Sergeant Gramm, Reporting for Duty

The pugnacious Senate Banking Committee chairman has a new role these days: Rounding up the troops to close deals on Bushonomics

For weeks, Texas Senator Phil Gramm had been trying to help rustle up conservative Democratic votes for the President's $1.6 trillion tax cut. So Gramm took it especially hard on Apr. 6 when senators voted to slash the Bush tax plan by nearly 25%. What happened? While Democrat Senator Zell Miller of Georgia -- recruited by Gramm to co-sponsor Bush's tax cut -- sided with the GOP, defecting Republican moderates chose popular education and health-care programs over a bigger tax break.

The episode illustrates two things: The pugnacious, doggedly ideological Gramm may not be the guy to mount a charm offensive. And selling Bushonomics in a 50-50 Senate is going to be no easy chore. But Gramm sees it as just Round One in the budget battle. "It's not over until the President signs a bill," he declares. "And in the end, we're going to win."

Brave words. But if anyone can figure out how to manipulate the arcane rules of Congress's budget process to turn that boast into a fact, it's Gramm. Mr. Charm, he's not. But with a PhD in economics and a power base as chairman of the Banking Committee, Gramm wields clout extending far beyond financial issues. And he's a leading Senate voice on items dear to Bush's heart: taxes, spending controls, and reform of Social Security and Medicare.


  "I'm just a private in the [Bush] army," Gramm aw-shucks it. But with the economy on the skids and a conservative Administration intent on slashing taxes and restraining spending, Gramm has finally found the White House soulmate he has been hankering for since the heady days of the Reagan era. Hill observers say the 58-year-old free-market economist with the Georgia drawl is going to be at the center of the action -- and key to any Bush Administration successes.

Gramm has never shied away from battle, but after eight years of opposing Bill Clinton's tax-and-spending hikes, now he must get along with such GOP moderates as Lincoln Chafee (R.I.) and Jim Jeffords (Vt.), both of whom exercised their swing votes to move the Bush tax program to the left.

Playing to moderate sensibilities doesn't come naturally to the tart-tongued Gramm. He belittles Democrats' notion of a quick tax "rebate" to stimulate the economy: "You might as well drop $100 bills from an airplane," he says. And when Chafee fretted in a GOP conference about the wisdom of forcing the Bush plan through the Senate by 51-50, with Vice-President Dick Cheney casting a tie-breaking vote, Gramm snapped: "So you'd rather see it go down 51-49?"

Still, he's working to satisfy Democrats and GOP moderates who want to delay the tax cut's later stages if future budget surpluses fall short. He says he thinks Congress can design "a midcourse review" that "can give [moderates] reassurance without doing the economy or the President's program any harm."


  Gramm owes his current influence in no small part to his worst defeat: a failed run for the Presidency in 1996. Although he raised more funds in 1995 than any other GOP candidate, he finished an embarrassing fifth in the Iowa caucuses and pulled out before New Hampshire's primary. The sudden end to his Oval Office ambitions forced Gramm to choose between leaving public life and focusing on legislation. He decided to build his power within the Senate.

Two years later, when Senator Alfonse M. D'Amato (R-N.Y.) lost his reelection bid, Gramm took over as chair of the Banking panel. In 1999, his first year at the helm, he pushed through the Gramm-Leach-Bliley financial-modernization bill, wiping out Depression-era barriers between the banking, securities, and insurance industries. That cemented Gramm's reputation as a deal-closer. It also opened the taps for hefty political contributions: Financial interests have already given Gramm $742,894, or 46% of the funds raised for his likely 2002 reelection run, according to the Center for Responsive Politics.

Gramm isn't shy about raising money -- or using his committee perch to intervene in industry debates. When the Nasdaq stock market sought regulatory approval for a new trading system called SuperMontage, its electronic rivals enlisted Gramm's help to block it. The competitors -- such electronic-communications networks (ECNs) as Instinet and Island -- charged that SuperMontage would direct stock trades away from them and toward Nasdaq's big dealers. Gramm was soon refereeing the dispute, staging debates and negotiations in his office. Nasdaq made repeated amendments until Gramm was satisfied that SuperMontage would treat dealers and ECNs equitably.


  While Gramm's intervention prolonged the process, key players say his influence was largely positive. Arthur Levitt Jr., then chairman of the Securities & Exchange Commission, favored SuperMontage but notes that Gramm's intervention was above-board and reflected "his ideological commitment to competition."

But others say Gramm's motives aren't always so pure. He refused last year to even consider House-passed legislation to curb money laundering. House staffers point out that Texas bankers opposed the bill, which would have required them to keep stricter tabs on suspect customers along the Mexican border. Gramm insists that the proposed legislation gave the Treasury Dept. unconstitutional authority to seize property without judicial review.

The change of Administrations puts even more power into the hands of the Senate Banking chief. Top SEC officials say Gramm is screening Bush's candidates to replace Levitt as the commission's head. And friends of an early candidate, Texas securities lawyer James Doty, say Gramm torpedoed Doty's chances for the job because he felt Doty would be too much of a regulator.

Doty won't comment, and Gramm rejects both contentions. "People who are interested in the SEC have sought my advice and support because I chair the Banking Committee," he says. "I visited with [Doty] -- it was a nice meeting." The senator hasn't pushed any candidates of his own for the job, which has been open throughout weeks of market turmoil.


  Gramm is quick to downplay his clout with the Texan in the White House. When Bush told him to "call me anytime," Gramm replied: "Mr. President, that's not something I do." After 20 years in Washington, he explains, "I understand that if you know the President, his staff will be naturally and rightly resentful if you're always picking up the phone and calling him."

But with Gramm's agenda of tax cuts and budget control dovetailing so neatly with Bush's, he doesn't need a hotline to the Oval Office. "The President wants to do the same things I want to do," Gramm says, "and I'm here if he wants my help." These days, Bush needs that help more than ever. The question now: Given the obstacles confronting Bushonomics, can Gramm -- or anyone else -- deliver?

By Mike McNamee in Washington

Edited by Douglas Harbrecht