Packwood tax plan

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This was a plan devised by Senator Robert Packwood, aRepublican supporter of President Reagan, to help solve the budget crisis by increasing excise taxes on tobacco and alcohol, rather than raising income taxes. It had the obvious predictable results:

  • the tobacco industry raised up in fury
  • the alcohol industry raised up in fury

This was followed by Packwood's master stroke. He would drop his plan if these industries supported his new foundation.

Documents & Timeline

Freedom of Expression Foundation
Packwood tax plan
Sen. Robert Packwood   &   Craig R Smith
Freedom of Expression Institute
Freedom of Expression Project

1985 Dec /E President Ronald Reagan asked Senator Bob Packwood, chairman of the US Senate Finance Committee, to design a proposal for comprehensive tax reform

which would reduce the highest individual income tax rate down to 35% from its current 50% level, but retain adequate incentives for business investment, and avoid inclusion of any new taxes.

In an attempt to do this without reducing the total amount of tax revenue that is currently collected, the Packwood plan proposes to offset reduced revenues from income taxes by what the Wall Street Journal has referred to as a 'backdoor increase in excise taxes.'

The Packwood plan proposes to eliminate the income tax deductibility of excise taxes and import tariffs paid by businesses [and it] would increase federal excise tax receipts by an estimated $75 billion over five years. Approximately $13 billion of this would be a result of a direct increase in excise taxes on motor fuel, wine, distilled spirits, and tobacco. [[2]]

[This triggered a substantial increase in the activities of the cash-for-comments economists already employed by the tobacco industry and led to the creation of a very substantial network of academic economists in every state who could be called upon to help fight tax increases on cigarettes -- and later public smoking bans.]

1986 Mar Fred Panzer of the Tobacco Institute presents a time-line for the creation of CART [Coalition Against Regressive Taxation] as part of the fightback against the Packwood Tax Plan formulated for President Reagan. This is public document published in "The Tobacco Observer" in time-line format;

  • March 1-10: Alter drafting a tax reform package during the first week of March, Bob Packwood, the Oregon Republican who chairs the Senate Finance Committee, gathered support from his members.
  • Tuesday, March 11: After a private meeting at the White House, he announces the President has given his go-ahead.
  • Thursday, March 13: Chairman Packwood releases his proposal. For simplicity's sake, let's call it Packwood I. The plan gave him a relatively strong hand in the markup or committee voting stage.
          Packwood I offered the dramatic reduction in the tax rates for individuals and corporations desired by the President. It retained many of the tax preferences or loopholes desired by committee members.
          Since there's no such thing as a free lunch, the plan also fingered a fairly broad constellation of businesses and consumers to pick up the tab; namely, those affected by abolishing the business deduction for excise payments and tariffs and those who pay excise taxes on beer, wine, liquor, cigarettes, and gasoline.
  • Friday, March 14: Senator Packwood begins to hear from the victims. Among the most affected, the trucking industry forms the core of a coalition. Representatives of aviation, beer, wine, telephone, gasoline, coal, department stores, tobacco, automobiles -- those hardest hit -- organize to lobby against provisions that would cost $75 billion over the next five years. [Reagan announced that he would not sign "as it stands"]
  • Monday March 17: Citizens for Tax Justice (CTJ) a labor-backed group, is one of the first to hit out at the plan's major vulnerability -- the excise tax burden.
[ Citizens for Tax Justice is a lobby group which takes many well-funded commissions from the Tobacco Institute via the Labor Management Committee.}
[Note: There are many intermediate stages here -- including details of Senator Clarence Mitchell and other politicians who lobby for tobacco]
[IRET was a tobacco industry front, and the Heritage Foundation took commissions from the Tobacco Institute.]
  • Wednesday, April 2: Citizens for Tax Justice release a poll at a Washington news conference showing that an overwhelming 77 percent of the voters reject Padwood I.
  • Thursday, April 3: A business-supported survey released by CART a few days later shows that 69 percent of Ihose with an opinion about Packwood I are opposed to it.
  • Tuesday, April 8: Citizens for Tax Justice greets returning members of the Senate Finance Committee with a full-page ad in the Washington Post . It blasts the regressive features of the tax plan, urging senators to reject it now.
          CART holds a news conference at its weekly meeting to release a study from deSeve Economics Associates. Contributed to the coalition by The Tobacco Institute, the study reveals that the excise provisions of Packwood I would wipe out most of the tax reductions for low- and middle- income taxpayers.
    [The deSeve Group was a contractor to the Tobacco institute.

At this time they enlist as their champion, Presidential candidate, Jack Kemp, a long-term tobacco supporter and campaign-fund receiver.The President began to back off and starts disowning Packwood.]

  • Thursday April 24: The Packwood II plan appears. Individual and corporate rates are rock bottom, but excise taxes would go up to $25 billion. Senator Packwood denies authorship; he blames David Brockway, the chief of staff of the Joint Committee on Taxation

Wednesday April 30: The CEO Tax Group, a group of chief executive officers for tax reform endorsed Packwood II. But this led to the resignation of RJR Nabisco because the group had not objected to increased excise taxes.

  • Wednesday, May 7: The Senate Finance Committee voted unanimously for the most sweeping reform of the federal tax code since payroll withholding was introduced during World War II. The 20-0 vote capped a marathon session that sent to the Senate floor a bill the President said "basically meets" his requirement for tax revision. And it had been done without any change in excise taxes. [3]

1986 Mar-Apr A list of excerps from major newspaper editorials about the Packwood tax plan. [4]

1986 Mar 14 Sam Chilcote is replying to queries raised by Gene Knorr at Philip Morris, about the Consumer Tax Forum.

Dear Gene:
Earlier this week, we spoke of our early attempts to enlist the help of Bob Gray to build a coalition of business organizations opposed to excises. Gray's proposal is attached.

As you will read, this document outlines a fairly logical process. As such, we authorized Gray to recruit members for the coalition. Over the course of several months, it became apparent that the "Consumer Tax Forum" would not exist. There were several reasons:

Cost: To be credible, the Forum needed a broad base of funding. Other organizations were unwilling to make the financial commitment or were waiting to see if others would make the commitment first.

Trust: In many instances, business coalitions have been formed to fight tax packages. These coalitions are strong only as long as the tax package holds together.

Timing: We wanted to get ahead of the curve by forming a coalition before it was needed. Most organizations respond only to emergencies.

Today, the Packwood tax reform measures pose just such a threat. Ironically, this morning, two of our staff members are attending a meeting called by the American Truckers Association and attended by many of the groups described here, to oppose Packwood's excise-related concepts.

[This resulted in the formation of CART - Coalition Against Regressive Taxation]

An inability to create the Consumer Tax Forum prompted us to seek relationships with other groups opposed to excises. The strong support of Citizens for Tax Justice, the AFL-CIO, the League of United Latin American Citizens, the U.S. Hispanic Chamber of Commerce, the National Black Caucus of State Legislators and even the American Legion is the result of our change in direction back in 1983. [5]

1986 Mar 20 Tobacco Institute document: Background Update Of the Estimated Effect of the Packwood Tax Plan On the Price Increase Necessary For Cigarettes

If the deductibility of the excise taxes is eliminated, then most, if not all, of this tax increase will be passed on to tobacco consumers as price increases to cover the additional corporate taxes they will be required to pay, plus the indexed excise tax requirement.

On the basis of 1985 sales, and the level of federal excise taxes paid on cigarettes, the level of taxable sales would be: $4.5 billion / $0.16 = 28.125 billion packs — the remainder are either sent overseas as exports or to armed services, or to government institutions.

If the Packwood plan is adopted, and if the effective tax rate on tobacco corporations is 35 percent as in 1983, the increase in corporate income taxes would be about $1.83 billion.

It must be assumed that this tax increase will be passed on to consumers in order to maintain net income. This will cause a decline in demand on the base level of 28.125 billion packs. [6]

1986 Apr 11 The Tobacco Institute plans for State-by-State actions to generate opposition to the Packwood Tax Plan. [7]

Philip Morris also has a team working on the proble and they advise their CEO Hamish Maxwell to use Norman Ture of the Institute for Research on the Economics of Taxation (IRET) Philip Morris is proposing Coalition Activity of an "Apodosis-type Grass Roots Program" (following a meeting with Treasury Secretary Baker) [8]

1986 Apr 11 A Tobacco Institute confidential memo on "Regional Action Update on Packwood Tax Plan" says:

Wyoming counsel Bill Thomson reports that his White House sources say Reagan is getting "bad advice" on tax reform...Thomson says Reagan has been persuaded to sign 'anything' from the senate that has the tax reform label ... idea is that White House can then say Reagan has made the most sweeping tax changes since JFK. [9]

1986 May 8 The Heritage Foundation's Bruce Bartlet was initially an enthusiastic supporter of the Packwood Plan.

Packwood's Alchemy Could Make Taxes Simple and Fair

In a feat worthy of an alchemist, Senate Finance Committee chairman Robert Packwood, the Oregon Republican, has managed not only to salvage tax reform from a seemingly near certain death, but to transform it into a radical rewrite of the entire tax code. Packwood's accolades are well-deserved.

Two distinct ideas have provided pressure for tax reform: first is the traditional liberal idea that 'loopholes' should be plugged to make the 'rich' pay their 'fair share'; second is the more recent compelling 'supply-side' idea that marginal tax rates (the tax rate on the last dollar earned) should be as low as possible to stimulate risk-taking and work effort. The overarching goal, therefore, was to limit tax deductions and use the revenue gained from that to lower the marginal tax rate in a way that maintained total tax revenues at their present level.

The Senate Committee's unanimous proposal goes a long way toward achieving this goal. Marginal tax rates would be cut dramatically to just 27 percent, compared with the 70 percent rate when Ronald Reagan took office in 1981. Indeed, the top rate under Packwood's plan is even lower than that proposed by either Senator Bill Bradley (D-NJ) or Congressman Jack Kemp (R-NY), the two congressional leaders most closely associated with tax reform.

To obtain the revenue necessary to achieve this low rate, the plan envisions several steps to reduce the tax preferences available in the current code. Among them: by ending many incentives, taxes on corporations would rise by about $100 billion per year, a stiffer minimum tax on corporate and individual earnings would be imposed, so-called "tax shelters" would be curtailed,, Individual Retirement Account (IRA) contributions would be limited, and the maximum tax rate on capital gains would be raised from 20 percent to 27 percent.


1986 May 9 A list of excerps from major newspaper editorials and op-eds about the Packwood tax plan. John Makin of the American Enterprise Institute is one who is quoted:

John H. Makin, American Enterprise Institute, in The New York Times.
A First-Rate Tax-Reform Bill
Senator Packwood's proposal satisfies the basic criteria for tax reform.,The Packwood plan is closer to what President Reagan wanted out of tax reform than his own plan. Its top rate is well below 35 percent, it allows a $2,000 personal exemption, it takes the poor off the tax rolls and it is revenue-neutral.

1987 Oct 8 Taxation and Accounting: Excise Taxes: Poor would be hard hit by tax hikes, study shows. This illustrates the consequences of their battle over Packwood. They are now fighting against a revised Gramm-Rudman Law which requires $23 billion in deficit reduction for fiscal 1988

Thomas Donohue, president of CART and the American Trucking Associations, told a news conference that "even a small dose of excise taxes would be bad medicine for low-income taxpayers." The study analyzes two alternative increases in alcohol, tobacco and gasoline excise taxes. One alternative assumes only half of the needed revenue —$6 billion —will come from excise tax increases. The second assumes that all the needed revenue will come from excise taxes.

Donohue said that excise taxes are the most regressive of taxes and would have an overwhelming negative impact on families making below $20,000, and would discriminate against narrow groups of consumers and businesses. Donohue declined to suggest an alternative revenue source, but said that any revenues should be paid for fairly. He ruled out an increase in income tax rates. The trucking industry, which experienced 1,500 bankruptcies in 1986, would be "devastated by a jump in excise taxes," Donohue said. He predicted that because of the time lag in the trucking industry for changing price structures, the bankruptcy rate for mid- and small-sized firms would double and the survivors would be forced to let go "thousands" of employees.

CART, formed in March 1986 to oppose excise tax and tariff increases proposed as part of tax reform, is made up of major retail and industrial trade associations. []

CART was under the control of the American Trucking Associations's President Thomas J Donohue.

Donohue was a lobbyist who worked at, and through, the National Chamber Foundation and became its President also. He was also President of the Center for International Private Enterprise, which was a core institution of the National Endowment for Democracy. He had a $3.7 million salary, a chauffered Lincoln, and a leased jet aircraft. He was the sixth highest paid lobbyist in the country.)

Packwood's downfall

Only the final stages of this saga ...

1990 Jun 12 Friends of Commercial Speech, Inc (512 Eleventh Street, SE Washington --- Fax (202) 544 0966) are circulating to the Tobacco Institute a computerized form letter trying to promote the idea that they are under attack from Al Gore and Joseph P Kennedy II. to

  1. Professional athletic organizations
  2. Olympic sports
  3. Amateur sports organization.

This operation is being run by

1992 Oct 1 Arthur Stevens of Lorillard writes to Smith, expressing the industry's gratitude for his actions on behalf of advertisers. [13]

1992 Nov The Washington Post carried a story which detailed claims against Senator Packwood for sexual abuse and assault by ten women, chiefly former staffers and lobbyists.[1]

1992 Dec Packwood defeated Democrat Les AuCoin in the elections. Publication of the Washington Post sex-abuse story has been delayed; Packwood had denied the allegations. and the Post had not gathered enough of the story at the time.

As the situation developed, Packwood's diary became an issue. Wrangling over whether the diary could be subpoenaed and whether it was protected by the Fifth Amendment's protection against self-incrimination ensued.

He did turn over 5000 pages to the Senate Ethics Committee but balked when a further 3200 pages were demanded by the committee. It was discovered that he had edited the diary, removing what were allegedly references to sexual encounters and the sexual abuse allegations made against him.

Packwood then made what some of his colleagues interpreted as a threat to expose wrongdoing by other members of Congress.

The diary allegedly detailed some of his abusive behavior toward women and, according to a press statement made by former Nevada Senator Richard Bryan, "raised questions about possible violations of one or more laws, including criminal laws." [2]

1995 Mar 3 Arthur Stevens of Lorillard sending Craig Smith a check for $2,000 representing Lorillard's

"1995 contribution to the Freedom of Expression Foundation ... for your efforts in support of First Amendment and related commercial free speech and advertising matters." [14]

[Note this has ben ccd to The Honorable Robert Packwood , US Senate. They needed to let him know they were still paying his bribe.]

1995 Sep 7 Senator Packwood has finally announced his resignation from the Senate after the Senate Ethics Committee unanimously recommended that he be expelled for ethical misconduct. Soon after leaving the Senate, Packwood founded the lobbying firm Sunrise Research Corporation. The former senator used his expertise in taxes and trade and his status as a former Senate Finance Committee chairman to land lucrative contracts with numerous clients, among them Northwest Airlines, Freightliner Corp. and Marriott International Inc

1995 Nov 1 Josh Slavitt of Philip Morris is memoing his group over a San Francisco adverting ban they were fighting. He lists the allies that can be recruited to support their defense:

    • From the ad expert side, Michelle Wolfe is in the Marketing Department at University of California, San Francisco campus — she testified in Contra Costa and I understand did a good job. I will see if she is free. If not, her former PhD professor, Tim Meyer, has also appeared at similar hearings in other states.
    • Craig Smith - Freedom of Expression Foundation - is located in California (310-598-3444). He also teaches First Amendment Rights at University of Southern California. His organization can testify and he is more than willing to help out.
    • American Advertising Federation's Western Region office is also Headquartered in Los Angeles. I'll call them and ask that they get in touch with you. Their Executive Director should also be called on to testify.

  1. Robert Packwood in Wikipedia
  2. See Robert Packwood in Wikipedia