join with other senators in introducing legislation in 1981 to establish a national protection and response program. That bill would have imposed strict liability on an owner or operator of a vessel for the discharge of oil into the navigable waters of the United States; the discharger would be responsible for the costs of cleanup of the oil as well as for damage to another person’s real or personal property, loss of income or loss of use of natural resources; a fund would be established through a fee on each barrel of oil produced in or imported into the U.S. to provide cleanup costs and compensation for damage from oil spills when the damage exceeds the limits of the owner’s liability or the responsible party cannot be found. Later bills added a provision requiring, over a long phase-in period, double hulls on all oil tankers entering U.S. ports.

  The effort was complicated by the fact that some members of Congress (especially in the House, where similar legislation was considered) who supported the concept of a national program insisted that it preempt existing and future state laws on the subject. I refused to accept preemption because I feared that the industry would persuade friendly members of Congress to support a weak national law that would eviscerate stronger state laws like Maine’s. The debate over this issue was contentious, even acrimonious at times. Despite our best efforts we were unable to gain enactment into law of the legislation. I then introduced updated versions of the legislation in 1986 and 1988 with the same negative result.

  On March 24, 1989, thousands of miles from Washington, DC, in the cold waters of the North Pacific Ocean, in just a few hours the politics of oil spill legislation changed irrevocably. There had been major spills before. In December 1976 the Argo Merchant ran aground off Nantucket Island, spilling 8.5 million
gallons of fuel oil. Luckily, it was blown out to sea. Two years later the Amoco Cadiz went aground off the coast of France, losing its entire cargo of 67 million gallons of oil.

  But the Exxon Valdez spill took place in the biologically rich waters of Prince William Sound. The effect, and the reactions, were larger. It changed the attitude of Americans and, therefore, of the president and members of Congress. It became politically impossible to oppose legislation that had been stuck in Congress for nearly a decade. The Senate unanimously approved the oil spill legislation and it became law on August 18, 1990. While oil spills continue to occur, they are fewer in number and most are far less damaging than they would be if the law had not been enacted.

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  I. There was limited and inadequate coverage under two earlier laws: The Federal Water Pollution Control Act of 1972 and the Clean Water Act of 1977.

  ONE ROAD NOT TAKEN, ANOTHER OPENS

  When I decided, over Christmas 1982, that I would limit my tenure in the Senate, I did not imagine that in just six years I would become the majority leader and the intensity of work would increase to a level that is hard to describe or understand. After I became majority leader, I was daily besieged by requests from senators. Many asked that votes not occur at certain times because they had other commitments, almost all of them related to fundraising. I got to my office early every morning, where, waiting on my desk, was a list of calls and messages: “Don’t have a vote between noon and two because I’m attending a fundraising lunch”; “I’ve got a reception at four, protect me for an hour.” A reception at five, another at six, and then a long list of dinners. No votes please. Protect me. I was of course familiar with the receptions since I was invited to most of them and attended many, urging donors to help reelect that evening’s beneficiary.