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Let’s start with this. If Mitch Daniels is running for President, he’s made the strategic decision to run on bold policy, regardless of the risk. If he is not running for president, he has at least decided that he wants to have a positive impact on the policy debate, something the current GOP sorely needs.
If you haven’t heard, Mitch Daniels has once again voiced opinions that depart from the received canon of the GOP punditocracy and policy shops. He floated the trial balloon of using a VAT to offset other taxes and move the nation away from the financial conflagration brought on by our failed tax code. This is a good thing. Here is what we read in Politico and Newsweek.
Daniels recited from Kahn’s book: “It would be most useful to redesign the tax system to discourage consumption and encourage savings and investment. One obvious possibility is a value added tax and flat income tax, with the only exception being a lower standard deduction.”
“That might suit our current situation pretty well,” said Daniels, who served as George W. Bush’s Office of Management and Budget director and was a senior adviser in Ronald Reagan’s White House. “It also might fit Bill Simon’s line in the late ‘70s that the nation should have a tax system that looks like someone designed it on purpose.”
The so-called VAT, common in European economies which have stagnated, is a toxic acronym to fiscally conservative activists like Grover Norquist and Dick Armey. It slaps a tax on the estimated market value for products at every stage of production. Progressives, meanwhile, loathe flat income taxes because they’re regressive and punish the poor. But some on the right have found the VAT attractive as an alternative to progressive income taxes and levies on capital gains.
The Horror!! He said the “T” word!!! Run awwwaaaaaayy! But wait, there’s more!
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.
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.
Stay classy, Grover.
Let me say that I’m not particularly enamored of the form of this trial balloon, either as a matter of policy or the way it was floated. I’m on record for supporting a complete phase out of all forms of income taxation, both individual, payroll, corporate, and capital gain.
I floated my trial balloon here. I’ve backed off the gas taxes since then, but the rest is utterly reasonable and defensible, particularly in comparison with our failed tax code. Daniels was simply wrong to float the flat tax (or any income tax) along with the VAT. Get rid of all income taxes, period.
I’m guessing there is a reason that politicians, even those as successful as Daniels, are afraid of calling for an end to all income taxation. That reason has to do with the politics of taxing the lower income citizen at a very high rate, while the rich get the proverbial “free ride.”
BTW, The political solution to that problem is to phase in giving every American over 21 a stipend that covers health care, retirement, and HSAs. This is a feature to the flawed “Fair Tax” plan, and should be a part of any tax swap plan. Stop arguing about the welfare state, and simply individualize it. But I digress…
If I’m so critical of Daniel’s poor plan, why am I so happy he floated the idea? Because it shows leadership. Because it shows an understanding of the size of the problem and the political maneuvering necessary to gain bipartisan support.
It’s time to move America in a better fiscal and cultural direction, and the nattering nabobs of negative attacks (Norquist, Carville, Begala, and Rove) aren’t cutting it anymore.
We have had 3 decades of one ideology staying in power just long enough to enact the worst policies, while the next ideology encrusts that bad policy with layers of even worse policy. Break the stalemate, risk running on robust policy, and do the hard work of bargaining for a better deal. If you agree that the time is ripe for such a strategy, you couldn’t pick a better person than Daniels to be in your corner.
He is criticized for raising some taxes early in his administration, but his critics probably don’t want you to know that this came with;
- Dramatic spending cuts
- An Executive Order repealing collective bargaining rights for public employees
- More spending cuts
- HSAs and consumer driven plans for public employees
- Substantial property tax relief.
Grover Norquist’s administration started with….
Oh wait! Grover’s never been elected to anything. Instead, he’s given us a generation of Republicans who have signed “No Tax Pledges,” many of whom spent (and thus taxed) us into oblivion.
I could go on for hours, as my colleagues at Heartland can attest to once they wake up from my droning on over this issue, but I’ll spare you all the boredom and end quickly.
The current tax system is beyond reform and/or repair. Too few pay into it to flatten it out, an broadening means tax increases on the middle class. It is incapable of raising the money needed for the promises that have been made, even after the coming big haircut. Attempting to re-run the 80s, 1994, or the weaker 2000s is a fool’s errand. We can’t get there from here under any realistic growth scenario.
The danger we face in following the “nattering nabobs” is the near certainty that we get both VAT taxes AND the income tax regime in any event.
We are approaching a rare moment in time where Americans are interested in policy ideas, the Constitution, and a return to self governance. We should use that opportunity to reset the nation’s course, not to score talking points until the next wave of anger topples the next majority.
Is all this an endorsement for Daniels for President? No. I just admire him for leading. We could use more of that in the next few years.