Six years ago, legislative leaders Gerard M. Martineau and William V. Irons strongly advocated reducing the Rhode Island capital-gains tax.

Martineau, the House majority leader, called it one of his priorities for the 2001 session.

Irons, the Senate leader, told a Chamber of Commerce group that CEOs such as Thomas M. Ryan of CVS deserved tax breaks, because they helped drive Rhode Island’s economy.

Today, the FBI is investigating that 2001 tax bill as part of Operation Dollar Bill, the federal State House corruption probe — one that could lead straight to Ryan, chief executive of the nation’s biggest drugstore chain.

On Tuesday, federal prosecutors filed a plea agreement in federal court in which Martineau admitted to selling his office to CVS and Blue Cross & Blue Shield of Rhode Island in return for paper- and plastic-bag contracts worth $900,000. Martineau is expected to appear in court in Providence tomorrow at 3 p.m. to enter his plea before U.S. Magistrate Judge David L. Martin.

As part of the agreement, Martineau acknowledged that “the government has developed evidence that the defendant also participated in and favorably influenced the outcome of capital-gains legislation at the behest of” CVS.

“The defendant understands that, because he is not admitting to any criminal conduct involving capital-gains legislation, he may be charged in the future with an offense or offenses related to the matter under investigation,” the plea agreement says.

Martineau and Irons, who has also come under investigation in Operation Dollar Bill, had personal and undisclosed financial relationships with CVS — Martineau as a bag salesman and Irons as an insurance salesman who reaped commissions on health-insurance policies for CVS employees.

Business leaders tell The Journal that Ryan was a strong advocate for the tax cut.

Ryan knew about Irons’ insurance business — Irons, through his lawyer, has acknowledged to The Journal that he asked his friend Ryan about getting the business. But CVS refuses to say whether Ryan knew about Martineau’s bag contracts, which Martineau was invited to bid on by another, unnamed CVS executive when the drugstore chain was seeking Martineau’s support on legislation.

Nor will CVS say if Ryan had any meetings or conversations with Irons or Martineau about the capital-gains legislation.

“That is part of an ongoing investigation,” said a CVS spokesman. “We have no comment.”

Martineau’s lawyer, former Attorney General James E. O’Neil, could not be reached for comment. Irons’ lawyer, John Tarantino, declined comment.

THE CAPITAL-GAINS tax bill grew partly out of an ill-fated attempt by Rhode Island corporate chiefs to reduce taxes for the state’s 4,800 richest citizens, recalls Edward Mazze, retired dean of the business school at the University of Rhode Island.

In 1999, Ryan and other corporate leaders, including Fleet Bank’s Terrence Murray and Hasbro’s Al Verrecchia, visited the State House and met privately with Gov. Lincoln Almond and legislative leaders to make their case. To attract businesses, they argued over doughnuts and coffee, the state should cut taxes for the wealthiest 1 percent of Rhode Islanders, those earning in excess of $200,000.

“I think we ought to listen and make ourselves more competitive,” said Martineau.

But the proposal met largely with skepticism and a public backlash against perceived “fat cats,” and went nowhere.

“It was a bizarre and dumb PR move,” said Mazze.

Meanwhile, there was growing concern in the business community about competition from other states in luring business, especially after Massachusetts cut its capital-gains tax.

Early in 2001, Almond asked the governor’s Rhode Island Economic Policy Council to study the state’s business tax structure. The Tax Competitiveness Committee was formed, chaired by Mazze. After a six-week review, it issued a report that recommended several changes to make Rhode Island more attractive to high-tech companies.

The most necessary change, in the view of the council, was to phase out taxes on long-term capital gains — taxes that are paid when someone sells stocks or mutual funds or real estate.

Mazze recalls Ryan as a member of the Economic Policy Council, and a former chairman, who enthusiastically supported the proposal.

“Ryan was probably one of the movers and shakers, because he was active on the council,” said Mazze.

Other business groups that CVS is a member or supporter of, such as the Rhode Island Public Expenditure Council and the Greater Providence Chamber of Commerce, also supported the capital-gains tax cut. Ryan served on the RIPEC board from 1996 to 2002.

Former Rep. Antonio J. Pires, then chairman of the House Finance Committee, said that Ryan supported the tax cut. But because of the “fat cat” backlash that had occurred a few years earlier, Pires said, Ryan and other corporate leaders kept a lower profile, instead working through groups such as RIPEC.

“It was very clear to me that he was pushing this very hard in the business community,” said Pires.

The General Assembly passed a law phasing out the long-term capital-gains tax after five years. The law reduced the tax by two-thirds in 2007 and eliminated it in 2008. But this year, citing concerns about balancing the budget, the legislature voted not to eliminate the tax in 2008, instead freezing it at one-third the former rate, said Gary Sasse, executive director of RIPEC. Had the tax been eliminated next year, it would have cost the state about $30 million in tax revenues over the next two fiscal years.

Critics called the tax cut unnecessary and said it would widen the gap between rich and poor without effectively creating jobs. Irons, the measure’s primary sponsor, countered that Rhode Island needed to be more business friendly, saying, “Remember, it’s the rich that create the economy.”

With a salary and bonus of $9.3 million last year, Ryan was again the state’s highest-paid boss at publicly traded companies with headquarters in Rhode Island. Including the perks and a range of other compensation, such as the value of stock options dating back to 2002, Ryan’s pay package totaled $24 million.

IRONS’ FRIENDSHIP with Tom Ryan was no secret, but his business relationship with CVS was not publicized during the debate.

After going to Ryan in 1996, Irons had begun collecting insurance commissions in 1997 on a Blue Cross policy that CVS bought for its Rhode Island employees’ health insurance. The Blue Cross sales executive who negotiated the deal with CVS, Joseph Pirri, questioned paying Irons because the senator hadn’t worked on the deal. But Pirri, who has been questioned by the FBI, told The Journal three years ago that higher-ups at Blue Cross overruled him.

Ryan defended Irons’ commissions in a letter to employees as “a customary brokerage commission.”

Irons, who has collected several hundred thousand dollars in commissions on the deal, also maintained a close friendship with Ryan. The two men and their wives have traveled together. The two men attended University of Rhode Island basketball games at the Ryan Center, named for the CVS president. And Irons has flown with Ryan on the CVS corporate jet, including a trip to the 2003 World Series to see their favorite team, the New York Yankees.

Martineau admitted profiting from CVS, receiving $715,000 in commissions on the sale of bags to the drugstore chain from 1999 to 2002, when he left the legislature. CVS has acknowledged that Ryan and Martineau, whose Woonsocket district included CVS headquarters, are friendly and have known one another for years.

Martineau, whose bag business prospered, bought a 2001 Porsche and a 1976 Triumph TR6 sports car. In 2003, he bought a $900,000 house with water views in Narragansett, in the gated community of Anawan Cliffs, down the street from Ryan, according to town records.

In the fall of 2001, Martineau attended a conference for lawmakers in Florida paid for by the National Association of Chain Drug Stores. CVS was a member of the group, and Ryan an executive committee member. Paul T. DeRoche, of the Greater Providence chamber, introduced Martineau to the gathering at the Ritz-Carlton in Key Biscayne as someone who had helped repeal the capital-gains tax in Rhode Island.

Said DeRoche, “He is truly a friend of the business community.”

mstanton@projo.com