Ronald Reagan: Welfare Queen of Montana

By Rick Perlstein, Rolling Stone

11 February 12

ere is one thing we know about Mitt Romney: He loves Ronald Reagan (or at least he does now). Here is another: He also loves the Cayman Islands. It's something he kind of shares with the Gipper: creativity in sheltering his fortune from the prying eyes of tax collectors. But here's something he does not share with Ronald Reagan at all: skill at waving his hands and making the story go away. Not many people remember this now, but when Reagan was governor of California in the early 1970s, it came out that he'd paid no state income taxes - none - one year, despite being a wealthy man. And yet, he went on to run - twice - for the highest office in the land, without the revelation making any sort of dent at all. Learn from the master, Mitt.

It happened like this. One Friday in late April of 1971, a student-operated radio station at Sacramento State College reported that Reagan's 1970 California tax return claimed the governor owed precisely zero dollars and zero cents.

Brazen stuff. For one thing, Gov. Reagan pulled his tax dodge during an election year, when he was running for a second term. For another, his big crusade after reelection was fighting the Democratic legislature's attempts to institute tax withholding on salaries to make up for a budget shortfall. He wanted people should know exactly what they were paying; "taxes should hurt," was his slogan.

The following week, the story was the talk of the State Capitol. At Reagan's weekly press conference, after he announced the state was running so short of cash that by fall it would be forced, for the first time since the Great Depression, to rely on outside borrowing to pay the bills - because, of course, Democrats were "playing fast and loose with the fiscal integrity of this state for purely partisan advantage" - a newsman asked him if it was true that he himself had contributed nothing to state coffers the previous year. Obviously taken aback, he responded slowly: "You know something? I don't actually know whether I did or not. I'd have to check up .... I have a fellow making it our for me — a lawyer makes it out." He added, "I know in the federal the last couple of years I got a rebate back."

Five minutes after the press conference his office released a one-sentence statement: "Because of business reverses of Gov. Reagan's investments, he owed no state income tax for 1970."

Well. The UPI wire service did the accounting. It turned out that, in addition to his $41,100 salary as governor, for which a Californian would ordinarily owe $2,700 without deductions, Reagan had sold 236 acres of his Yearling Row Ranch in the Malibu Mountains in 1968 to 20th Century Fox studios for a reported $1.93 million. (To figure these sums in current dollars, multiply by a factor of about 5.5). He refused to say how this all added up to an absence of taxable income. He also refused to make his tax records public, or say what the "business reversals" were - refused with a vengeance. Arriving at the Capitol the next day, asked whether he would clarify his federal tax status, he answered, "Why should I have to clarify the status? Frankly, I think the Capitol press corps demeaned itself a little by engaging in invasion of privacy." (Turn the question around, playing the victim card against the wicked jackals of the press: Newt Gingrich would absorb the lesson well.)

As the kerfuffle grew, Reagan stuck to his guns. It was, he insisted, the patriotic thing to do: "We fought a war about that!" he snapped. "I say all men have a right to be safe in their books and records. That's what the revolution was all about." And he claimed the return had to have been leaked by a temporary worker hired to open tax returns - which would mean the Capitol press corps was abetting a crime.

The story made the New York Times four days after it broke: "Suddenly this spring," the paper noted, "Governor Ronald Reagan has become embroiled in one of the bitterest controversies of his four-and-a-half year career." Well, not really. Actually, the issue never much took off. Only one politician proved palpitatingly ambitious enough to take advantage of the story and release his own taxes. His name was Jimmy Carter. Of the networks, only ABC paid attention, giving the story all of twenty seconds. And the Democrats were too high-minded in their attacks to be effectual: Certain the governor had done nothing illegal, they spoke earnestly of changing the laws. (Buffett Rule-a-go-go: "It's interesting - or perhaps saddening - that an unskilled laborer with an income of $5,000 a year paid more state taxes than our governor," a California state senator commented to the Times.) As today - see Colbert, Stephen - it took jesters to really speak truth to power. The California Welfare Rights Organization attempted to present Reagan with a "Highest Paid Welfare Recipient" award; Fresno State students organized a canned-food-and-clothing drive to help the governor through hard times. (A libertarian group on the same campus, conversely, sent him a sincere note of congratulations: "You are a true tax rebel.")

Meanwhile, conservative titan William F. Buckley charged to his hero's defense, in terms that would become familiar Romneyian parlance: "Somebody, giving pause to the demagogic imperative to tirade against wealthy men, should point out that if a rich man pays no taxes 'because of business reverses,' that means that he is - net - less well off than he would have been if he had paid taxes." Liberal columnists Frank Mankiewicz and Tom Braden weren't buying it: "What he really was talking about were the paper reverses that abound in the tax field, artificially created expenses and deductions which cancel out income and profits."

They were right, and Buckley was wrong. One month later, the Sacramento Bee broke the story of how things really went down with Reagan's taxes, and it was a doozy. The governor had contracted to have cattle he owned "managed" by a company called Oppenheimer Industries, which in its brochures advertised to clients with a net worth of at least $500,000. "Federal tax laws favor cattle if you pick the right kind and stick to the rules. Herds of beef cows top the list. When you buy them, you become a farmer and can keep your books on a cash basis. You put in dollars that depreciate or are deductible. You take out capital gains." Voila: newly minted cattlemen - their ranks, the Bee reported, also included Jacky Benny and Alfred Hitchcock - "lose" enough money on cows raised hundreds or thousands of miles away "to avoid or postpone payment of any income tax, state or federal."

The New York Times was the only outlet to follow up. The paper tracked down a Montana rancher who domiciled beasts for Oppenheimer. "This is strictly a tax dodge on their part," he attested. The Times also found nifty brands signifying ownership by the "Reagan Cattle Company" on steer in three different states - a "Trident Bar R" mark in Wyoming, "Gunsight Rocking R" in Nevada, and "Gunsight R" in Montana. (Reagan had, to be fair, starred with Barbara Stanwyck in the 1954 Cattle Queen of Montana.) The Times also found a copy of Reagan's contract, "signed for him by his personal attorney and close friend, William French Smith." Long-memoried political junkies of a certain age will recall that President Reagan later named Smith attorney general of the United States.

The governor's defense was rice-paper thin: "I have been interested in cattle, horses, and ranching all my life. It is an ordinary part of my business and I intend to continue with it even if it is a relatively small investment." The question-begging was magnificent: If this was only a small investment, how were the reverses big enough to erase his tax bill? But the media response to this extraordinary scoop was - hardly anything at all. Few newspapers picked it up; no newscasts did. And, what was extraordinary, as Reagan became a more and more prominent figure and eventually the Leader of the Free World, the blot on his character created by the bald-faced lie simply disappeared.

Yes, the fact that he admitted to having paid no state taxes in 1970 recurred as boilerplate in years to come, in dozens of articles - but with the "business reverses" explanation always appended, unquestioned. (In a typical one - I love it - his gubernatorial successor Jerry Brown, known as "Governor Moonbeam," explained that he didn't bother to claim all his allowable deductions because "it doesn't turn me on." Brown is currently on his second tour of duty as California governor.) Occasionally, the fact that Reagan had availed himself of a "tax shelter" would be noted, but never that he had lied about it. Most of the time, "business reverses" played. When asked about it, he would respond in wounded, whining tones, insisting that he would have loved to have paid more; after all, who wanted to have had a bad fiscal year? And that would be that.

In 1976, Reagan ran for Republican nomination against President Gerald Ford. In January of that year he released an anemic little statement totting up the amount of taxes he had paid over the previous five years. On February 15, Ford's own tax release story broke - the modest Michigander had only $1,230 in the bank and paid nearly half of his salary in taxes - and Reagan took the occasion to adamantly refuse any further disclosure of his own. As it happened, February 15 was also the day Americans were introduced to another story about Ronald Reagan and taxes when New York Times ran an item featuring a centerpiece of Reagan's presidential campaign rhetoric: a "welfare queen" who, he claimed, fictitiously, "has eighty names, thirty addresses, twelve Social Security cards and is collecting veterans benefits on four non-existent deceased .... She's got Medicaid, getting food stands, and she is collecting welfare under each of her names. Her tax-free cash income is over $150,000." He almost won the Republican nomination - and in a year in which a post-Watergate climate of financial disclosure was supposedly the public's obsession. His tax lies made no appreciable difference. Certainly fewer people know about them than "know," say, that "Al Gore claimed to have invented the Internet."

Nancy Reagan, after the dust-up in 1971, said she hoped her husband would never run for another office again, because though she'd "always believed that people are basically good, and I'm trying very hard to hold on to that," politics was "dirty." (She claimed, too, "We've never avoided taxes. We've never taken advantage of anything.") Apparently, she got over it. Her husband admitted he told his accountants, after the flap, to make sure he paid taxes. And by his next time 'round the track, running against Jimmy Carter in 1980, he'd gotten over his aversion to financial disclosure, his accountants by then having padded things nicely so as to avoid unwelcome insinuations.

"After resisting such disclosures for years as an intrusion of his privacy, Ronald Reagan Thursday released his 1979 federal tax returns and said that he paid $230,886 on an adjusted gross income of $515,878" - that was the Los Angeles Times, on August 1, 1980. Also noted, way down at the end of the story, was that Reagan had lately been coming under fire for having paid just .09 percent in property taxes on his million-dollar "Rancho del Cielo" in the Santa Barbara hills. No matter. From then on, no one talked much about Ronald Reagan's taxes. The Gipper had made the issue go away. He won the election. He became known as the "Teflon President" - nothing stuck to him.

Mitt Romney is a lot more sticky. Lacking the Reagnite gumption to hold fast in a hustle for more than a few weeks, his attempts at fending off scrutiny only attracted more questions - and by the way, in the four years he had between presidential campaigns, Romney apparently never thought to restructure his financials in any sort of deceptively benign way. Reagan, on the other hand, held off the dogs for almost ten years with a masterful repertoire of moves - wounded indignation, question-begging, subject-changing, and above all, brazen repetition. And he figured out how to rejigger his financial arrangements sufficiently so that he ended up owing a regular-guy tax rate when it came time to do a reveal that proved grandiose enough to close off any interest in further inquiry.

Governor Romney, I know Ronald Reagan. You're no Ronald Reagan.