Daniels' tax plan draws fire from conservatives

INDIANAPOLIS -- Gov. Mitch Daniels proudly displays a samurai sword in his office, a remnant of the days when President Bush nicknamed him "The Blade" for his prowess in cutting taxes and federal spending.\nBut now the former White House budget director -- and Indiana's first Republican governor since 1988 -- has proposed a one-year tax increase to slice away at the state's $645 million deficit.\nCritics say the move contradicts not only Daniels' reputation as a fiscal conservative, but GOP tradition itself.\n"This is the fastest any governor claiming to be a Reagan Republican has folded under the pressure of big-spending interests," said Grover Norquist, president of Americans for Tax Reform, a conservative group that in 2002 hailed Daniels as its "strongest ally in the administration."\nThe Wall Street Journal, in a recent editorial titled "Mitch the Knife," chastised Daniels for his "pocketbook raid," saying Republican governors in states such as Maryland and Texas have closed larger budget gaps than Daniels faces without raising taxes.\n"In Washington, President Bush called Mr. Daniels 'The Blade' for his budget carving," the editorial said. "It's a shame that the people he's giving the knife to in Indianapolis are his own voters."\nEven Daniels' own party, which controls both legislative chambers and has supported other parts of his agenda, is grumbling. Many GOP lawmakers have signed pledges to avoid tax increases, and Daniels' proposal puts them in a bind.\n"I haven't talked to many Hoosiers who are for a tax increase today," said Republican state Rep. Jeff Espich, chairman of the budget-writing House Ways and Means Committee.\nRepublican governors in Arkansas, Idaho and Ohio have approved tax increases in recent years. Texas Gov. Rick Perry and lawmakers overcame a $10 billion shortfall two years ago by making deep cuts in state services and increasing fines and fees.\nIris Lav, deputy director for the Center on Budget and Policy Priorities, a liberal-leaning Washington think tank, said tax increases are often the alternative to unpalatable cuts in education, Medicaid or other government services.\n"I actually think both Republicans and Democrats do tax increases out of necessity, or largely out of necessity," Lav said.\nDaniels, who defeated Democratic incumbent Joe Kernan in November with 53 percent of the vote, believes he can erase Indiana's deficit in one year with his temporary tax increase.\nUnder the plan, the income tax rate would increase by one percentage point for those making more than $100,000 this year. It also calls for freezing education funding and reining in soaring Medicaid costs.\n"I want to see a budget that brings us to honest balance and does it in the next fiscal year," said Daniels, who was Bush's budget director in 2001-03 after several years as an Eli Lilly and Co. executive. "Let's do it now, do it right."\nHouse Republicans prefer to balance the budget by 2007, the end of the two-year budget cycle. A spending plan passed Monday by House lawmakers and now headed to the state Senate does not include a tax increase.\nThose who have watched Daniels over the years don't expect him to abandon the fight, including Larry Sabato, a political scientist at the University of Virginia.\n"The one thing you can say about Mitch Daniels is he knows the bottom line," Sabato said. "He was trained to do that in public life and in corporate life"