Conservative Crackup Over Tax Hike?

My old friends Mitch Daniels and Grover Norquist are at each other’s throats these days over Mitch’s decision to raise taxes on his fellow Hoosiers within days of being sworn in as governor.

Grover is, of course, the nation’s chief advocate of “the pledge,” which commits those who take it to forswear support of any tax increase. Its existence and Grover’s aggressiveness in encouraging politicians to take it have had a salutary influence on campaigns, elections and the performance of those who have signed it once they take office.

To sign Grover’s pledge and then break it is very difficult politically, and politicians have, with rare exceptions, been reluctant to do so. He has therefore helped force elected officials at all levels to resist the constant pressure to increase government spending to reward interest groups at the expense of the taxpayer and given voters a club with which to beat up potential tax raisers.

Mitch doesn’t fit the profile of a politician who panders to special interests or has an overweening faith in government’s ability to solve problems by throwing money at them. In fact, he’s spent decades fighting for lower spending, smaller government and tax cuts and he’s often had to fight the good fight virtually alone. As head of the Office of Management and Budget during President Bush’s first four years, Mitch must have seemed a tiresome scold to his colleagues as he warned of the consequences of profligate spending and tried to pare back their every request for still more money to grow the government they now controlled.

When he ran for governor, he knew that Indiana was an economic basket case and that straightening things out there would be tough. He was right. That, perhaps, is why he didn’t feel he could take the pledge. Hoosiers have a reputation as a pretty tight-fisted bunch, but under the Democrats the state had squandered a $2 billion surplus and left Mitch with a budget some $700 million out of balance.

And Mitch faced a problem that presidents, congressional appropriators and Grover don’t have to face. An Indiana governor can’t ignore deficits by printing money, cooking the books or finding ways to push the growing debt off to future generations of taxpayers – the state has a constitutional balanced-budget requirement.

In the situation Mitch faced, there were three things he could do. He could cut spending, and he did. He eliminated programs and made cuts that sent the special interests into orbit. He froze and canceled contracts negotiated by his predecessors and took his spending scalpel where no man had gone before.

Within a couple of weeks of being sworn in, Daniels was able to identify and urge the elimination of most but not all of the deficit for the simple reason that turning a government around is a lot like turning a ship around; it takes time. That left Daniels with two ways to cover the remaining imbalance.

He could do what others have done, which is to cook the books, borrow from state pension funds and claim that he had balanced the budget when all he had really done was hide some of the spending. He refused.

Finally, he could raise taxes. Many suggested that he raise tobacco taxes or other levies that he knew would never come back down once they went up. He didn’t want a permanent tax increase that would encourage more spending in the long run; he opted instead for a temporary revenue source to give him time to turn the ship and put things right. His solution was a one-year, one-time tax increase of 1 percent on those earning more than $100,000 a year.

Daniels says he proposed it reluctantly and pledged in doing so that he would veto any attempt to extend it beyond the one year; not a perfect solution, but one he felt justified under the circumstances. He notes in his fight with Grover that, as governor of California, Ronald Reagan had to do something similar for exactly the same reason when he was first elected – but that once he got things turned around he cut both taxes and spending.

It is difficult to know whether Daniels squeezed every penny he could out of the budget before looking for new revenue, but I know him and suspect that he did simply because at heart he’s as much against raising taxes as Grover himself. Mitch Daniels is no Bob Taft, gleefully raising taxes in Ohio, or Bob Riley, who, upon winning the governorship of Alabama, decided that he actually wanted to grow his state’s government and force Alabama’s taxpayers to pay for it.

The fact is that Mitch Daniels has more in common with Grover and will, I am willing to bet, prove it before he’s through.