Packwood and a tale of two tax laws
Bob Packwood likes much of what he sees in a federal tax overhaul that is on the verge of final approval by Republican majorities in Congress.
He says it's time to reduce or eliminate some of the deductions used by people and businesses to avoid high rates they do not pay anyway.
But unlike the bill he shepherded to passage more than three decades ago, the former Republican senator says he has one huge concern: Its projected addition of $1.5 trillion to a federal debt already topping $20 trillion.
Packwood, now 85, spoke in an interview Friday, Dec. 15, as congressional Republicans announced the final details of their tax bill (HR 1), which cleared both houses of Congress this week without a single Democratic vote in favor.
"It's embarrassing to me that Republicans are putting forth a bill that deals with a $1.5 trillion built-in deficit — if everything goes right," Packwood said.
"They are presuming 3 percent real growth per year for 10 years. Would you, as a rational person, premise a tax bill on the economy growing 3 percent a year? That has not happened in this country."
In contrast, when he led the overhaul effort in 1986, Packwood said President Ronald Reagan made it clear to congressional leaders in both parties — including Packwood, then chairman of the tax-writing Senate Finance Committee — that an overhaul could not raise taxes or add to the federal debt, that it had to be "revenue neutral."
"He would never have signed this kind of bill," Packwood said.
While Republicans object to deficit spending when a Democrat is president, Packwood said, most have said nothing about the effects of big tax cuts proposed and passed by the GOP going back more than three decades.
"Once you are in power, and it's your responsibility, you are not nearly as serious about deficits and criticizing them than when you were in the opposition," he said. "When it's your chance to spend money on your projects, that changes your whole philosophy."
Both the 1986 overhaul and the current bill reduce the number of personal tax brackets and cut top corporate tax rates.
Because it scaled back business deductions, the 1986 law generated $140 billion more in corporate taxes that went toward reducing personal tax rates.
The current bill's benefits are weighted toward businesses, which stand to gain $1 trillion. Packwood acknowledged that they could choose to pay higher dividends to stockholders, rather than create new jobs — but tax savings is only one factor in whether they expand markets for their products and services.
"No business will expand if it doesn't have the market for whatever it makes," he said.
Packwood led the Finance Committee in 1985 and 1986, then became its top Republican when Democrats won a majority in the Senate in late 1986. He became chairman again in 1995, after Republicans retook the Senate, but then lost the position when he resigned under pressure in September 1995.
Packwood has done some lobbying and research since then. But he has no current client involved in the recent tax debate.
Packwood's successor in the Senate, Democrat Ron Wyden, also had a turn as Finance Committee chairman in 2014 before Republicans won their current majority in the Senate.
Wyden views the current bill differently:
"The country has been watching and protesting with anger as Republicans are now days away from passing their back-door deal that digs into the pockets of the middle class to pay for massive tax breaks for multinational corporations."
But Packwood said the Affordable Care Act, signed by President Barack Obama in 2010, passed both houses without a single Republican vote.
"Democrats are now going to make the same argument about this (tax) bill that Republicans made about the health bill," he said. "Republicans will say what's good for the goose is good for the gander."
Packwood says he likes the current bill's scaling back of popular tax deductions for interest on home mortgages and for state and local taxes.
Before the 1986 overhaul, mortgage interest was fully deductible from federal income taxes. The 1986 law limited deductions to first and second homes, and a subsequent change capped the deduction to $1 million in debt. The current bill caps it at $750,000.
"The original purpose (of the deduction) was to have average Joes be able to afford an average house. It was not intended to have super-average people have super-average houses," Packwood said. "It was certainly not intended for you to do it on a second house."
Before the 1986 overhaul, all state and local taxes were fully deductible. The 1986 law allowed deductions of income and property taxes, but excluded sales taxes — a restriction that Packwood promoted because Oregon is one of five states without a sales tax.
The current bill caps the overall deduction at $10,000, split between property taxes and income/sales taxes at the taxpayer's discretion.
Packwood said he would have liked to have done away with the deduction for income taxes back in 1986 because it encourages states to raise taxes.
"But I did not have the votes to get rid of the income tax deduction," he said.
A bipartisan past
Other things separate the two tax overhaul efforts.
The 1986 law was the product of almost two years of effort. The current bill emerged from House and Senate plans announced barely two months ago.
The current bill was written by Republicans. The 1986 law was the product of cooperation by a Republican president and Treasury, a Democratic majority in the House — and a bipartisan group of senators led by Packwood.
Much of that backstory was told in a 1987 book, "Showdown at Gucci Gulch," and by Packwood himself earlier this year in a series of excerpts from his diary, which he has deposited at the Oregon Historical Society but will not be open to the public until 2032.
When the House passed a tax bill a week before Christmas 1985 on an unrecorded voice vote, Packwood knew he was in for trouble as it arrived at the Finance Committee.
"Every time the House made a little change that irritated some group, that group was a 'no' vote," he said. "You make enough of those changes, you've got trouble."
It got worse during the month Packwood's committee worked the bill in spring 1986.
"We were making no progress," he said.
In what has become an infamous lunch at a bar near Capitol Hill — "we ended up consuming two pitchers of beer," plus cheeseburgers — Packwood and committee staff director Bill Diefenderfer came up with a radical approach.
They asked congressional tax experts to come up with a plan to reduce the top tax rate for individuals from 50 to 25 percent, a step that meant doing away with politically popular deductions.
Six days later, the staff came up with a plan for just two tax rates — down from 14 rates — and a cut in the maximum corporate tax from 48 to 33 percent.
Packwood presented them to committee members at a session closed to lobbyists and reporters.
"I bounced off the ideas — they were all I had at the time — before the committee," he said. "I later discovered that a number of members thought this was the chairman's plaything, they liked the idea, but it can't possibly pass."
But he gathered six of the 20 members — Republicans John Chafee of Rhode Island, John Danforth of Missouri and Malcolm Wallop of Wyoming, and Democrats Bill Bradley of New Jersey, George Mitchell of Maine and Daniel Patrick Moynihan of New York — to work with him separately.
"The reason we could put a coalition together was that Democrats wanted to close loopholes, Republicans wanted lower rates," he said. "It was a natural marriage if we could pull it off."
A key concession
Eventually they succeeded with a committee vote of 20-0 and a Senate vote of 97-3 — but not without making a big concession to Democrat Lloyd Bentsen of Texas, who sought to shield investors who acquired "working interest" in oil and gas wells.
Packwood said most of the committee members favored eliminating that break for all businesses. But winning Bentsen over would secure support from four other senators, including then Majority Leader Bob Dole, who preceded Packwood as committee chairman.
"I knew I was going to need their help on the (Senate) floor," he said, particularly on scaling back a popular deduction for individual retirement accounts. (An attempt to reinstate it failed, 51-48.)
The Senate passed its version after three weeks of debate, which happened to coincide with the Senate's first-ever televised sessions.
"A bill that should have taken a week to pass took three weeks, because everybody wanted in on television," Packwood said.
The Senate and House versions had to be reconciled, and the final version had three personal tax rates of 15, 28 and 33 percent.
Packwood said by the time of the Senate vote, he heard from the chairman of the House tax committee, Dan Rostenkowski of Illinois, who told him: "We will put together the best tax reform bill this country has ever seen."
"That was a signal to me that it would pass," Packwood said. "The Ways and Means Committee is jealous about initiating tax legislation because of the Constitution," which specifies that revenue-raising bills originate in the House.
Former Sen. Bob Packwood declined to comment on recent allegations of sexual misconduct, similar to what prompted him to leave office, that have led three members of Congress to resign and a fourth not to seek re-election next year.
Some of the specific facts are different, but they run parallel to Packwood's own experience 22 years ago.
He was asked the question Friday during an hourlong interview on which he placed no limitations.
Packwood announced his resignation on Sept. 7, 1995 — after almost 27 years as a U.S. senator from Oregon — after the Senate Ethics Committee investigated accusations, released a 10-volume indictment, and recommended his expulsion.
The committee chairman then was Republican Mitch McConnell of Kentucky, now the Senate majority leader.
Some of the evidence was drawn from Packwood's own diary, which he has deposited with the Oregon Historical Society but will not be open to the public until 2032.
More than two dozen women made accusations against unwanted sexual attention by Packwood over several decades.
Some of the disclosures were made in a Washington Post story that ran just after Packwood's re-election to a fifth term in 1992.
Recent allegations of sexual misconduct have prompted the resignations of Sen. Al Franken of Minnesota, Rep. John Conyers of Michigan, and Rep. Trent Franks of Arizona. Rep. Blake Farenthold of Texas said he will not seek re-election in 2018.