The date was Oct. 5, 1984. The Detroit Tigers had just clinched their first American League pennant in 16 years. Auto maker John DeLorean's wife had just filed for divorce. And President Reagan, in a reelection campaign media stunt, had just announced a whistle-stop train tour along the route Harry S Truman had used in 1948.
But in Los Angeles, where sports and DeLorean and Reagan are local lore, the biggest story of the day was something different.
"128 Big Firms Paid No Federal Income Taxes," blared the banner headline in the Oct. 6 Los Angeles Herald Examiner, reporting results of a study by an obscure, labor-funded research group based in Washington, D.C.
Similar articles, followed by angry editorials, appeared from coast to coast in small papers and large. A nerve had been struck, a focus found for the growing undercurrent of discontent with the tax system among the politically potent middle class. Perhaps it should have been clear right then that when unfair tax breaks dominate the headlines, the politicians, already beginning to look at the issue of a tax system gone haywire, would finally try to do something about it.
Even last week's overwhelming Senate vote for a radical tax-overhaul increasing corporate taxes by $100 billion over five years might have seemed a logical outcome.
At the time, though, the possibility of both chambers of Congress passing a major revision of the tax system was scarcely discussed. As recently as eight weeks ago, it seemed outlandish. "If we had a horse this sick back home," Sen. Malcolm Wallop (R-Wyo.) observed of tax overhaul last April, "we'd take it out and shoot it."
But what seemed impossible became inevitable through an extraordinary meshing of people and circumstances.
Among the people: a Republican president who wanted to go down in history for his tax cuts; Sen. Bill Bradley, a New Jersey Democrat who seemed likely to take the issue away from him; Rep. Dan Rostenkowski (D-Ill.) and Sen. Bob Packwood (R-Ore.), two tax committee chairmen who deeply wanted to prove themselves as leaders; and James A. Baker III and Richard G. Darman, a Treasury secretary and his deputy who staked their reputations on a claim that tax overhaul harbored political gold.
Among the circumstances: a crushing federal deficit that ruled out further tax cuts without closing tax loopholes, an election year in which both parties were wooing for the middle-class taxpayer, a populist-style uprising against the tax system and a curious force known as "the dead-cat syndrome."
There also were dozens of turning points and coincidences, many of which went unnoticed at the time. But if not for these elements, the issue called "tax reform" might not have moved out of the think tanks and onto the agendas of the White House and the Congress.
A key turning point came in the summer of 1984 when a former Ralph Nader "Raider," Robert S. McIntyre, had what now seems a pivotal conversation with his boss at a labor-funded group called Citizens for Tax Justice. Dean Tipps asked McIntyre to comb through the annual reports of the nation's largest corporations and show how tax breaks had allowed many of them avoid taxes payments in the Reagan era.
"I said, 'No, God, I'll have to read 600 annual reports. It'll take me four months. Are you sure you want me to do that?' " McIntyre recalled responding.
McIntyre holed up for weeks with the reports and a home computer. On Oct. 5, 1984, his report came over the news wires, along with the Tigers' victory, detailing how General Electric, Boeing Co., Dow Chemical Co., General Dynamics, Grumman Corp., Lockheed Corp., W.R. Grace & Co. and 121 other leading corporations had paid no U.S. income taxes for at least one of the years between 1981 and 1983 despite a combined $56.7 billion in profits.
The report had the effect of touching a spark to kindling, Sen. David H. Pryor (D-Ark.), a member of the Finance Committee, said.
"We'd all go home to town meetings and you'd see some postal clerk get up and say, 'Why is General Dynamics paying no taxes and I'm paying 30 percent of everything I make to the government?' " Pryor said. "You couldn't answer a question like that except by saying, 'I'm going to go back to Washington and do something about that. I'm going to plug those loopholes.' "
In 1982, well before the news reports and the questions at town meetings, Sen. Bradley, then in his first term, had unveiled what he called the "Fair Tax," a proposal to slash tax rates in exchange for closing loopholes.
He and his cosponsor, Rep. Richard A. Gephardt (D-Mo.), got little notice as they crisscrossed the country, explaining that tax advantages and shelters benefited corporations and the rich, forcing middle-income taxpayers to pay higher rates to make up the difference.
But the White House was watching. Reagan's political advisers warned him late that year that the Democrats could run all the way to the White House on such a platform unless he preempted them with his own tax package.
Darman, then deputy chief of staff, already was pressing the White House to take on the issue. Darman had a thesis about a new brand of populists, fired by a distrust of big government as well as big business. For them, he said, the tax system symbolized government gone awry. Fixing it meant tapping a huge constituency.
"It extends beyond stereotypical 'blue collar' and 'redneck' American -- well into the vast world of the 'white collars' . . . ," Darman said later in a speech. "Here, I think, are legions of quiet populists."
Shortly after Reagan's 1984 reelection, the Treasury Department released a proposal to eliminate tens of billions of dollars in tax breaks for corporations and individuals. With the money saved by closing loopholes, the study said, maximum tax rates could be slashed from 50 percent to 35 percent. The study bore a striking similarity to the Bradley-Gephardt bill.
On the surface, the Treasury Department proposal seemed to be a frontal attack on business, and most Washington lobbyists declared it dead on arrival. But in fact, the plan played into a schism that already was forming in the Washington business lobby, one that would prove crucial to the progress of a tax bill.
While businesses had clamored as one in 1981 for bigger corporate tax loopholes, service industries and high-tech firms had reaped little of the advantages. The loopholes had most benefited basic manufacturing and real estate firms, which were using them to reduce their taxes to as little as zero. Retail, wholesale and high-tech firms were paying up to 46 percent (the maximum rate) of their income in taxes.
For the service and high-tech firms, lower tax rates were more valuable than having loopholes, which were the reason for the higher rates. This was the essence of the tax-overhaul argument: Remove loopholes that benefit the few, and force all people and companies to compete on equal terms.
In mid-1985, the split became public. A group calling itself the Tax Reform Action Coalition (TRAC) was organized out of two groups of high-tax firms, including wholesalers, distributors, high-tech and high-growth companies. They endorsed the Treasury Department plan, and were joined by a few big corporations -- General Motors and IBM among them -- which gave them clout.
By August of that year, TRAC had 150 members, enough, according to an administration official, to provide political cover to members of Congress who wanted to support tax overhaul but feared being tagged as antibusiness.
"The other business organizations called us pariahs, but we made it very difficult for people to say business was monolithically against this bill," said Nick Calio of the wholesalers' association. "In our view, we were paying high rates and subsidizing other people's tax preferences. It wasn't fair."
The plan would have gone nowhere had it not found allies in Congress. But Ways and Means Committee Chairman Rostenkowski stunned observers by rushing into the fray as Reagan's Democratic lieutenant. He did it in part because he believed in tax overhaul and in part because of his ego, he later acknowledged.
"I said to myself: God, this is the great opportunity," Rostenkowski recalled in an interview last year. "The president is a popular fella, and it has all the pluses for people -- get poor people off the tax rolls, revise the tax code, make it more fair. And so my staff and I said let's take on the big one."
In both parties, tax overhaul was spawning unusual alignments. Virtually every major presidential prospect in the Congress had signed on as a supporter. That those vying to lead the parties into the 1990s so unanimously wanted to change the tax system pushed the congressional caucuses in that direction, according to a wide range of House and Senate members.
But the difficulties of getting there still seemed insurmountable. Under heavy pressure from the banking lobby, the Ways and Means Committee balked on its first vote and moved to widen a loophole for banks rather than eliminate it. In the halls outside the committee room, a banking lobbyist exclaimed: "We won!"
Similarly, when Packwood convened the Senate Finance Committee, the panel voted to widen so many tax breaks -- rather than to repeal them -- that the federal deficit would have increased by $100 billion over five years.
The group also voted to allow the cost of equipment to be written off for tax purposes -- depreciated -- in a fraction of the time it actually took to wear out. "The moment of truth came," according to Sen. Daniel Patrick Moynihan (D-N.Y.), when the committee voted to allow the cost of oil refineries to be written off in five years, even though the structures last for decades.
"At that point, our immortal souls were in danger," Moynihan said. "The only way out of that was all the way out."
Coming close to killing the bill proved a turning point in both Ways and Means and the Finance committees. Members came to speak of the "dead-cat syndrome," meaning that nobody wanted the bill to die on his doorstep. When the Finance Committee appeared on the verge of killing the bill, Democratic strategists already were at work on political ads blaming the Republican Party for destroying the nation's chance to have lower tax rates.
"We all realized from our excesses that we could not go a little ways in this business of reform," said Sen. John H. Chafee (R-R.I.), "If an alcoholic is going to take the pledge, it can't involve even a couple of beers a day. Sobriety was the order of the day."
Within a week of what Bradley called the Finance Committee's "worst indulgences," Packwood and his committee's chief of staff, Bill Diefenderfer, had crafted a proposal to wipe out dozens of deductions and credits, slashing rates to 15 and 27 percent for individuals, 33 percent for corporations.
In the committee, a key group evolved: Bradley, Moynihan, Chafee, Sen. John C. Danforth (R-Mo.) and Sen. George J. Mitchell (D-Maine), all senators who believed in the notion of trading loopholes for lower tax rates. They were joined later by Sen. Wallop, bringing an important conservative strain to the core of moderate Republicans and liberal Democrats.
Majority Leader Dole also signaled his support, inviting all Finance Committee Republicans to his office along with Darman and Baker, a move that rallied support for Packwood in the first shaky days after he offered his plan.
Thanks largely to the huge federal deficit, Packwood managed to hold off virtually all amendments to his plan in the committee and on the Senate floor. Packwood convinced the committee, and later the Senate, that any tax break restored had to be coupled with a tax increase, to avoid increasing the deficit. And no majority could coalesce to tamper with the low tax rates in Packwood's plan.
At the same time, Baker and Darman quietly convinced Reagan to oppose all amendments on the Senate floor, a crucial stance that forced numerous senators to drop efforts to attach antiabortion and antiterrorist riders to the tax-overhaul package.
Perhaps the most powerful force behind the Finance Committee bill was its unanimous endorsement by the 20-member panel, a vote that surprised even Packwood at the time. This gave the measure a strong base of support on the Senate floor, and made it difficult for a chamber that observes tradition to reject the work of such a respected committee. The vote on final passage Tuesday was 97 to 3.
The ease of the bill's Senate passage was in sharp contrast to its rocky final hours in the Finance Committee. There, the cat was reeling on the doorstep once again, this time at the hands of several oil-state senators. They had assembled enough votes to kill the bill unless Packwood caved in to their demands to save a tax break for certain oil and gas deals.
He did, angry at the time. Later, he acknowledged that he had won valuable support from the oil bloc for his package, a crucial element of its success on the Senate floor.
Even with that concession, the committee's unanimous vote owed something to chance. Pryor, the junior senator on the panel said he had planned to vote against the bill because, he said, "The thing was just moving too quickly, and that gave me reservations."
One by one, the committee clerk called the senators' names and one by one they voted aye. Pryor said he was surprised when two of his colleagues from oil states voted in favor of the bill. His was the last name to be called.
"I sat there and thought about how hundreds of speeches would be made all over the country about this bill, and how there was this one dissenter, and I would have to go down in history as the one who voted no," Pryor said.
"And so they called my name, and I took a deep breath, and I voted aye."