Senate holds 'interesting' tax reform hearing. Everyone shocked.

Former Sens. Robert Packwood and Bill Bradley dazzled a hearing with their account of how a divided Congress produced the most dramatic overhaul of the US tax code since World War II – with hope for the present. 

It’s not every day that a person exits a Senate Finance Committee hearing and exclaims, “I could listen to that all day, it was so interesting!” to which her colleague echoes, “wasn’t that cool?”

Unbelievably, these individuals, presumably staffers, were talking about a hearing titled “Getting to Yes on Tax Reform” – one of the most difficult, partisan issues in United States politics. 

But the two-hour session on Tuesday was like story hour for lawmakers, as two men at the center of America’s last major tax overhaul – former Sens. Bob Packwood (R) of Oregon and Bill Bradley (D) of New Jersey – explained how they accomplished the impossible nearly 30 years ago.

Their account of the power of a simple idea – cut loopholes, use the money to lower tax rates – brilliantly executed, was dragged back from the past to convince a new generation of lawmakers and staff, steeped in a culture of procedural warfare, that better outcomes are possible.

These two former senators came from a different era – far less partisan, more slow-paced, less globalized. And yet, there are similarities. No single party controlled Washington then or now. And special interests furiously defend their tax breaks and loopholes, no matter what the decade.

“It appeared to us just as difficult to put it together as it appears to you now,” said Senator Packwood, former finance chairman.

The hearing, then, was more than just a pleasant stroll down memory lane. It was a potent reminder of what Congress can accomplish when there is sufficient determination.

With tales worthy of a Bob Woodward political bestseller, Packwood recited the unlikely journey of the Tax Reform Act of 1986, from a disastrous start in the Democrat-controlled House that required President Reagan to personally visit the Hill to get House Republicans to support a bill they hated to an odious tax break demanded by “the oilies” (senators that represented oil interests) that was necessary to win passage.

Bradley, also on the finance committee at that time, chimed in with his own stories, including one about a meeting with the president in the West Wing. Bradley pointed out why a former actor (Mr. Reagan) and a former pro-basketball player (Bradley had been a superstar with the New York Knicks) would want the same tax-reform goal but for two entirely different reasons.

Senators holding the hearing called the accounts “fascinating” and “inspiring,” with one commenting that “there is hope for the future.” They were silent about Packwood’s sullied past – he resigned from the Senate in 1995 under threat of expulsion for sexual harassment – and questioned him and Bradley for their views on the tax challenges of today.

President Obama and Republicans in the GOP-controlled Congress both say they want to cut a deal on taxes. The 1986 version simplified the tax code, lowered individual rates, closed a slew of loopholes, and raised corporate taxes (though it lowered the top corporate rate) – all while staying revenue neutral. Do the lessons from three decades ago still apply?

Senators asked, for instance, about process. In 1986, the Senate Finance Committee followed “regular order” – that is, allowing committees to work, something today’s Senate is trying to get back to. Did that more open process help foster bipartisanship?

Yes, Packwood said, but it was actually his departure from regular order that saved the day. When he realized the House bill was going nowhere on his committee, that’s when he decided to take his six senators with the best leadership skills and have them meet behind closed doors with him in his office. It took them only a week to work out a deal that unanimously passed the full committee.

That’s hard to imagine in the tweeting, cameras-everywhere world of 2015, though today’s finance chairman, Sen. Orrin Hatch (R) of Utah, has set up small working groups to sort of replicate that.

The questioning senators asked about leadership, particularly the president. Back then, Reagan campaigned on tax reform. Republicans today complain that President Obama is not really committed to it.

Bradley and Packwood called presidential leadership crucial, though Packwood said the president need not be hands on if his Treasury secretary is fully engaged.

The senators asked about comprehensive versus piecemeal tax reform, because Republicans want to tackle individual and corporate taxes together, while the president seems happy to just do the corporate piece.

Bradley and Packwood agreed – it’s gotta be comprehensive to allow room for tradeoffs and to raise enough revenue. That’s the road Senator Hatch wants to travel, but today’s Congress is averse to comprehensive anything (think immigration reform) and the president is reluctant as well.  

When it was all over, Hatch, walking down the hall, praised the two witnesses, calling them “two old pros who have already gone through it.” He admitted, however, “it’s a different situation here today,” particularly the partisanship.

But that is not impossible to overcome, as Packwood explained. 

Reading from his diary of Thursday, May 1, 1986, he referred to a phone call from his Democratic counterpart of that time, House Ways and Means Chairman Dan Rostenkowski of Illinois. Packwood received the call while he was in one of his core group’s closed sessions.

His diary entry read:

Was interrupted by a phone call from Danny Rostenkowski. Bless his soul. He said, ‘Pal, I’ve been thinking of coming over there, without fanfare, without press, just to say "I’ve been through it." I know every day you go through troughs and you’re on hills and I’ve been bleeding for you. But I think what you’ve got in terms of tax reform is the best thing Congress has seen in 10 years. You get this through the Senate, and between the two of us, we’re going to put out a bill that for a generation or longer America will look to as a pinnacle.’ God, I appreciated it.

The interesting thing is that, according to the diary, Packwood had recently “tangled” with Rostenkowski – who 10 years later was convicted of mail fraud and went to jail. “I was unjustifiably belligerent,” Packwood wrote, and he wondered whether that would come back to bite him at this crucial juncture. 

It did not. All the key players wanted a deal, and they could agree on the goal. That's far from clear today.