'80s Tax Bill Has Lessons For Health Care Overhaul

Many congressional lawmakers are at home discussing health care overhaul legislation with their constituents. They might want to think back to a time when Congress attempted a massive bill affecting every American and every special interest group — much as health care legislation is doing now.

In the 1980s the subject was taxes. The tax code was not working for average Americans. Newspapers reported cases of some working people actually writing bigger checks to the tax man than very wealthy people, including heads of major corporations. Although the highest tax rate was 50 percent, few paid it, because there were so many deductions or loopholes available to the rich.

The 1986 tax restructuring would eventually lower that top rate to just 28 percent — while closing lots of specialized loopholes through which a few had escaped income tax altogether. It took many months and furious negotiation, and it seemed like a miracle when it finally passed.

"Congress, which usually does only two things well — overreact and nothing — can actually pull itself together and write remarkable legislation that will deal with issues," says Jeffrey Birnbaum, who covered the tax fight for The Wall Street Journal. "It did in '86 and it could very well [do it again] on health care reform, despite the many doubters, but it would take an extraordinary confluence of events and personalities for something like that to happen again."

Birnbaum now works for The Washington Times. He and his colleague at the Journal, Alan Murray, wrote a book about that tax battle, colorfully called Showdown at Gucci Gulch. It's named for the hallway where well-heeled lobbyists waited for lawmakers.

A full-court press by these same lobbyists is usually enough to stop a bill — but not in 1986. Former Treasury Secretary James Baker believes the difference was one extraordinary personality — "Ronald Reagan."

"It was his No. 1 domestic priority," Baker says. "There were a lot of people in his party who opposed that bill. So it was the president — something like that can't get done without presidential leadership."

Reagan benefited from the confluence of other powerful personalities as well, including Baker, Democrat Dan Rostenkowski, a veteran Chicago politician who was chairman of the House tax writing committee, and the Republican chairman of the tax writing committee in the Senate, Bob Packwood of Oregon.

The coauthor of Showdown at Gucci Gulch, Murray, is still with the Journal, and he remembers another key factor — the goals of the '86 bill were clear.

"You had two big ideas, each of which was appealing to a different party," Murray says. "The Republicans were determined to bring tax rates down. The Democrats were upset about these giant loopholes, many of which went to corporations or to wealthy people, and they wanted to close the loopholes. So you had a confluence of interest. You do have the same sort of dynamic in health care reform."

The driving force behind the tax bill among Democrats was Bill Bradley, then a senator from New Jersey. Bradley first introduced his version of tax reform in 1982 and began a campaign to sell it to his colleagues. It was Bradley's very powerful idea that it was possible to lower income tax rates for everyone and pay for it by closing loopholes.

"The key thing was the conceptual framework," Bradley says. "Once you have a reform that has conceptual soundness, it's very difficult for somebody to challenge you. It just made a lot of sense to cut tax rates — who's not for that? — and to pay for it by eliminating loopholes that allowed different people making the same income to pay different taxes."

Bradley sees strategic similarities between taxes then and health care now. Then, as now, the business interests were split, creating an opportunity for a persuasive president to press for change.

In the case of health care, the two big ideas are cover everybody and cut the costs.

But Bradley says it's not possible to know yet whether President Obama made the right decision in letting Congress create health care legislation.

Baker thinks that was a mistake. "The most important thing we did was we sent up our own proposal," Baker says. "We didn't vest one party or the other in the Congress with the authority to write the bill. We knew going in that if [it was] going to fly, it would have to have broad, bipartisan support, and by that, I mean not just one or two votes, but broad support from both parties. And it passed, I think, with almost as many Democratic votes as it did Republican votes."

In 1986, the House was controlled by Democrats, the Senate by Republicans, with a Republican in the White House, who made cutting income tax rates his first priority. So bipartisanship had to be the order of the day.

Birnbaum says, "The Democratic-controlled House passed the bill and therefore the Republican-controlled Senate couldn't afford not to pass the bill. There was real bipartisan consensus in a way that we can't even imagine having currently, and that's one of the real problems [in] moving the health care reform bill forward."

Murray points out that there is an entire generation of members of Congress with no experience of working with the other party. It's not in their skill set, he says. But there's another lesson here: When a big change gets rolling, it can be hard to stop. That does not mean that the way was smooth for tax reform — the tax bill set records for resurrection.

"It was like the perils of Pauline," Murray says. "The thing kept coming to the edge of a cliff and almost falling off. The motivation that kept that bill alive and moving was less a positive motivation — oh, we have to fix the tax code — than it was a negative motivation. It was the people in Congress saying, 'I can't be the person who killed it. Don't let the dog die on my doorstep.' "

That, Murray reckons, is the best chance health care has — if members of Congress are afraid to let overhaul die.

Asked about that, Bradley said the issue has to get to yes or no on health care overhaul, get past the details. Pass one bill in the House, another in the Senate; then sit down with the White House to work something out for the president to sell.

"That's why the final bill is so critical," Bradley says. "You can't say, 'Oppose taxing employer benefits' or 'Don't do the public option,' because those are just narrow aspects of the system and the president can't mobilize what he has the ability to mobilize for something so narrow. But he will have the capacity to do that once the bill comes out of conference, and that's why I think it'll pass."

A big legislative battle like health care is exciting, Bradley says, because if you can do one big thing that everyone thought was impossible — perhaps you can do another.

Obama recently told The Washington Post that "with a success on health care under our belts" managing even the deficit begins to look possible.

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