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Texas two-step

In 1997, Texas Gov. George W. Bush tried to push through a broad tax restructuring plan in his state. The effort fell apart. But now, some say, the defeat has made him stronger politically.

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© St. Petersburg Times, published July 30, 2000

AUSTIN, Texas -- It was a warm Thursday afternoon in early March when the Lone Star State's most powerful politicians gathered at the Texas State Cemetery.

Gov. George W. Bush and Lt. Gov. Bob Bullock, Republican and Democrat, student and mentor, were within earshot of each other under a large white tent. They were joined by more than 500 politicians and bureaucrats celebrating the refurbishment of the final resting place of Texas legends such as Stephen F. Austin, Gov. John Connally and U.S. Rep. Barbara Jordan.

But the tombstone Bush highlighted in his remarks was an outline of Texas in the same pink granite used to build the state capitol. The marker stood ready not for a legend but for former Dallas legislator Ben "Jumbo" Atwell.

Bush, in the midst of his second legislative session, had a lot to learn. He did not know Jumbo still was among the living.

Bullock, who had spent nearly all of his adult life in Texas politics, enlightened him.

"Governor," he said in a stage whisper many onlookers could hear, "Jumbo Atwell is a lot more alive than your tax bill."

Jumbo lived another year after the cemetery's 1997 rededication. Bush's tax reform package was buried within two months.

The lessons, though, survive.

As Bush prepares to accept the Republican nomination for president this week at the GOP convention in Philadelphia, his failed effort to overhaul Texas' tax structure provides a glimpse of a leadership style that emphasizes compromise over confrontation and broad concepts over specific details.

At various points as he pushed his most sweeping initiative, Bush appeared to be naive, slow to counter opponents and unable to hold his ground. But in the end, the personal charm and pragmatism that have characterized his governorship and his presidential campaign proved to be enough to salvage a straightforward tax cut.

With legislators deadlocked over his proposed tax reforms, Bush did not vow retribution. He did not threaten to call a special session. He did not stand proudly on principle in defeat.

He embraced the possible.

After all, Bush reminded voters during the presidential primaries earlier this year, the $1-billion tax cut that legislators eventually approved in 1997 was still the largest in Texas history.

"To some people, a tax cut is a tax cut," said Tony Proffitt, a former aide to Bullock. "He ultimately got something out of it."

In that way, Bush fared better than other politicians who aimed high at ambitious reforms and missed. President Clinton salvaged little from his failed effort to overhaul health care in 1994. Gov. Lawton Chiles twice tried to persuade the Florida Legislature to overhaul the tax system in the early '90s and did not come close.

Bush lost and still won.

* * *

The tale of the Texas governor's biggest legislative gamble and failure unfolded against a backdrop of politics and tax policy that Floridians would find alternately familiar and foreign.

Both Texas and Florida have popular governors named Bush, the eldest sons of the former president. Together, they have steered the Republican Party away from the harsh rhetoric of the early '90s to a softer version of conservative philosophy aimed at a broader audience. It is a pitch that has resulted in endorsements from Democrats in both states and high approval ratings for both governors.

The Bush brothers also occupy historically weak executive offices in Southern states, where founders wary of concentrating too much power in the governor divided authority among a variety of elected positions. But there are significant differences.

In Florida, the governor and lieutenant governor run as a team. In Texas, they are elected separately and can be from different political parties. The Texas lieutenant governor holds more procedural power than the governor by presiding over the Senate, appointing committees and leading a powerful legislative panel that recommends a state budget.

The legislatures also are as different as the majestic Capitol in Austin and the colorless 22-story tower in Tallahassee.

The Florida Legislature is firmly controlled by Republicans, has 160 members and meets for 60 days every year. The Texas Legislature, or "the Lege" as folks around Austin call it, has 181 members, meets for 140 days every other year and divides power between the political parties. Democrats control the House and Republicans control the Senate, often sharing chairmanships and power in an arrangement in which differences frequently are based more on geography than partisanship.

The result is that George W. Bush must rely more heavily on force of personality than law to get his way in Austin compared with his brother Jeb in Tallahassee. And by all accounts, the presidential candidate with the ready wink, confident grin and quick embrace has been good at that part of the job.

One of his earliest and most important converts was Bullock, the larger-than-life lieutenant governor who died of cancer last year. Bullock was 17 years older than Bush, a Democrat and the most powerful politician in Texas. He had been a state legislator, secretary of state and comptroller before becoming lieutenant governor. And he tended to colorfully say what was on his mind, just as he dryly corrected Bush at the cemetery.

Proffitt, lobbyists and legislators say Bullock had become disenchanted with Gov. Ann Richards, concluding she hogged the media spotlight but dodged the heavy legislative lifting. Even before Bush defeated Richards in 1994, Proffitt recalled, the candidate with the famous name and no political experience came by Bullock's house in Austin as the older man was recovering from heart bypass surgery "to say, "I'm going to win, and I want to work with you.' "

Then Bush followed through.

As Jeb Bush was losing to incumbent Gov. Lawton Chiles in November 1994 in Florida, George W. Bush was defeating Richards by focusing on four popular issues: education, crime, welfare and tort reform. Those issues already were on the Legislature's radar, and Bush worked with Bullock and other members of both parties to tackle all of them in his wildly successful first session in 1995.

He also proved to be a world-class schmoozer.

Bush would visit with any legislator who came by his office. Often, he would walk the Capitol halls and drop in on them. Or he would travel to their districts for a dinner or a high school football game. He and his wife, Laura, and their twin teenage daughters fit Texas like boots and barbecue.

"If you would take them and those two girls and put them in a Ford Explorer and put them in any upscale neighborhood, they'd fit in," Proffitt said. "It was clear people liked his style, liked his issues."

So did business lobbyists who had seen governors come and go.

"He is the only governor, actually the only statewide elected official, I've ever known who I would feel comfortable to have over to the house, sit on the back porch, eat barbecue and watch the sun go down," said William Allaway, president of Texas Taxpayers and Research Association, a business lobbying organization.

To ensure he didn't get sideways with legislative leaders, Bush kept a standing date with Bullock and House Speaker Pete Laney, a West Texas cotton farmer. Every Wednesday morning, the Republican governor would eat breakfast with the two Democrats. Sometimes they met at the Governor's Mansion, sometimes at a spot chosen by the legislators. Never with staff members or reporters listening in.

But when Bush prepared for his biggest initiative in just his second legislative session, he abandoned that collegial approach in a move that would prove to be a costly error. The issue he chose to make his break was one that always has burned politicians, including his father.


* * *

Texas and Florida, two booming Sunbelt states without solid financial underpinnings to pay for the growth, stubbornly have clung to their outdated tax systems for decades. They are among just seven states that have no income tax. They rely heavily on the state sales tax, which leads to huge surpluses in good economic times and shortfalls in bad times. They tax businesses, but many types of services and partnerships benefit from various loopholes.

But Texas has a different method for paying for its public schools. It is a system that has been scarred by court fights, voter uprisings over high property taxes and inequities between affluent suburbs and poor urban and rural communities.

Florida uses state tax dollars to boost local education spending and keep local school districts on roughly equal footing. In Texas, the state covered less than 47 percent of public school spending. The rest was covered by local property tax funds, and some local school districts already were hitting the maximum tax rate. Meanwhile, property tax money from affluent school districts was shifted to subsidize poorer districts in a so-called "Robin Hood" scheme.

"In the near future, we could have seen the entire school financing system back in the courts, which nobody wanted to see happen," Bush spokesman Ray Sullivan said.

So Bush set out on a mission without an army of supporters behind him.

The governor appointed a study commission that spent 1996 researching the problem and holding 14 public hearings throughout Texas. But it looked to legislators and other observers like just another panel spinning its wheels. Although Bush later would describe the tax system as a crisis waiting to happen, there was no sense of urgency in the Legislature or among voters to tackle a sweeping overhaul.

Yet he plunged ahead.

The governor quietly worked on his plan for months with his top aides and few others. Then he surprised both Bullock and Laney with the details in his 1997 State of the State address before the entire Legislature.

Bush wanted to cut property taxes that supported public schools by $3.6-billion. To cover the cost, he proposed creating a business-activity tax that would apply to all forms of businesses, raising the 6.25 percent state sales tax by a half-cent, and using $1-billion in state surplus.

That would have increased the state's share of spending on public schools from 47 percent to 63 percent.

"I know tax debates are tough," Bush told legislators in his speech on the opening day of the legislative session in January 1997. "I know fair funding for schools is difficult. This won't be easy."

Bruce Buchanan, a University of Texas political science professor, was impressed.

"This guy was showing some guts," he said recently. "A Republican trying to raise taxes on business even with the fig leaf of a tax cut? To me, the most important part was here's an effort trying to solve a real problem."

Other reviews weren't so flattering.

Bullock and Laney, unaccustomed to surprises from the governor, were lukewarm in their responses. Bush said later he intentionally avoided giving them advance warning.

"I was very aware what their reaction would be: "We need the (surplus) for other programs,' " the governor told Time magazine earlier this year.

Some of Bush's big business contributors, including oil companies, were happy about the proposed property tax cuts because they would have benefited as large land owners.

Many others were not.

Under Bush's plan, lawyers, doctors, accountants, architects, investment firms and other types of partnerships with high labor costs that provided services would pay a business tax for the first time. Those new taxes, opponents complained, would result in higher costs to customers.

"It still baffles a lot of us to this day. What was he thinking?" asked Tom Pauken of Dallas, who was the state Republican Party chairman at the time and recalled an unpleasant conversation with Bush. "He said, "I expect you'll support it.' And I said, "It's not personal, governor. It's not a conservative plan.' "

The reception wasn't much better when Bush went out on on the trail.

Bush had support from some newspaper editorial pages. But he often received a cool reception when he made his pitch in cities such as Houston and Dallas and in smaller towns such as Midland and Odessa.

William Sheetz remembered hearing Bush promote the plan in a downtown Dallas hotel where more than 200 members of the Rotary, the Chamber of Commerce and other civic groups had gathered. The lawyer said he was impressed by the governor's performance.

"It wasn't any of this politics mumbo-jumbo," said Sheetz, who nonetheless disliked Bush's proposal. "I knew it would be a hard one to swallow. It appeared to me that the smaller businesses were going to be the ones who were going to be left holding the bag and that the larger entities would be able to exercise certain advantages."

Rep. Tom Craddick, the ranking House Republican who sponsored Bush's tax reform package, accompanied the governor on some of the barnstorming trips.

"Everybody told him he was crazy. "Why get into something like this when there is not a crisis?' And Texas moves from crisis to crisis," Craddick said. "But his deal was, "It needs to be done, we are going to have a crisis and I am willing to spend my political capital.' "

From the beginning, the Republican legislator says now, neither he nor Bush expected the governor's proposal to pass intact. Craddick said they viewed it as a starting point. But the discussion quickly took a turn they did not anticipate.

* * *

In Texas, tax bills must start in the House. Laney outmaneuvered Bush allies by creating a powerful special committee that was stacked with Democrats to review the governor's proposal. The committee, led by Rep. Paul Sadler, an east Texas trial lawyer, immediately charted its own course and spent weeks grilling Bush officials and others.

"They started ripping it right from the beginning," Allaway said. "I started saying halfway through the session that what was going on was a trial."

The committee's verdict: a far more ambitious tax package than Bush envisioned that included deeper cuts in property taxes but shifted a heavier burden to businesses.

Throughout this period, legislators and lobbyists say, Bush remained in the background. Only when it came time to push the reworked package through the House late in the legislative session did the governor step up his lobbying efforts.

Bush's intentions were more pragmatic than philosophical. Whatever the House passed, the thinking went, could be fixed with Bullock's help in the Senate.

With the House speaker insisting that any tax package include support from Republicans as well as Democrats, Craddick recalled countless meetings in the governor's office on the second floor of the Capitol. Some House Republicans came alone. Others arrived in small groups. Bush would open the meetings by making his case, then Craddick or the governor's aides would answer specific questions.

"He'd start out very precise, and he'd lay it out real quick," the legislator said of Bush's approach. "He didn't yell and say, "You can't do this' or "You've got to be with me.' He said, "I need your help.' "

If a Republican legislator told Bush he or she feared opposition in a primary election if they voted for the plan, the governor volunteered to campaign for the legislator. Those who pledged their vote immediately saw a check placed by their names on a large magnetic board in Bush's office.

The hard sell worked up to a point.

In late April, the House approved the tax overhaul plan 95-49. But Republicans were divided, with 32 voting for it and 34 voting against it. And the legislation looked almost nothing like Bush's original proposal.

Most significantly, the House's plan had tax increases of $3.8-billion, nearly twice as much as the governor's original proposal, and deeper property tax cuts. That was too rich for the Republican-controlled Senate.

There were just five weeks left in the session.

"Bullock called him up and said, "Governor, it's your party killing your tax bill. Let's make that clear,' " Proffitt said. "I think Bush gave up and thought he could get it fixed in the Senate. But when it got to the Senate, they said not only no but hell no."

The Senate wound up approving a far more conservative plan. It included just $800-million in tax increases and emphasized a straightforward property tax cut.

The stage was set for a conference committee of House and Senate members to hammer out a final compromise. But neither chamber's bill looked anything like the governor's original proposal. The House's was far more ambitious, and the Senate's was far more conservative.

For the most part, Bush stayed out of the negotiations between the two chambers until the final days. By the time he jumped in, it was too late. Despite around-the-clock meetings and Bush's intervention, it proved to be impossible to bridge the gap between the two vastly different approaches.

Craddick, who participated in many of the meetings, said he broke the news to Bush late one Friday night in the governor's office.

"He was stunned," the legislator said. "You could just see it in his face. I think he thought this deal was going to be done."

Instead, Bush found himself holding a news conference on a Saturday afternoon in late May, conceding defeat.

"We made a noble attempt," the governor told reporters. "We gave it our best shot, but we were not able to find common ground."

Buchanan said the collapse of Bush's biggest initiative underscores a weakness in the Republican's approach.

"He doesn't take the bold step, which would have been to go public and use the bully pulpit," Buchanan said. "It was clear he couldn't get this in a collegial way, and he didn't want it bad enough."

By then, of course, it was clear that Texas voters as well as legislators had no stomach for a major tax overhaul. They did not sense an impending crisis, and Bush could not convince them in good economic times that a crisis eventually would develop.

"The governor worked hard to make the case for a tax cut and tax restructuring plan," said Sullivan, the Bush spokesman. "He worked hard to keep the process moving through the Legislature, but ultimately there was not the legislative will to pass a tax restructuring plan."

Instead, the Legislature approved a straightforward $1-billion property tax cut paid for through the state's budget surplus. The school financing crisis Bush predicted was delayed but not solved.

* * *

Bush returned to a more cautious approach to the 1999 legislative session as he prepared to run for president. The Legislature approved nearly $2-billion in tax cuts last year, but Bush did not say a word about the sort of tax reforms he once had pushed.

As he geared up his presidential campaign, Bush would characterize his biggest defeat as governor as a victory. In television ads and in speeches, he would remind voters that the Texas tax cuts from 1997 and 1999 added up to nearly $3-billion.

"I have actually done the work of passing tax cuts," Bush said in a December 1999 speech in Des Moines, where he outlined his proposed federal tax cuts. "Of persuading Democrats and Republicans to join in the two largest tax reductions in Texas history."

He would make the same point in television ads, even as Steve Forbes and others argued that the 1997 tax cut was illusory. Forbes and others contended that any tax cuts were eaten up by rising property values in many school districts.

"In Texas, you're only as good as your word," Bush said in one ad. "In 1997, I cut taxes $1-billion."

Whatever discomfort Bush's 1997 tax reform effort caused some business owners, political conservatives and other allies in Texas has evaporated. Bullock endorsed Bush's re-election in 1998, and his widow is expected to speak Thursday at the Republican National Convention. Key Democrats in the Texas Legislature are defending Bush from Vice President Al Gore's claims that the governor's tax cuts have created budget problems.

"I am behind him 100 percent," said Sheetz, the Dallas lawyer who didn't think much of Bush's proposed reforms three years ago. "I think it was a little far-reaching for the moment, and I don't think the business community and the state at large were in a position to swallow it hook, line and sinker."

Pauken, the former state Republican Party chairman whom Bush once called "his least-favorite Republican in Texas," said Texas voters are focused on defeating Gore. Opinion polls show Bush leads Gore with 70 percent of the vote in his home state.

At the Republican convention this week, Bush will try to persuade voters there is another looming crisis. This one involves Social Security, and he will promote his ambitious plan to let younger workers invest a portion of their payroll taxes into personal investment accounts.

It is an opportunity Bush easily could have missed.

If he had won his 1997 tax reforms and more businesses were paying state taxes, Pauken said, the governor may have had a tougher time winning re-election in 1998. He might not be poised to accept the Republican nomination for president this week.

That is the irony, the former Texas GOP chairman acknowledged. For Bush, his biggest legislative defeat turned out to be a good thing.

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