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Politics: Our Man in Washington

Dan Rostenkowski is an astute political juggler. But sometimes both he and his audience are so mesmerized by the performance that they forget the purpose of the game.

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Chicago congressman Dan Rostenkowski is the "powerful" chairman of the "powerful" House Ways and Means Committee. At least that's how he's always described. In a city obsessed with parochial political power, many people care only about two things where Rostenkowski is concerned: he's from Chicago and he carries clout.

But what does Rostenkowski actually do with that power? Whom does he serve and protect?

These questions arise because, for the first time in his career, Rostenkowski faces a serious contest in the newly drawn Fifth Congressional District, which stretches from the lakefront across the city's northwest side to the Du Page County line. Former alderman Dick Simpson, a professor of political science at the University of Illinois at Chicago, is challenging Rostenkowski in a district whose households range from blue-collar to comfortably middle class.

From press conferences to neighborhood coffees, Simpson usually gets a respectful hearing. But there is always one nagging question: if Rostenkowski is defeated, won't the city lose its clout in Congress?

"That's the number one issue," Simpson says. "'We don't like Rostenkowski,' people say. 'Maybe he is corrupt. But can we afford to do without him?' It's the last-gasp argument, and in Chicago it's the only one that resonates. It's the myth of clout. They're afraid the city might need it."

But need it for what? The implication is that for the city to get its share (or preferably more than its share) of federal funds--aka "pork"--it needs a powerful congressman. Taking care of constituents is an appropriate role for members of Congress. But power can also be used to develop policies and programs that benefit not just the people back home but certain classes of people--for example, the poor, factory workers, or futures traders--or even the nation as a whole.

Rostenkowski is a veteran of 24 years in Congress. The son of a near-northwest-side ward boss, he first gained surrogate power as Richard J. Daley's lieutenant in Congress. Energetic and ambitious, he rose through seniority in Ways and Means and played a leading role--and occasionally a losing one--in the House power struggles of the 70s. In 1981, at the dawn of the Reagan era, he ascended to chairmanship of Ways and Means.

He certainly didn't appear powerful in the beginning. Seeking to put a Democratic stamp on the tax-cut legislation going through Congress after Reagan took office, Rostenkowski opened a bidding war between Democrats and Republicans over who could give away the most to business and special interests. The result was a disaster, a bill that heavily cut federal income taxes of businesses and the rich, in so doing contributing fundamentally to the economic inequalities of the 80s and the decade's massive budget deficit.

In the following years Rostenkowski lost control over the process of writing tax legislation. He regained some authority in 1983's bipartisan bailout of social security, but the tax increase involved was largely regressive, falling disproportionately on lower-income workers and sparing the rich.

Rostenkowski reached his pinnacle of power in the drafting of his magnum opus, the Tax Reform Act of 1986. According to reporters Jeffrey Birnbaum and Alan Murray, who described the process in Showdown at Gucci Gulch: Lawmakers, Lobbyists, and the Unlikely Triumph of Tax Reform, the bill was passed by an odd convergence of Reaganite supply-siders, who wanted to drive down tax rates, and liberal reformers, who wanted to do away with many of the tax system's egregious loopholes.

Those loopholes had allowed corporations and the rich--the only ones who could take advantage of them--to shelter their income from the tax man. Over the years, Democrats as well as Republicans in Congress had grown accustomed to rewarding financial backers or special interests they favored with such tax breaks; they were less obvious and easier to pass than outright expenditures for the same purposes.

Rostenkowski, who had been neither a liberal reformer nor a supply-sider, saw an opportunity in 1986 to act as both, according to Birnbaum and Murray. To his credit, he led the charge to close many loopholes: capital gains were to be taxed the same as regular income; much-abused investment tax credits were repealed; many tax shelters were abolished.

Yet even though several million poor people were removed from the tax rolls, the law did not make the distribution of the tax burden more progressive. The corporate share of taxes actually declined. And it turned out that the richest taxpayers ended up with the biggest tax reductions. According to Internal Revenue Service figures cited by the Philadelphia Inquirer, individuals making $1 million or more paid 31 percent less in taxes in 1989 than in 1986, but those making $10,000 to $20,000 paid only 6 percent less.

Many of the most offensive loopholes remained untouched. For example, businesses could go on deducting interest payments as a business expense, which policy fueled the 80s' devastating craze of takeovers, junk bonds, and leveraged buy-outs. To his credit, Rostenkowski in 1987 supported North Dakota congressman Byron Dorgan's bill to restrict the deductibility of interest paid on debts acquired in leveraged buy-outs. But when the stock market crashed, the proposal died.

Rostenkowski displayed great political skill in pushing through the 1986 tax bill, protecting one congressman's favored tax break in return for support in closing a loophole somewhere else. Initially, for example, reformers wanted to eliminate the business-lunch deduction; the restaurant industry fought back. Rostenkowski insisted that for political reasons the law had to deal with those three-martini lunches. He proposed a compromise of 80 percent deductibility, then--to drive his point home--reminded committee members that he controlled the "transition rules."

Transition rules are rationalized as accommodations that ease the transition of businesses to a new tax law. They are really tax breaks for special interests. Every member had a plum he wanted, and while Rostenkowski won the day on business lunches, well-connected rich people and businesses pigged out on transition rules: about 600 obtusely written rules tacked onto the 1986 bill provided an estimated $10 billion to $30 billion in tax breaks. Rostenkowski included a few for his friends in Chicago (such as Commonwealth Edison and the developers of North Pier, the former worth $200 million according to Birnbaum and Murray) and for big political contributors (such as $99 million in tax breaks for a group of insurance companies that gave Rostenkowski $32,500 from 1985 to '91).

The new tax law came under fire immediately, and now it is crumbling under assault from both Republicans and Democrats. Rostenkowski contributed to the problem in 1986 when he suggested that he might go along with some version of Bush's pet project to reduce capital gains taxes. This concession emboldened conservative, probusiness Democrats on the Ways and Means Committee who were itching to give a capital gains tax break and undermine the basic tax reform principle that all sources of income be taxed equally. Although Rostenkowski would later withdraw his support for the cut, the House did approve a capital gains tax cut, which was finally killed in a House-Senate conference committee on tax legislation.

Rostenkowski recently ushered through the House a bill that would undo much of the 1986 tax law. The new bill includes capital gains tax cuts barely distinguishable from those proposed by Bush, more business depreciation write-offs, a weakened alternative minimum tax, and a variety of other tax breaks for the rich. It also restores real estate "passive loss" tax shelters and includes a new tax break that permits businesses to write off so-called intangible assets.

Rostenkowski argues that the obscure provision favoring such ethereal assets as "good will" is designed to clear up complicated lawsuits. But it might also fuel a new wave of destructive buy-outs and takeovers of corporations whose stock does not reflect the new value of such assets. The passive-loss provision that he wants to restore stimulated the vast overbuilding of commercial real estate in the 1980s. The collapse of that tax-driven boom brought down many banks and savings and loans and helped precipitate the current recession.

"Who is pressing hardest for thoroughgoing rejection of tax reform?" asks Bruce Fisher, research director (on leave) of the Citizens for Tax Justice, a national reform organization. "It's real estate. And Rostenkowski's ties to real estate on a personal and policy level are very, very strong. Whenever you hear the phrase 'passive losses,' what you're hearing is the war cry of the richest segment of the real estate development community."

When asked how he can justify legislation that revives--and expands on--so many loopholes eliminated just a few years ago, while not raising top individual tax rates enough to pay for them, Rostenkowski replies, "I'm not enthusiastic about that at all. As a matter of fact, I don't like the capital gains provision and once again opening up the code. . . . I'm not enthusiastic about doing what's in the bill. The Democratic caucus [House Democrats as a body] has directed me to do that, and if I didn't do that you wouldn't be talking to the chairman of Ways and Means."

Is this the powerful Dan Rostenkowski talking? If he is so powerful, why did he not fight tooth and nail against these regressions to bad old tax-break policy? If he isn't really so powerful, perhaps he isn't really so indispensable to Chicago.

Rostenkowski is a political juggler with many balls in the air. He juggles the special interests that give to him (more than $2 million in political contributions from 1985 to 1991 and more than $1 million in honoraria from trade groups and businesses) and the special interests that contribute to his colleagues. He cuts deals, wields influence, retaliates against those who cross him, and rewards supporters with a skill that even many enemies admire. But he often drops the balls. And sometimes both he and his audience are so mesmerized by the juggling that they forget why he is even in the game.

"Rostenkowski has been on successive days a hero and a villain," says Bruce Fisher. "The good side of Rostenkowski is that he's savvy at political maneuvering. The bad side of Rostenkowski is he's just a horse trader. He does tax policy in the same way that Senator Russell Long did tax policy in the 60s and 70s, as an active, ongoing trading relationship with the lobbyists. For all its flaws and limitations, sticking with the Tax Reform Act of 1986 means holding the line against lobbyists. But Rostenkowski dances with the guys that brung him.

"The problem with Rostenkowski is the problem with Congress," says Fisher. "Who's in Congress? Upper-middle-class guys who've made deals with local party organizations and are spoken to only by business leadership and so-called special interests who claim to represent some legitimate industry or citizen group."

Rostenkowski works well within these limits but rarely challenges them. "His policies are bad, but within any policy framework Rosty delivers," argues Hal Baron, former mayor Harold Washington's chief policy adviser. "I don't like the way Rosty sets the rules of the game, but once they're set he knows how to exploit his power, how to put together a winning set of votes. But what he gets votes for is not necessarily the best policy."

Years of associating with business executives, lobbyists, and power brokers has warped Rostenkowski's worldview. While manufacturing in the midwest has been devastated by unfair practices on the part of various trading partners, especially Japan, and by the flight of capital overseas, Rostenkowski has remained a resolute free trader. He opposed legislation requiring substantial domestic production by automobile companies that sell large numbers of cars in the U.S. market; he supported giving the president "fast track" authority to negotiate a free trade deal with Mexico, which meant limiting the ability of Congress to write labor and environmental protections into that deal; he did nothing to eliminate tax incentives for businesses to move overseas.

He has been a longtime opponent of national health insurance, defeated President Carter's hospital cost containment legislation, and opposed the late representative Claude Pepper's proposals for long-term care of the elderly. At the same time, he angered labor in 1986 by fighting hard to tax employees for the health insurance benefits they received. He was chased down the streets of the northwest side by elderly constituents--many of them faithful supporters--when he refused to listen to their complaints of inequities in the financing of a proposed catastrophic care plan.

Rostenkowski's colleague on Ways and Means, Marty Russo, has introduced a sweeping reform of health care modeled on Canada's system of government insurance; it would save an estimated $67 billion a year in costs, enough to provide comprehensive care to everyone in the U.S. Rostenkowski is the only Chicago Democrat not to cosponsor the bill, and instead has offered a much more expensive bill that preserves the role of private insurance companies in health care. Over the past six years, according to compilations by the Simpson campaign, Rostenkowski has received $315,638 in political contributions from the insurance, health care, and drug industries.

"I can have all the power in the world," he says, explaining why he doesn't support the Russo bill. "I have only one vote. If you've got any sense, you know that you can't [pass health care reform] without the president of the United States. I've commended Marty Russo publicly. If ultimately we could do something as broad as that, it would be the way to go. But there isn't the appetite on the committee to do that. . . . Sure, I'm powerful. I get recognition for moving legislation. But I get recognition for legislation that I see I can get 219 votes for. Losers get lost in the shuffle."

Yet leaders who lack courage--powerful figures who don't use their power when it's needed--get lost in the shuffle of history. And the people they're supposed to be leading are the real losers. If when it comes to crucial issues Dan Rostenkowski is "only one vote," is he really indispensable?

Even more than many of his Democratic colleagues, Rostenkowski has become obsessed with the deficit. While handing out tax breaks to his business friends, he often cites the deficit as reason for holding the line on domestic spending.

On the one hand, Rostenkowski takes his share of credit for fighting to extend unemployment compensation in this recession. However, Simpson remembers being part of a delegation of religious leaders who visited Rostenkowski in 1982 to try to persuade him to oppose a Reagan cutback in unemployment benefits, one so severe that at many times in the past decade only one-fourth of the unemployed were receiving compensation. "No, we can't afford that," Rostenkowski said, according to Simpson.

And acting on grounds that we had to reduce the deficit, Rostenkowski was also largely responsible for changing the law to tax unemployment compensation. Now some workers who were unemployed most of last year owe hundreds of dollars of income taxes--in one case as much as $2,300.

Rostenkowski has helped fight medicare and social security cuts, and he cites endorsements and high ratings from organizations such as the National Council of Senior Citizens as proof of his effectiveness. Yet despite his efforts, the out-of-pocket medical costs of the elderly have risen to the highest level since medicare was created. "You can't have it both ways," argues state representative Jan Schakowsky, a longtime senior citizen organizer, "being one of the most powerful people in Congress and not being responsible for damage to senior citizens. One of his claims is that we can't afford to lose someone as powerful as he is, but he has failed as guardian of seniors."

Like so many Democrats, Rostenkowski has developed a far too cozy relationship with industry lobbyists whose interests clash with those of his middle-class and blue-collar constituents. For example, he has been an ardent defender of Chicago's futures markets, fighting attempts to regulate the industry and to restrict the tax dodges traders have concocted for themselves. (His actions in 1984 on their behalf cost the federal government an estimated $300 million in lost taxes.) He recently proposed legislation that would permit mutual funds to engage in more short-term trading. This would be a boon to futures traders; perhaps it is not coincidental that the securities industry, especially the futures faction, has given Rostenkowski $137,500 over the past six years. But a sizable body of economic opinion holds that American business, especially the battered manufacturing industries of Rostenkowski's district, desperately need more long-term investment, not short-term trading.

Rostenkowski, whose overall voting record is only slightly more liberal than the congressional mean on economic, social, and foreign policy matters, according to National Journal compilations, has also become palsy with George Bush. "He's too cozy with the president," one liberal Democratic member of Congress said. "That's the perception many people have. There's an insecurity among Democratic leaders of not knowing whether their most powerful chairman will back them up. They're always wondering if there's a leak to the president before we're out of the huddle, or whether he's on the team. Then sometimes he'll completely reverse himself and support something progressive. He's looking for an angle, always an angle."

For many Chicagoans, both politicians and average citizens, all this Washington policy debate is beside the point: the real question is how much pork does Rosty deliver. The answer is, it depends on whom it's for.

Rostenkowski certainly helped Mayor Daley get the airport tax he wanted to help finance the proposed Lake Calumet airport, and the mayor desperately wants him for future airport money as well as for the proposed Loop circulator light rail system. Although his committee focuses more on taxes than on public works, Rostenkowski can claim credit for last year's transit legislation that provided money to resurface the Kennedy and continue CTA operating subsidies at the already existing level. (Unfortunately, the CTA needed increased subsidies; without them, service will continue to go down while fares go up.)

When Ron Gibbs was the city's federal liaison under Mayor Washington, he found Rosty's support "very influential." Without Rostenkowski as Ways and Means chairman, Gibbs said, the city probably would not have been exempted from new laws restricting the use of tax-free municipal revenue bonds for private businesses. Rostenkowski provided exceptions for the construction of new White Sox and Bears stadiums. He also helped out with tax-exempt financing for several housing projects.

In general, Rostenkowski seems to know how to use his influence on behalf of big-ticket construction projects that need federal subsidies and have strong mayoral backing. But when it comes to smaller-scale public investments that would revitalize the neighborhoods in Rostenkowski's district, his record is less impressive.

"It's hard to see what he does for the city from my point of view," says Jackie Leavy, an organizer of economic development in Rostenkowski's West Town neighborhood. "Rostenkowski has some of the poorest, most disinvested areas of Chicago in his congressional district. There's been an attitude of benign neglect."

Maureen Hellwig, another veteran community-development organizer on the near northwest side, had to reach back to the early 70s to think of instances when Rostenkowski helped neighborhood groups. "The farther into the 80s, the more removed he became," she said. "The more powerful he became in Washington, being chairman of Ways and Means was more important than being congressman from the Eighth District."

Yet Rostenkowski has looked out for his friends back home. Commonwealth Edison has fared best of all. In 1986, with Com Ed's city franchise coming up for renewal, Mayor Washington said Chicago should seriously consider the option of a municipal buy-out. Studies showed municipal ownership could save consumers many millions of dollars by keeping rates down and encouraging energy efficiency. At the very least, the buy-out threat would give the city bargaining power. Yet at that very moment Rostenkowski pushed through legislation severely limiting the use of tax-free municipal revenue bonds to purchase utilities. Loss of the bonds made the buy-out much less attractive and less of a bargaining tool. In the end, Mayor Daley negotiated a disastrously poor franchise renewal with Com Ed.

Defending the new restrictions on municipal bonds, Rostenkowski insists, "We did that on a money-saving basis at the federal level." The ostensible goals were to prevent abuse and bring in more federal tax revenues. Yet municipal buy-outs of utilities would have been one of the better potential uses of such bonds. In any case, surely powerful Dan Rostenkowski could have made an exception for Chicago and other cities, like New Orleans, that were already considering buy-outs, if he had been more interested in the city and its citizens than in his friends at Commonwealth Edison (who gave him $11,500 in political contributions during the 80s).

That wasn't his only favor to Com Ed. The 1981 tax bill had permitted the utility to depreciate its power plants more rapidly, and in so doing Com Ed found itself with about $550 million in "phantom taxes" that it had collected from ratepayers but did not owe the federal government. When Congress decided in 1986 that utilities should turn over those phantom taxes anyway, Rostenkowski made sure that Com Ed would have 30 years to pay back what was, in effect, a huge interest-free loan.

Likewise, Rostenkowski helped Mayor Jane Byrne and developer Dan Shannon, an old friend and business partner who was once head of the scandal-plagued Central States Teamsters Pension Fund, create the four Presidential Towers luxury apartment buildings west of the Loop. "They ought to name them after my four daughters," Rosty once joked.

From the city's point of view, West Madison was blighted. But it was also the site of most of the city's single-room occupancy and "cage" hotels, which provided crucial shelter for the poor. When those buildings were wiped out, similar housing was not constructed.

Rostenkowski provided two important tax breaks to grease the Presidential Towers deal. He allowed Presidential Towers to be built with tax-free bonds--similar to those he wouldn't let the city use to buy Com Ed--without meeting federal regulations that 20 percent of the apartments be set aside for low- and moderate-income tenants. Then he exempted the Towers from a federal law that restricted tax benefits for projects enjoying multiple government subsidies. This tax break cost the federal government $55 million (a bit more than half of the total public subsidies to the Towers, according to a study by the Chicago 1992 Committee).

Now Presidential Towers is in default on its government-insured loan. But Rostenkowski appears to have fared well. According to a Chicago Sun-Times investigation, Rostenkowski invested $200 in a blind trust administered by his friend Dan Shannon, the developer of Presidential Towers. In four years the trust turned a profit of $100,000.

Rostenkowski uses his power to "write tax breaks for individual projects and sneak them in, or if the mayor wants a White Sox park or an airport, he gets it in," Dick Simpson says. "What Rostenkowski doesn't do is something for the entire system. He thinks about a deal. Somebody needs a tax break to make a deal work; it's that specific deal making."

When business executives, developers, government and university officials, and other members of the local elite want action on a special project in Washington, there's a good chance they'll turn to Rostenkowski. Some other members of Chicago's congressional delegation are good for nothing or, in Gus Savage's case, less than nothing; some congressmen wield authority in more modest bailiwicks, such as Charles Hayes with labor matters, or Sid Yates with the arts.

But there's a price to be paid for Rostenkowski's special influence. There's the price of further corruption of the political process and the Democratic Party by moneyed interests. There's the price of tax breaks and favoritism to the wealthy and to powerful economic institutions. There's the price of inadequate health care and of neighborhoods neglected in deference to big construction projects. The price of getting a limited tax reform in 1986 that failed to live up to its promise was billions of dollars in special tax breaks.

"Nothing his personal clout could do could undo the effects of the policy changes he brought into law," argues John Cameron, associate director of the Illinois Public Action Council, a federation of consumer, senior, community, and labor groups. Rostenkowski clearly has power and uses it, often skillfully, for both good and ill. For what his constituents get, is Rosty's power worth the price?

Art accompanying story in printed newspaper (not available in this archive): illustration/Kurt Mitchell.

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