In mid-December, when the Reagan administration began its reversal of 11 years of federal policy denying tax exemptions to segregated private schools, the lobbying from the political far right had already been intense.
As early as April, Rep. Trent Lott (R-Miss.) had pressured the Justice Department in letters and meetings.
As late as December, Sen. Strom Thurmond (R-S.C.) and other conservative members of Congress had summoned Internal Revenue Service Commissioner Roscoe L. Egger Jr. for a discussion of "the First Amendment issues" raised by the government's longstanding policy.
But those involved--from the mid-level officials who did the detail work to the White House triumvirate that is now seriously fractured because of the policy that resulted-- contend that they were motivated by legalistics, not politics in the decision that gave the far right what it wanted and plunged the administration into a major new controversy in the process.
On Jan. 8, the Reagan administration announced that the IRS would no longer deny tax exemptions to schools that discriminate on the basis of race--reversing a policy that had been begun by President Nixon. The new policy meant that the government would grant tax-exempt status to even the most flagrantly segregated schools until the Congress forced it to do otherwise.
When the matter was discussed perfunctorily at a White House senior staff meeting the day before it was publicly announced, not one of the president's advisers spoke out in opposition. The next day, a Treasury official said in making the announcement that the Reagan government would not recommend legislation to prohibit tax benefits for segregation academies because it did not think it "appropriate" to try to tell Congress what to do.
What resulted was a firestorm of criticism, not only from civil rights leaders and Democrats, but even from prominent Republicans. Inside the Reagan White House, the criticism was every bit as intense, as the president's advisers sought variously to find cover for themselves and to recover from the crisis they were blaming their colleagues for creating.
At last Monday's ritual breakfast of the ruling triad, deputy chief of staff Michael K. Deaver confronted presidential counselor Edwin Meese III, who had been involved with the policy turnabout for almost a month but had not passed along word of it to Deaver or chief of staff James A. Baker III. (The first they heard of it was when Attorney General William French Smith mentioned to Baker two days before the formal announcement that the decision had already been made, White House officials say.)
"My god, what is this thing?" Deaver recalls asking Meese at that Monday breakfast, after the first barrages of criticism had already hit the White House.
He says Meese replied, "We do not want IRS bureaucrats setting social policy."
To which Deaver says he responded: "We could have gone about this in a better way."
In the next two days, Deaver played a pivotal role in shepherding the Reagan White House through a face-saving modification. He brought in three black officials, who had never been consulted on the matter, to tell the president how damaging the new policy was. And on Tuesday, the president announced that he would propose legislation, after all, "which will prohibit tax exemptions for organizations that discriminate on the basis of race."
The administration will go ahead with its plan to grant tax exemptions to the two schools whose court cases became the focus of current controversy, Bob Jones University and Goldsboro Christian Schools Inc., officials say. But the Treasury Department plans to announce that it will hold in abeyance the granting of further tax exemptions until Congress acts.
Later, Deaver reflected upon the entire affair, which had been presided over in the White House by Meese, based on progress reports from presidential counsel Fred Fielding.
"This president is the most fair-minded man I've ever known," Deaver said. ". . . All of those involved failed to see the sensitivity of the issue. It's a shame his reputation has to be tarnished by faulty staff work."
"We will halt the unconstitutional regulatory vendetta launched by Mr. Carter's IRS commissioner against independent schools."
The 1980 Republican Party platform had pledged to do away with the IRS policy of denying tax exemptions to segregated schools, putting the emphasis on the Carter years, not on the Nixon years, where the policy had actually begun.
And Ronald Reagan made the commitment part of his litany of campaign promises. That struck a receptive chord among southern conservative Republicans.
The story of the tax-exemption controversy began in 1970 when black parents in Mississippi won a preliminary injunction against the IRS giving exemptions to schools that practiced racial discrimination. In July of that year President Nixon issued a press release saying the IRS was changing its old policy and would no longer grant exemptions to such schools.
In June, 1971, the judge in the case made the injunction permanent and made it clear he felt the principle in the case extended beyond Mississippi. The Supreme Court upheld the decision.
In its revenue rulings, the IRS said a school couldn't be considered "charitable" unless it could show it was operating without discrimination. Schools fought the order, however, and it took years to pull the exemptions.
The original plaintiffs in the case got so frustrated by what they considered the IRS' lack of enforcement of its new policy that they went back to the court in Washington in 1975 and asked that the injunction be strengthened.
In 1976, the IRS got around to lifting the tax exemption of Bob Jones University. A few months later, the Greenville, S.C., college, which lists Thurmond among its trustees, sued. The school sought a refund of $21 in unemployment taxes as its way of seeking reinstatement of the exemption. The government countersued for nearly $500,000 in back unemployment taxes.
In late 1978, a district judge in South Carolina ruled that Bob Jones qualified for the exemption. But two years later, judges of the 4th U.S. Circuit Court of Appeals in Richmond held, 2 to 1, that the school wasn't entitled to the tax break.
Citing the earlier Mississippi case, the court said, "Bob Jones University's racial policies violated the clearly defined public policy, rooted in our Constitution, condemning racial discrimination and, more specifically, the government policy against subsidizing racial discrimination in education, public or private."
The court rejected the school's religious freedom argument, saying that denying the tax exemption doesn't "prevent the university from teaching the scriptural doctrine of nonmiscegenation. Nor is any individual student . . . forced to violate his beliefs." It cited other cases, such as barring polygamy by Mormons, as examples of public policy clashing with religion.
The 4th Circuit made a similar ruling in a companion case involving the Goldsboro Christian Schools of North Carolina last February. Both schools asked the Supreme Court in July to consider the issue, arguing that the lower courts hadn't paid enough attention to the First Amendment religious arguments that were now being raised. Bob Jones includes blacks among its 6,300-member student body, but school officials say its interpretation of the Bible doesn't permit interracial dating.
Both Bob Jones and the schools in the Mississippi case have hired William Bentley Ball, of Philadelphia, a noted First Amendment lawyer, to present the religious arguments in the case.
The lobbying on the issue began to heat up last spring, when several of the Mississippi schools, including one in Lott's district, were about to get their exemptions yanked at last. IRS chief Egger, who took office in June, recalled yesterday that he heard from Lott. "Didn't he write about everybody?" he said.
Lott was lobbying on the Bob Jones case as well. He wrote Deputy Attorney General Edward C. Schmults in the fall to ask about the government's position in the Supreme Court.
Schmults said yesterday that he wrote back saying the administration was prepared to make the same arguments against exemptions for segregationist schools that had been made for years.
But in the third week of December, Schmults began moving to change that policy. At the same time his tax division attorneys were preparing a Supreme Court brief defending the longstanding policy, Schmults telephoned his counterpart at the Treasury Department and said that his reading of the law would support a change in the policy.
As Deputy Treasury Secretary R. T. McNamar recalls, Schmults spoke only of his legal objections to the policy; he felt there was no statute which specifically authorized the IRS to deny tax exemptions on grounds of racial discrimination.
Schmults recalls it just the same way. But he said Reagan's campaign promise "was the reason we looked very hard at the legislative intent." Civil rights division chief William Bradford Reynolds and Charles Cooper, a Reynolds aide, did the research.
It was in mid-December, White House officials say, that they first began to follow the matter. They say they were apprised of the prospective policy change but did not initiate it.
Meese says he received a memo dated Dec. 18 from one of his aides, Kenneth Cribb, telling him that Justice and Treasury were discussing the policy change.
Just before Christmas, White House counsel Fielding, who reports to Meese, says he met with Treasury officials, who told him they were leaning toward a change of policy. He briefed Meese on it.
On Dec. 28, McNamar says he briefed his boss, Treasury Secretary Donald Regan, on the matter, saying he thought the policy probably ought to be changed. He got the secretary's approval, but Regan told him to consult with Meese.
McNamar called Meese the same day and told him he was just about ready to officially recommend a change in policy.
He says Meese responded: "How comfortable are you with the law?" McNamar says he felt the law was on the side of a policy change, but recalls adding that the decision would be "politically very unpopular" with some. He says Meese's only response was: "Are you sure you're comfortable with the law?"
Two days later, on Dec. 30, Fielding says he met again with Schmults, McNamar, and other officials. They told him the decision had been made and that the policy would be changed. In fact, a press release had already been prepared to announce the fact the next day.
Fielding told them that he would discuss the matter with Meese and would get back to them if Meese had any objections. He talked with Meese, Fielding says, and Meese had no objections. So Fielding saw no need to telephone Justice or Treasury; and the officials there proceeded secure in the knowledge that they had Meese's approval.
But Assistant Treasury Secretary for Tax Policy John B. Chapoton had not been fully consulted on the matter and wanted to be briefed, according to Treasury sources. So the administration asked for an extension of the court deadline and widened its consultations after the decision had been made.
Schmults aide Bruce Fein wrote a four-page "confession of error," which he wanted filed as the administration's new position with the Supreme Court. But Deputy Solicitor General Lawrence G. Wallace refused to submit the document, according to a report by Lawrence M. O'Rourke of the St. Louis Post-Dispatch.
Instead a statement was prepared that merely stated the fact that the administration had reversed its policy, arguing that the cases were moot.
Back at the White House, Meese was still the only top-level official who was aware of the policy change.
Baker did not learn of it until Jan. 6, when the attorney general mentioned it as a decision already made. The next day, Baker brought the matter up at a White House senior staff meeting. Fielding and Meese spoke, and when they were done, several high level White House officials say they had the impression that the administration had lost its appellate cases, not won them, as was the case.
Meese also presented the matter in that meeting as a reversal of Carter administration policy, not a policy begun by Nixon. "I just heard that it was a reversal of a Carter policy," says Deaver, "and at that point I tuned out." He did not focus on the matter until the criticism began.
Meese and Baker told the president of the decision that morning. "The president didn't have any particular reaction one way or the other," says Meese.
Meese says he never asked whether the administration would be granting tax exemptions to all blatantly segregated schools, or whether it might want to instead propose legislation tht would close what he felt was a loophole in the IRS statutes.
"It never came up in that context," he said. "It came up as not allowing bureaucrats to make social policy. That's all."
A number of officials said they warned each other of possible political repercussions but did nothing about them.
Meese contended in an interview that there had been no need for broad White House deliberations on the Jan. 8 policy statement because it "was not a reversal of policy." When asked how that could be, he said that the longstanding policy "was not the policy of this administration."
He said Schmults, on his own, had taken the lead in recommending the new position. "I have no idea why," Meese said, "other than the fact that the president had campaigned on it and the Republican platform was clear."
In retrospect, he went on, it might have been handled differently, "if we'd have known about the misperceptions and the intensity of feelings."
But he did not know, Meese says. Nor did any of the president's advisers, they now say.
"We all sat there in that senior staff meeting," says one high-level Reagan adviser, "and we agreed that, yes there might be political repercussions, but that the decision was right. Nobody focused on the marketing of it. Nobody followed up with the marketing."