For weeks and weeks, the stories leaked, trickled and poured out of the White House. Deficits were mounting. Something had to be done. President Reagan, the heroic tax-cutter of 1981, would ride to the rescue and become the tax-enhancer of 1982.
"I learned something from the process," said longtime Reagan aide Michael K. Deaver, one of the many White House advocates of tax increases. "Never try to talk any man who holds deep convictions out of them for reasons of political expediency because it would destroy him. We almost destroyed Ronald Reagan, and I was one of the people arguing for this."
What Deaver and most other top advisers at the White House were seeking were higher excise taxes on liquor, cigarettes, gasoline and various luxury items as a way to raise up to $10 billion and bring the deficit below $100 billion.
On Jan. 20, various White House officials were confidently predicting that Reagan would accept this solution even though he was not comfortable with it.
But on Jan. 21, after blunt lobbying by the U.S. Chamber of Commerce against a proposal that would have raised the prices of goods its members sell, Reagan began to have second thoughts about what was being pushed on him. White House communications director David R. Gergen, sensing what was happening, began to guide reporters away from the tax increase story.
The next day, just five days before the State of the Union message, Reagan confided to his inner circle of advisers that he had awakened in the middle of the night and determined that he could not impose any new taxes.
This last-minute swerve avoided a course that, among White House aides, was opposed only by Martin Anderson, the White House director of policy development.
But the fact that Reagan so nearly took an action characterized now as unwise even by its former advocates underscores the delegative nature of his presidency.
Though Reagan has demonstrated both in Sacramento and Washington that he is able to make difficult decisions, he is so reluctant to wrestle with details that proposals tend to develop a full head of steam before they get to him.
The result in the case of the administration's on-again, off-again tax proposal was to sow doubt on both Capitol Hill and Wall Street at the same time that the presidential reassurance of the financial markets was a high priority.
Both the plan for excise tax increases and Reagan's "bold stroke" proposal for turning more than 40 federal programs over to the states were, in their conceptual stage, intertwined with the desire of Office of Management and Budget Director David A. Stockman, White House chief of staff James A. Baker III and key Republican senators to bring down the massive budget deficits that appear to threaten the success of Reaganomics.
On this point there is agreement. Beyond this, the accounts diverge.
Half a dozen administration and congressional figures claim responsibility for the federalism proprosal and the tax plan.
What is known is that Stockman talked to several senators, including Majority Leader Howard H. Baker Jr. (R-Tenn.) and Budget Committee Chairman Pete V. Domenici (R-N.M.), in mid-December on behalf of his plan to bring the deficit down by imposing higher excise taxes. The proposal was discussed extensively in the eight-member legislative strategy group, where it was pushed by Stockman, Baker and another key aide, Richard D. Darman.
Deaver and White House counselor Edwin Meese III also supported the proposal.
According to one account, the proposal to put the excise taxes into a trust fund to pay for state programs was made in a telephone call from Domenici to Stockman. According to another account, the idea was the brainchild of Treasury Secretary Donald T. Regan, who also participated in the strategy sessions.
Whoever deserves the credit, or the blame, the excise tax proposal emerged from the legislative strategy session, like the ill-fated administration Social Security package of last summer, without consideration of the political consequences to Reagan.
"After awhile, the plan had a momentum of its own and just kept building," said one source. "No one was looking at what it would do to the president; we were just looking at a set of numbers which kept changing."
One White House aide who looked beyond the numbers, however, was Anderson, who had developed his federalism proposal for using a portion of the income tax to help the states pay for programs that would be turned over to them.
Anderson argued that luxury taxes would not significantly reduce the deficit but, given Reagan's opposition to tax increases, would make him look hypocritical.
Luxury taxes, he pointed out, would extend not only to furs and jewelry but also to such items as television sets, giving the Democrats a ready weapon against the administration and Republican candidates in 1982.
Reagan went back and forth on the issue. Shortly before Congress recessed Dec. 16, Reagan's closest congressional friend, Sen. Paul Laxalt of Nevada, met with the president and Regan in the Roosevelt Room. Laxalt got the impression Reagan would never accept a tax increase.
"He just had that look about him," Laxalt said. "In areas like this you just don't second-guess his political instincts, which are very reliable."
But the proprosal the legislative strategy group developed had a life of its own. And the assumption, a week before the State of the Union address, was that the president would surely accept a plan that was so strongly favored by so many advisers.
On Jan. 21, the lead story in The New York Times quoted "administration officials" as saying that Reagan had decided to ask for the excise tax increases.
That morning, Reagan met with leaders of the Chamber of Commerce over coffee and danish in the White House executive mess. The Chamber leaders argued, with some fervor, that Reagan would be seen as abandoning his plan if he agreed to the tax proposal.
Reagan listened and said little. But at the end of the meeting he commented, "What you've said has not rolled off my shoulders. It has gone straight to my heart."
Similar advice was given to Reagan in a letter signed by 15 Republican state chairmen organized by Rep. Jack Kemp (R-N.Y.), an outspoken foe of new or higher taxes.
The next morning, after his restless night, Reagan announced to his inner circle that he had decided against imposing any new taxes. The word spread quickly through the White House, leaving spokesmen with the delicate task of deflating stories they had been promoting two days earlier.
But there was also a sense of relief as aides realized, as Deaver expressed it, that Reagan had been on the verge of coming out against his convictions.
"We all realized that if he did not feel comfortable with the program he couldn't be effective advocating it," Gergen said.
But the process by which the president had arrived at his decision left even some of his advisers wondering why they had spent so much time on a proposal that Reagan did not want in the first place.
As an aide put at week's end, "We muddled through, thanks to Reagan. But there must be a better way to reach decisions."