The Marine Has Landed

By Claudia Wallis

As the tax-cut battle heats up, Donald Regan warms to his task

"I've never backed away from a fight," says Donald Regan, 62, World War II Marine and former chairman of Merrill Lynch & Co., largest brokerage firm in the country. In the past several months, the Treasury Secretary has remained true to his word. As point man in the Administration's drive for a threeyear, 25% cut in personal income taxes, Regan has emerged from the obscurity of his first days in office--and from the shadow of highly visible Budget Director David Stockman--as a tough and unyielding negotiator. The package he presented last week to the Senate and House tax-writing committees was stamped bipartisan, thanks to the endorsement of Kent Hance, conservative Democrat on the House Ways and Means Committee. But its contents were almost 100% Reagan.

By staunchly defending a program devised largely before his appointment, the Secretary earned praise and respect from his White House colleagues. Said one:

"He's a class act. He doesn't have any false pride or ego problems." Another top Administration official made the inevitable comparison with the Budget Director:

"Don is a solid team player. There's no danger that he'll wander off freelance, like Stockman has a tendency to do. That gives him added clout in the White House."

Regan, a self-described Washington "novice," admits that he was off to a slow start in organizing his staff. Being overshadowed by the boy wonder (Stockman is 34) at OMB did not help matters and led to what Regan called "demeaning" press speculation about a rivalry between the two. In fact, the pair clashed openly only once--in May, when Stockman made a statement that seemed to contradict Regan's no-compromise stance on the President's tax cuts. Notorious at Merrill Lynch for his explosive Irish temper, Regan retaliated. With White House approval, he called in several reporters and told them: "This is where you'll hear about Administration tax thinking. If you hear something different from someone else, then it's wrong."

Since then, no one has doubted that Regan speaks with authority. Last week he was introduced at a U.S. Chamber of Commerce lunch as "the most effective spokesman for this Administration." Naturally, there were good reasons for the Secretary's warm reception before that bastion of capitalist influence. In response to the complaints of corporate leaders, the White House had only a few days earlier restored several cuts in business taxes that had been shaved from the package the week before. Particularly satisfying to the business leaders was a revised depreciation schedule that generously increases write-offs for new business machinery and real estate over the next five years.

In addressing his appreciative audience, Regan demonstrated a growing skill at partisan oratory. A victory for the President's tax plan will make 1982 "the year we'll see what American business can do. You'll be in the race of your lives," he promised, more bullish on America than ever. As for the Democrats, he said, "they seem to waffle and waver. Sometimes I think they're trying to delay in order not to have a tax cut at all in 1981."

Last week's events in the House seemed to support Regan's charge. Badly split, the Democrats on the Ways and Means Committee failed to produce a bill of their own and appeared to be playing for more time. Over the objections of Republican Barber Conable, co-sponsor (with Hance) of the President's bill, Chairman Daniel Rostenkowski called for a leisurely three-day-a-week schedule for considering the tax bill. Prospects of its being on the President's desk by Aug. 1, as promised by leaders of both houses, faded from sight.

So far, the committee Democrats seem to agree on only two points: first, the President's tax cuts are so large that they will produce inflationary budget deficits; second, the Administration's plan punishes the poor and represents, in the words of House Speaker Thomas P. O'Neill, "a windfall for the rich." Indeed, in a meeting with committee members, Assistant Secretary of Treasury John Chapoton admitted that, under the President's plan, low-income earners could actually pay more in combined Social Security and income taxes next year. By contrast, Democrats claim, those who earn $200,000 could receive a $20,300 tax reduction. Seeking a less regressive measure, Ways and Means Democrats reversed their apparent support of across-the-board tax cuts as proposed by the President, and announced that they would draft a bill providing for more relief to those in the $20,000 to $50,000 income range. This approach, said Rostenkowski, would be "more salable" to traditional Democrats.

That may be so, but targeted cuts may prove less salable to the Boll Weevils, the party's conservative Southerners whose pivotal votes are being courted on both sides of the aisle. Many of the sweeteners added to the President's package in recent weeks were specifically designed to attract the Boll Weevils. To keep them in the Democratic fold, observed one business lobbyist, Rostenkowski and company may have to "adopt something reasonably close to the President's program. The alternative is to write a typical Democratic Christmas tree tax bill, see it voted down and hope like hell the President's plan screws up the economy."

As the Democrats attempt to come up with a plan of their own, Regan continues to work 14-hour days trying to consolidate support for the President's program. Among his activities: staging daily strategy sessions at the Treasury, planning committee testimony addressing business groups and other would-be lobbyists--last week that included Republican congressional wives--and making phone calls to Democratic and G.O.P. fence sitters. Still, Regan has yet to persuade three of the necessary 23 House Democrats to defect, as 63 did on last month's budget vote. And, admits White House Chief of Staff James Baker, the President could lose as many as 15 G.O.P. votes on the House floor. Nor is the Republican-dominated Senate a sure thing. Budget Committee Chairman Pete Domenici last week was still trying to influence the President to scale back his proposal. Donald Regan takes comfort, however, in the competition, or lack thereof. Asked whether he would win if the tax vote were held today, the Secretary jauntily replied:

"Sure I do. We've got the only bill up there." --By Claudia Wallis. Reported by David Beckwith/Washington

With reporting by David Beckwith/Washington

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