Apostasy in Indiana: Daniels Seeks Tax Hike

“The only Grover they know in Indiana is the fuzzy creature on Sesame Street,” cracked Indiana Gov. Mitch Daniels (R.) after anti-tax activist Grover Norquist attacked his proposed tax increase. That reminded Norquist of the 2003 remark by Ohio Gov. Bob Taft: “The only Grover I know is on Sesame Street.” Norquist retorted: “Not only do these tax-hikers have the same tax policy, they also have the same gag writers.”

Until January 18, nobody dreamed of comparing Taft to Daniels. The Ohioan with the famous Republican name is despised in his own party as a tax increaser. In contrast, as President Bush’s Office of Management and Budget (OMB) director, Daniels was a tax-cutting supply-side advocate. But in his State of the State address January 18, the newly inaugurated Daniels stunned Hoosiers by proposing a one-year increase in state income taxes from 3.4% to 4.4% for people making $100,000 or more a year.

It is difficult to exaggerate the surprise in Washington at Daniels’s apostasy. If this veteran political hand takes the tax increase route out of his budgetary problems, does that suggest Republicans are toying with abandoning their stand against any federal tax hike–party doctrine ever since the senior George Bush’s politically disastrous 1991 increase? They are forgetting that higher taxes inevitably mean more, not less, spending.

A long list of conservative Republicans have entered governors’ offices to confront massive budget deficits and uncontrolled spending. Claiming there was no alternative, several reluctantly raised taxes. In addition to Taft in Ohio, this course was taken by such supposedly solid conservatives as Bob Riley in Alabama, Mike Huckabee in Arkansas and Don Sundquist in Tennessee.

Other Republican governors, led by Florida’s Jeb Bush, have fought off increases–and even cut taxes–by wielding a sharp budget knife. That was expected from Daniels, a former White House political director (under Ronald Reagan) who was a star in the first two years of Bush’s administration as an advocate of reduced spending.

In Indianapolis as in Washington, Daniels has antagonized the spending lobbies. After 16 years of Democratic governors and recent Democratic control of the legislature, the education unions and other pressure groups are outraged by his reductions.

Republican legislators accept the need for tax increases, but want to boost “sin” taxes (on cigarettes and alcohol). When a political ally privately asked Daniels why he was going the tax-the-rich route, he replied that Democrats could not now accuse him of balancing the budget on the backs of the poor. That amounts to avoiding criticism from the left by imitating it.

Daniels described himself to me as an “in-the-blood supply-sider.” I called Jude Wanniski, a founding father of the supply-side movement, to see whether he still claimed Daniels. He did, noting that Reagan as governor of California raised taxes.

But many other Republican leaders oppose any tax increase of any kind at any time, for one reason. It was stated for me this week by Mississippi Gov. Haley Barbour, who was deputy to Daniels in the Reagan White House. “Raising taxes,” said Barbour, “is the enemy of controlled spending.” More revenue inevitably generates more government. Barbour has fought all tax hikes and intends to veto an increased tax on cigarettes if it passes the legislature.

Daniels might well take Barbour’s example to heart as more relevant than the four-to-one Hoosier support for taxing the rich shown by his polls. With such backing at home, Daniels is contemptuous of criticism from Grover Norquist’s Americans for Tax Reform and The Wall Street Journal. “If I told you how little I care,” he told me, “it would be hard to exaggerate.” But the OMB director who faced down congressional big spenders might consider Haley Barbour’s theory of how taxes impact spending.