Maheu was ecstatic. “Howard, we have secured a group of highly qualified men to handle our Washington problems,” he crowed. “Thanks to your foresightedness, the availability of O’Brien is perhaps the coup of the century. I am sure that we have no situation pending which O’Brien, Long and Danner cannot handle to your satisfaction.”
But Hughes was not satisfied. A secret exemption for his charity was not enough. He wanted a major part of the whole tax law entirely rewritten.
“I am horrified,” he wrote.
“You assured me the new tax bill was not going to be unacceptable to me, and that you were not needed in Washington during these critical days because everything was under control.
“I have just heard on the news that the capital gains tax will be increased, and very substantially. I am afraid your refusal to make an all out effort has resulted in a tragedy.”
Maheu took it all in stride. With his new team of fixers, nothing was impossible.
“I am so happy that you called to my attention your interest in the capital gains portion of the Tax Reform Bill,” he replied. “We were able to hold meetings with O’Brien, Long, Danner, Morgan and I present. We studied in depth the House version and the Senate version. Fortunately, among the five of us, we have excellent entrees to every member of the Committees involved.
“We do not intend to leave one stone unturned. We also intend to call to the attention of the President how unpopular this particular portion of the Bill would be to those who undoubtedly account for perhaps 80% of the political contributions needed for a national campaign.”
Richard Nixon had problems of his own. He too was against the capital gains hike, but the Democratic-controlled Congress was in open rebellion, and that was the least of his problems with the new tax law. The president’s real concern was quite personal. Like Hughes, Nixon was preoccupied with his own private philanthropy.
While Congress debated a complete overhaul of the country’s revenue code, the president focused on one minor provision—the repeal of charitable deductions for donations of documents. Nixon had been planning to make a gift of his prepresidential papers to the National Archives. In return for a half-million-dollar tax break. Now he had a real dilemma. Throughout the fall the effective date of the repeal fluctuated. Not knowing what the final cutoff date would be, Nixon withheld his gift until he was sure he could claim his deduction, while his chief White House lobbyist, Bryce Harlow, pushed Congress to leave the loophole open, at least long enough for the president to slip through.
In his strategy sessions with Harlow, Nixon kept raising another concern: the Hughes-O’Brien alliance. The president had learned about it a year earlier from his pal Rebozo, who had heard it from Danner, who had heard it from Maheu, just months after O’Brien first journeyed to Las Vegas. Larry O’Brien and Howard Hughes! The connection would never be far from Nixon’s mind in the years that followed, an obsession that grew throughout his presidency. And now O’Brien, the leader of the Kennedy gang, the former chairman of the Democratic National Committee, was actually out there lobbying Congress for Howard Hughes.
Nixon wanted all the details, all the dirt. Harlow kept bumping into O’Brien’s operatives, and every time he huddled with the president, Nixon kept asking him about O’Brien and Hughes.
“We discussed it as a matter of surprise and interest,” Harlow recalled. “I used to meet with the president every morning and in the evening, along with Haldeman and Ehrlichman and sometimes Kissinger. We’d sit there and chew the fat about whatever was going on, and from time to time that would pop up: ‘I wonder how Larry’s getting along with Howard Hughes.’ It seemed to us very odd that that arrangement existed and was acceptable to the Democratic party.”
Of course, Nixon also kept pressing Harlow to buy time for his papers, to save his big tax break. It was the president’s top legislative priority, but the issue remained unresolved as the tax bill headed for the final House-Senate conference.
Up in his penthouse, Hughes also sweated out the last crucial round. The capital gains tax had been cut, but not sufficiently, and his big charity loophole was still at risk.
“We have had our people in Washington practically sleeping on the Hill, watching every move that is being made,” Maheu assured his boss, but warned that he could expect no help from Nixon.
“The President continues to evidence his inability to control Congress insofar as the tax reform bill is concerned. Fortunately, we are not in an unfavorable position with that particular group because of your foresightedness in getting the O’Brien team aboard.
“I talked to O’Brien an hour ago and he has no fear about being able to incorporate language which is beneficial to us when this whole matter goes to conference.”
On December 22, 1969, the House-Senate conferees emerged from five days and nights of intense negotiations with a compromise version of the Tax Reform Act. It was swiftly approved by the full Congress the same day.
Larry O’Brien had come through. Howard Hughes had won an incredible victory. The historic new law would affect virtually every American taxpayer, every business, every corporation. Even the long-sacred oil-depletion allowance was cut. And more than thirty thousand tax-exempt organizations came under strict new controls. The Ford Foundation, the Rockefeller Foundation, and the Carnegie Endowment were all brought under the law. But not the Howard Hughes Medical Institute. It was completely exempt, thanks to Larry O’Brien.
Hughes did not thank him though. The philanthropist did not celebrate his great victory, did not appreciate the secret deal that saved him tens of millions of dollars, saved his control of Hughes Aircraft, saved all his kickbacks, saved his entire tax dodge.
“I am naturally gratified that the changes in the language of the tax bill (as it relates to foundations) will make it unnecessary to revise the by-laws of HHMI,” wrote Hughes, grudgingly.
“This is nice, Bob, and it is a convenience I appreciate.
“However, I hope you realize how totally insignificant this piece of news becomes, if it is accompanied by the report of an increase in the capital gains rate.
“I have pointed out at great length and with great emphasis that the affairs and funds of HHMI lie on the other side of the great wall, as far as I am concerned.
“I further explained that HHMI has plenty of resources, is well provided with money for its future activities,” he continued, casually dismissing the threadbare charity he had milked dry, “and therefore that a dollar in the treasury of HHMI did not have a value to me approaching anywhere near the value of a dollar in the treasury of Hughes Tool Company or a dollar of my personal funds.
“Therefore, you can readily appreciate that the present plans to increase the capital gains tax strike right at the very heart of the only area from which I have any hope of obtaining any profit of any consequence at any time from now on.
“So, Bob, please put this project at the top of the list, where it should have been all along,” he pleaded, once more demanding that the tax law be rewritten—but not selfishly, not for him alone.
“It is also the only source of substantial income for any other moderately wealthy man, whether he is a corporation executive, a broker, investor, financier, or what have you.
“It appears to me that the bill would be devastating to almost everybody in the nation, except those in the very lowest income brackets.
“Please report at once, Bob, I am more worried about this than about anything else that has happened at any time during the entire period of our relationship.”
Hughes need not have worried. The new capital gains rate would hardly affect him at all. Hughes Tool had already slipped through its own special loophole, designed to benefit struggling small businesses—corporations with ten or fewer shareholders. That of course included Hughes Tool, which had only one. From now on, his holding company would pay no capital gains, indeed no corporate tax at all.