In the summer of 1982, Senator Bob Dole, then chairman of the Senate Finance Committee, and Representative Dan Rostenkowski, then chairman of the House Ways and Means Committee, introduced legislation to withhold taxes on interest from bank accounts and dividends from securities. Proponents of the bill argued that most other types of income were already subject to withholding and that this legislation would simply plug a major tax loophole and tap a notorious source of unreported income. Arguments of this kind apparently convinced large majorities of both houses of Congress, and just before the August recess, the bill comfortably passed the Republican-controlled Senate and the Democrat-controlled House. The bill was signed by President Reagan and was scheduled to take effect within the year.

Fearful, however, of the multibillion-dollar cost of enforcing the law, the banking industry dropped “the hydrogen bomb of modern day lobbying, an effort whose firepower was awesome, whose carnage was staggering. In one fell swoop down went the chairman of the Senate Finance Committee, down went the chairman of the House Ways and Means Committee, down went the Secretary of the Treasury, down went the president of the United States” (Taylor 1983, A12).