This morning I had the distict opportunity to speak with former Senator Bob Packwood (R-OR) over the telephone. A moderate, Packwood chaired the Finance Committee, where he helped write the Tax Reform of 1986. He resigned from office on October 1, 1995.
Packwood (cont.): You could go to a very simple code. It's what we call a flat tax. No deductions of any kind, and everything counts as income. The value of the fringe benefits your employer provides is counted is income. Interest from municipal bonds is counted as income. You could literally have almost a postcard return. That would be simple. But if it was a pure flat tax, it would mean that those who are very rich would pay less taxes than they pay now. So you would have to do something to adjust it so that it reasonably reflected what you might call "fair progressivity."
Singer: When you created the Tax Reform bill of 1986, you balanced the tax cuts. They were revenue-neutral. There are some calls for making the tax reform of 2006 not necessarily revenue-neutral, to make it a tax cut. Do you think this is an effective way to move forward, or do you think that it needs to be revenue-neutral?
Packwood: Interestingly, the President at the moment has said that he wants it to be revenue-neutral, and I certainly would take him at his word on that. But there's no reason - that's not saying that I'd necessarily support or oppose tax cuts, I'd have to see what they are - there's no reason you couldn't do both at the same time. But I think he would be wiser to separate them, and to attempt to do the reform and to make it revenue-neutral, and then when he's done it, say "all right, now what do we want to do in terms of tax cuts," and look at them separately from reform.
Singer: Just one more question about 1986. You worked very well across the aisle with your counterpart in the House, Dan Rostenkowski (Democrat from Illinois), and with the ranking member of your committee, Russell Long, to ensure safe passage of the bill. If I'm not mistaken, when it moved out of the committee it was unanimous, or it was nearly unanimous - I don't remember exactly - but today there seems to be much less comity in the Senate and there is much less bipartisanship. Do you think it can be moved forward in this much more highly partisan climate?
Packwood: I think it could. It certainly was bipartisan, nonpartisan in 86. It passed the committee unanimously and it passed the floor of the Senate 97 to 3.
The key is, by and large, the Republicans would like lower tax rates; Democrats would like to close lots of loopholes. If you close lots of loopholes, you can lower the tax rates. So I think you can put together a coalition that would be willing to do it. Your problem comes not so much with being Republicans and Democrats as from the interest groups on the outside who will not like the deductions eliminated.
Singer: A number of those interest groups include people like homeowners. How do you placate homeowners who love the mortgage deductions? I know it was a problem you faced in 1986.
Packwood: I remember Bill Bradley, who was practically the godfather of our efforts, said if you get rid of the mortgage interest deduction, you'll kill tax reform. He said, "It is sacred. You can't touch it."
I don't know if I agree with that totally. If you could get the rates so low - and you could get them quite low - I think most people would be willing to get rid of deductions if they thought the following was not going to happen: you get rid of the deductions, you lower the rates. Now that you've gotten rid of the deductions, and as the government wants more money, they just raise the rates but they don't give the deductions back. That's what scares a lot of people.
Singer: Now let's move to another issue that's under the domain of the Finance Committee, and that's Social Security. You were in the Senate - I think maybe the second ranking member of the committee at the time of the 1983 overhaul of Social Security.
Packwood: Yeah.
Singer: Today the President and the Republican Party want to implement what they call "personal" accounts, what the Democrats call "private" accounts or "privatization." This bill doesn't seem like it will be able to pass without Democratic support - just on pure numbers, 60 votes are needed and there are only 55 Republicans. What can the Senate Republicans do and the President do to try to get the Democrats on board?
Packwood: The President is doing the only thing he can do on this. The Republicans are afraid to touch Social Security. A time or two in the past they have made modest adjustments - never got to be a law, just suggested them - and just got the bejabbers kicked out of them by the Democrats in the next election. So the Republicans are afraid of the issue, and understandably.
The President is therefore doing the only thing he can do. He's going to the public. He's going to try to so convince the public that these changes should be made that they will bring pressure on Congress. And I think that's the only way it will work - and I'm not even sure it will work with him trying it - but it's the only way it will work.
Singer: What are your personal feelings on the personal or private accounts?
Packwood: I don't have any strong feelings on them. Most people don't know that it's voluntary. You don't have to participate in this if you don't want to. But let's say half the public does, and instead of paying the full amount into Social Security they pay a slightly reduced amount and they pay money into the private accounts. That's fine, but it doesn't solve the Social Security funding problem. Whether or not you enact the private accounts or don't enact the private accounts, it doesn't solve the Social Security funding problem.
Singer: Along those lines, there is some discussion about when Social Security will run out. Taking the President's numbers, the trust fund will start running a deficit in - I believe the newest numbers are - 2017 or 2018, though still until 2041 the trust fund will be able to fund 100% of benefits and even at that point, only a slightly reduced amount will be taken away from benefits. But looking at Medicare - which is another program under the Finance Committee --Medicare is set to run out completely of its trust fund about 2019 (I could have that year wrong). Is that not a more pressing issue than Social Security at this time?
Packwood: It's more immediate. In fact, it's in desperate financial trouble. I think you're only talking about four of five years away. The reason it's more pressing [is that] you can, with some accuracy, project Social Security costs. What's the average age of the population? How many normally retire at 62? How many retire at 65 in a few months now? How long are they on average likely to live? And you can estimate reasonably Social Security. Medicare health costs you cannot. We have no idea what the health costs are going to be in five years. That program is on very slippery ground.
Singer: There are a number of related factors that cause the poor outlook for Medicare including more people reaching older ages and of course medical costs are going up. But one of the large factors is also the prescription drug benefit that originally was believed to have cost $400 billion. Now over a slightly different period of time it's expected to cost closer to $1 trillion. Do you think that program needs to be tweaked in order to ensure the viability the Medicare program.
Packwood: I fear not. That program goes into effect next year, in 2006. I don't think it will be tweaked very significantly. This was my experience on any medical program the federal government had: Whatever our estimates were were wrong, and they were low. By the time you added the prescription drug benefit to it, it just further makes the funding crisis close to immediate. It's just a tremendously heavy burden.
Singer: So what might you say to some of the House Republicans in the more conservative wing of the party who want to restrict the prescription drug benefit to the original $400 billion? They come from the point of view that "we were told it will only cost $400 billion and we believed it."
Packwood: I think they feel duped. A number of them that I've talked to said had they known everything in full, they wouldn't have voted for it. The pressure to vote for it was tremendous. But they're not going to repeal it now.
You used the word tweak, and you're right. They might tweak it. So let's say a new program that's going to cost - not $400 billion and I don't think $1 trillion, but I think $700-$800 billion - you tweak it and it costs $650 billion instead of $750 billion. That is still $650 billion that you weren't obligated to before you passed this program.
Singer: Let's move to more of your original home base, the state of Oregon. The Oregon Republican Party for close to a century was - [there] basically was one-party rule in Oregon. Even through your tenure in the state legislature and later in the United States Senate, the Republican Party thrived on moderation. Now the Party has seemingly moved to the right in the state and has been shut out of office save for one Senate seat. What are your feelings on what the Oregon state Republican Party can do to come back into power in the state?
Packwood: The single thing it could do would be to not just moderate, but to totally change its position on, by and large, social issues. On abortion, on gay rights, they are in my mind on the wrong side meritoriously, but certainly the wrong side politically on these issues. So as long as the Republican Party appears to people to say "women should have no choice on abortion" and "gays should have no rights," the Party isn't going to do well.
Singer: The conference that you founded, the Dorchester Conference, [which] once was really at the forefront of the liberal or moderate wing of the Republican Party - people like George Romney spoke there, a number of leading presidential contenders spoke there. This year, they passed a resolution against gay marriage and in past years have come out against abortion. Do you see any possibility of changing it?
Packwood: I ran it for the first five years, from 1965 to 1969. The first five years, the conference was pretty much invitational. I was the person doing the inviting, and it was very specifically designed to be on the liberal or moderate cutting edge of the Republican Party.
Since that time, anyone who wants to go can go, and therefore, as we've all learned, zealots - be they right wing zealots or left wing zealots - are more inclined to be active than moderate people. And so now, those who go to the conference - and anyone can go - are more inclined to be very conservative.
Singer: [Looking] more broadly than just Oregon, we saw in 2004 a primary challenge in Pennsylvania to one of your former colleagues, Arlen Specter - who is a moderate. We see a possible primary challenge in Rhode Island against Lincoln Chafee, with whose father you served. What do you think of this move to rid the Republican Party of the moderates in the Senate?
Packwood: I think it's one of the reasons that things have become more divisive. Not only have the Republicans been shedding their moderates, the Democrats have been shedding their moderates. You used to have any number of Southern, heavens, conservative, let alone moderate Democrats, and especially in the Midwest - the Mike Mansfields in Montana, the Alan Bibles in Nevada - they were Democrats, but they were moderates. By and large, both parties have been shedding their moderates, therefore making compromise much more difficult.
Singer: So is there anything to be done to recreate or rebuild the political center of American politics?
Packwood: I'm not sure I know the answer. Again, activists are usually zealots - right wing or left wing - and they are disproportionately influential in primaries and the nominating process. So you often get a right wing Republican against a left wing Democrat in the general election. And whoever wins, they carry that philosophy into the legislative body.
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