The following is from the widely discussed article by William Greider, assistant managing editor of The Washington Post, based on 18 taped interviews with Budget Director David Stockman. This passage depicts Stockman's growing doubts about the Reagan administration's ability to contain federal budget deficits .
WHERE WOULD STOCKMAN find the money to cover those deficits, variously estimated at $44 to $65 billion? The tax-cut legislation itself became one of Stockman's best hopes.
Stockman was a participant, though not the lead player, in this process; he met with the group at the White House -- Edwin Meese, Jim Baker, Donald Regan, presidential assistant Richard Darman, and others -- that called signals on both the tax legislation and budget reconciliation.
Stockman's interest was made clear to the others: He wanted a compromise on the tax bill which would substantially reduce its drain on the federal treasury and thus moderate the fiscal damage of Reaganomics. Stockman thought that if the Republicans could compromise with the Ways and Means chairman, Rep. Dan Rostenkowski, the tax legislation would still be a supply-side tax cut in its approach but considerably smaller in size.
The negotiations with Rostenkowski ended in failure, and the Reagan team agreed that it would have to modify its own tax-cut plan to lure fiscal conservatives.Under the revised plan, the first year reduction was only 5 percent and, more important, the impact was delayed until late in the year, substantially reducing the revenue loss. The White House also made substantial changes in the business-depreciation and tax-credit rules, which were intended to stimulate new industrial investments, reducing the overly generous provisions for business tax write-offs on new equipment and buildings.
Stockman was privately delighted: He saw a three-year revenue savings of $70 billion in the compromise. The depreciation rules that big business wanted were "way out of joint," Stockman insisted. But he was nervous about the $70 billion figure, because he feared that when Rep. Jack Kemp and other supply-side advocates heard it, they might regard the savings as so large that it would undermine the stimulative effects of the major tax reduction. "As long as Jack is happy with what's happening," Stockman said, "it's hard for the [supply-side] network to mobilize itself with a shrill voice. Jack's satisfied, although we're sort of on the edge of thin ice with him."
The supply-side effects would still be strong, Stockman said, but he added a significant disclaimer that would have offended true believers, for it sounded like old orthodoxy: "I've never believed that just cutting taxes alone will cause output and employment to expand."
Stockman himself had been a late convert to supply-side theology, and now he was beginning to leave the church.Stockman began to disparage the grand theory as a kind of convenient illusion -- new rhetoric to cover old Republican doctrine.
"The hard part of the supply-side tax cut is dropping the top rate from 70 to 50 percent -- the rest of it is a secondary matter," Stockman explained. "The original argument was that the top bracket was too high, and that's having the most devastating effect on the economy. Then, the general argument was that, in order to make this palatable as a political matter, you had to bring down all the brackets. But, I mean, Kemp-Roth was always a Trojan horse to bring down the top rate."
A Trojan horse? This seemed a cynical concession for Stockman to make in private conversation while the Reagan administration was still selling the supply-side doctrine to Congress. Yet he was conceding what the liberal Keynesian critics had argued from the outset -- the supply-side theory was not a new economic theory at all but only new language and argument to conceal a hoary old Republican doctrine: Give the tax cuts to top brackets, the wealthiest individuals and largest enterprises, and let the good effects "trickle down" through the economy to reach everyone else.
Yes, Stockman conceded, when one stripped away the new rhetoric emphasizing across-the-board cuts, the supply-side theory was new clothes for the unpopular doctrine of the old Republcan orthodoxy. "It's kind of hard to sell 'trickld down,'" he explained, "so the supply-side formula was the only way to get a tax policy that was really 'trickle down.' Supply-side is 'trickle-down' theory."
But the young budget director misjudged the political context. The scaled-down version of the tax bill would need a few "ornaments" in order to win -- a special bailout to help the troubled savings-and-loan industry, elimination of the so-called marriage penalty -- but he was confident that the Reagan majority would hold and he could save $70 billion against those out-year deficits. The business lobbyists would object, he conceded, when they saw the new Republican version of depreciation allowances, but the key congressmen were "on board," and the package would hold.
In early June, it fell apart. The tax lobbyists of Washington, when they saw the outlines of the Reagan tax bill, mobilized the business community, the influential economic sectors from oil to real estate. In a matter of days, they created the political environment in which they flourish best -- a bidding war between the two parties. First the Democrats revealed that their tax bill would be more generous than Reagan's in its depreciation rules. Despite Stockman's self-confidence, the White House quickly retreated -- scrapped its revised and leaner proposal -- and began matching the Democrats, billion for billion, in tax concessions. The final tax legislation would yield, in total, an astounding revenue loss for the federal government of $750 billion over the next five years.
Stockman, with his characteristic ability to adjust his premises to new political realities, at first insisted that the White House cave-in on the business-depreciation issue was of no consequence to his budget problems, since the major impact of the concessions would hit the period 1985 and 1986, beyond the budget years he was struggling with.
Nevertheless, Stockman conceded that the administration had flinched, sending a signal to the political interests that it would respond to pressure. "I think we're in trouble on the tax bill," he said in mid-June, "because we started with the position that this was a policy-based bill . . . that we weren't going to get involved in the tax-bill brokering of special-interest claims. But then we made the compromise . . . My fear now is that, if we do that too many times, it becomes clear to the whole tax-lobby constituency in Washington that we will deal with them one at a time, and then you'll find their champions on the tax-writing committees, especially Finance, swinging into action, and we are going to end up back-pedaling so fast that we will have the 'Christmas tree' bill before we know it."
That was an astute forecast. Stockman both participated in the process and privately denounced it. But he was not fully engaged in the scramble for tax concessions, because he was preoccupied with another policital auction already under way: the furious bumping-and-trading for the final budget-cutting measure, the reconciliation bill.
Stockman had a believable nightmare: If the House and Senate produced drastically different versions of the reconcilation measure, there could be a conference committee between the two chambers that would include hundreds of members and months of combat. Failure to settle quickly could sink the entire budget-cutting enterprise.
Some of the Democratic committee chairmen were playing the "Washington Monument game" (a metaphor for phony budget cuts, in which the National Park Service, ordered to save money, annouces that it is closing the Washington Monument). The Education and Labor Committee made deep cuts in programs that it knew were politically sacred: Head Start and impact aid for local schools, and care for the elderly. The Post Office and Civil Service Committee proposed closing 5,000 post offices. Stockman could deal with those ploys -- indeed, he felt they strengthened his hand -- but he was weakened in other fronts. He had to hold all Republicans and win several dozen of the "boll weevils" to demonstrate that Ronald Reagan controlled the House.
In the end, concessions were made: $350 million more for Medicaid, $400 million more for home-heating subsidies for the poor, $260 million in mass-transit operating funds, more money for Amtrak and Conrail. The administration agreed to put even more money into the nuclear-power project that Stockman loathed, the Clinch River fast-breeder reactor. It accepted a large authorization for the Export-Import Bank, and more.
In private, the budget director claimed that these new spending figures were not final but merely authorization ceilings, which could be reduced later on, when the appropriations bills worked their way through the legislative process. "It doesn't mean that you've lost ground," he said blithely of his compromises, "because in the appropriation process we can still insist on $100 million (or whatever other figures appeared in the original Reagan budget) and veto the bill if it goes over . . . .On these authorizations, we can give some ground and then have another run at it."
This codicil was apparently not communicated to the Republicans with whom he was making deals. They presumed that the final figures negotiated were final figures. Later, they discovered that the budget director didn't agree. In the political morality that prevails in Washington, this was regarded as dishonorable behavior, and Stockman's personal standing was damaged.
"Piranhas," Stockman called the Republcan dealers. Yet he was a willing participant in one of the rankest trades -- his casual promise that the Reagan administration would not oppose revival of sugar supports, a scandalous price-support loan program killed by Congress in 1979. Sugar subsidies might not cost the government anything, but could cost consumers $2 to $5 billion. "In economic principle, it's kind of a rotten idea," he conceded. Did Ronald Reagan's White House object? "They don't care, over in the White House. They want to win."
The final reconciliation measure authorized budget reductions of $35.1 billion, about $6 billion less than the president's original proposal, though Stockman and others said the difference would be made up through shrinking "off-budget" programs. In political terms, it was great victory. Yet why was David Stockman so downcast?
Because he knew that much more traumatic budget decisions still confronted them. Because he knew that the budget-resolution numbers were an exaggeration. The total of $35 billion was less than it seemed, because the "cuts" were from an imaginary number -- hypothetical projections from the Congressional Budget Office on where spending would go if nothing changed in policy or economic activity. Stockman knew that the CBO base was a bit unreal.Therefore, the total of "cuts" was, too.
Stockman explained: "There was less there than met the eye. Nobody has figured it out yet. Let's say that you and I walked outside and I waved a wand and said, 'I've just lowered the temperature from 110 to 78.' Would you believe me? What this was was a cut from an artificial CBO base. That's why it looked so big. But it wasn't. It was a significant and helpful cut from what you might call the moving track of the budget of the government, but the numbers are just out of this world. The government never would have been up at those levels in the CBO base."
Stockman was proud of what had been changed."Those were powerful spending programs that have been curtailed," he said, "but there was a kind of consensus emerging for that anyway, even before this administration."
Stockman, the natural optimist, was not especially optimistic. The future of fiscal conservatism no longer seemed so promising to him. "Two months of response can't beat 15 years of political infrastructure. I'm talking about K Street and all of the interest groups in this town, the community of interest groups. We sort of stunned it, but it just went underground for the winter. It will be back . . . "
Stockmans's dour outlook was reinforced two weeks later, when the Reagan coalition prevailed again in the House and Congress passed the tax-cut legislation with a final frenzy of trading and bargaining. Again, Stockman was not exhilarated by the victory. On the contrary, it seemed to leave a bad taste in his mouth, as though the democratic process had finally succeeded in shocking him by its intensity and its greed.
Once again, Stockman participated in the trading -- special tax concessions for oil-lease holders and real-estate tax shelters, and generous loopholes that virtually eliminated the corporate income tax. Stockman sat in the room and saw it happen. "Do you realize the greed that came to the forefront?" Stockman asked with wonder. "The hogs were really feeding. The greed level, the level or opportunism, just got out of control."
But Stockman was buoyant about the political implications of the tax legislation: first, because it put a tightening noose around the size of the government; second, because it gave millions of middle-class voters tangible relief from inflation, even if the stimulative effects on the economy were mild or delayed. Stockman imagined the tax cutting as perhaps the beginning of a large-scale realignment of political loyalties, away from old-line liberalism and toward Reaganism.
And where did principle hide? Stockman with his characteristic mixture of tactical cynicism and intellectual honesty, was unwilling to defend the moral premises of what had occurred. What had changed, fundamentally, was the list of winning clients, not the nature of the game. Stockman had said the new conservatism would pursue equity, even as it attempted to shrink the government. It would honor just claims and reject spurious ones, instead of simply serving powerful clients over weak clients. He was compelled to agree, at the legislative climax, that the original moral premises had not been served, that the new principles of Reaganism were compromised by the necessity of winning.
"I now understand," he said, "that you probably can't put together a majority coalition unless you are willing to deal with those marginal interests that will give you the votes needed to win. That's where it is fought -- on the margins -- and unless you deal with those marginal votes, you can't win."
Generally, he did not lose his temper, but on a pleasant afternoon in early September, Stockman returned from a meeting at the White House in a terrible mood. In his ornately appointed ofice at OMB, he slammed his papers down on the desk and waved away associates. At the Oval Office that afternoon, Stockman had lost the great argument he had been carefully preparing since February: There would be no major retrenchment in the defense budget.
Over the summer, Stockman had made converts, one by one, in the Cabinet and among the president's senior advisors. But he could not convince the only hawk who mattered -- Ronald Reagan. When the president announced that he would reduce the Pentagon budget by only $13 billion over the next three years, it seemed a pitiful sum compared with what he proposed for domestic programs, hardly a scratch on the military complex, which was growing toward $350 billion a year.
"Defense is setting itself up for a big fall," Stockman had predicted. "If they try to roll me and win, they're going to have a huge problem in Congress. The pain level is going to be too high. If the Pentagon isn't careful, they are going to turn it into a priorities debate in an election year."
Two days later, when we met for another breakfast conversation, Stockman had recovered from his anger. The argument over the defense budget, he insisted crankily was a tempest stirred up by the press. The defense budget was never contemplated as a major target for savings. When Stockman was reminded of his earlier claims and predictions -- how he would attack the Pentagon's bloated inefficiencies, assisted by a clear-eyed secretary of defense -- he shrugged and smiled thinly.
Unable to cut defense or Social Security or to modify the overly generous tax legislation, he was forced to turn back to the simple arithmetic of the federal budget -- and cut more from the smaller slice of the federal dollar that pays for government operations and grants and other entitlements. Stockman had been explaining to "the West Wing guys" that this math wouldn't add. When Reagan proposed his new round of $16 billion in savings, the political outrage confirmed the diagnosis.
Stockman was accused of breaking the agreements he had made in June: Senate Republicans were now talking of rebellion -- postponing the enormous tax reductions they had just enacted. While the White House promised a war of vetoes ahead, intended to demonstrate "fiscal control," Stockman knew that even if those short-range battles were won, the budget would not be balanced.
Disappointed by events and confronted with potential failure, the Reagan White House was developing a new political strategy: Wage war with Congress over the budget issues and, in 1982, blame the Democrats for whatever goes wrong.
The budget director developed a new wryness as he plunged gamely on with these congressional struggles. Appearing before the House Budget Committee, Stockman listed a new budget item on his deficit sheet, drolly labeled "Inaction on Social Security." With remarkable directness, he described the outlook: federal deficits of $60 billion in each of the next three years.Some analysts thought his predictions were modest.
Still, things might work out, Stockman said. The tax cuts would make people happy. The economy might start to respond, eventually, to the stimulation of the tax cuts. "Who knows?" Stockman said. From David Stockman, it was a startling remark. He would continue to invent new scenarios for success, but they would be more complicated and cloudy than his original optimism. "Who knows?" The world was less manageable than he had imagined; this machine had too many crazy moving parts to incorporate in a single lucid theory. The "random elements" of history -- politics, the economy, the anarchial budget numbers -- were out of control.