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From Newsweek

Indiana Gov. Mitch Daniels Earns Conservative Ire for Tax Remarks


Daniels at a September GOP fundraiser in Jackson, Miss. (Rogelio V. Solis / AP)

Mitch Daniels has been much talked about in the media, and for good reason: he's one of the more interesting Republican contenders for 2012. But the normally mild-mannered Indiana governor has occasionally made headlines for his controversial statements, and he's back at it.

Speaking at a dinner at the conservative Hudson Institute on Thursday, Daniels said a value-added tax might be a good way to discourage consumption while driving up savings rates at some point in the future. The VAT, an immediate flash point for conservatives, is common in Europe and is a variation on a national sales tax: at each stage at which a product is moved, the government taxes a certain amount of its cost. Only the end consumer pays the full amount; merchants can recoup their expenses from the government.

The reaction from some quarters was fierce. In what almost (but not quite) seems like a validation of Godwin's law, Grover Norquist, the noted antitax activist who leads Americans for Tax Reform, compared Daniels to Rich Iott, the Ohio congressional candidate who wore a Nazi uniform as part of World War II reenactments.

Coincidentally, not too long ago, NEWSWEEK's Andrew Romano used Daniels as the prime example of what he called "Grover Norquist's worst nightmare." While tax increases are anathema to the GOP platform, there's a growing consensus among economists that there's no way to cut the deficit without increasing revenues, because there just aren't enough realistic cuts to be made in the federal budget to balance it (to say nothing of how Americans might react if their Social Security and Medicare checks were to go on the chopping block).

And it's not just the idea of a tax increase that irks the right. It's the idea of a VAT in particular, which—though still deeply unlikely any time soon—consistently raises cries of protest among conservative commentators, as NEWSWEEK reported in April. One big reason for that is a fear that voters would stomach a VAT more easily than an income-tax hike, and that the larger tax revenues that would create could forestall government-reduction measures conservatives favor. The fact that the VAT is popular in Europe also doesn't help.

Daniels's image for a 2012 run has always been that of the sober, deficit-minded technocrat who can dig the U.S. out of its budgetary hole (he says he hasn't decided whether to run). And he's already alienated the socially conservative wing of the Republican Party by suggesting a "truce" on social issues, a sort of parley in the culture wars while the nation straightens out its finances. It was an innovative idea and, predictably, it was poorly received. And now he's annoyed many fiscal conservatives.

From a policy standpoint, it may turn out that the fiscally conservative faction of the GOP will eventually come around to the idea that the bitter pill of a tax increase, and maybe even a VAT, is necessary. From an electoral perspective, Daniels appears to be placing a risky bet that it will—and that it will do it by the fall of 2012.

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