Categorized | Tax

Daniels open to VAT, oil tax hike


The following article by James Hohmann appeared at here.

Indiana Gov. Mitch Daniels opened the door Thursday to supporting both a value added tax and a tariff on imported oil, bold proposals that could cause trouble for him with conservatives as he flirts with a long-shot bid for the presidency.

The Republican, staying mum about his 2012 plans, was the guest of honor at a dinner sponsored by the conservative Hudson Institute. He received an award named for Herman Kahn, the legendary nuclear theorist who founded the respected institute 49 years ago and helped inspire the character “Dr. Strangelove” in the movie by the same name.

Daniels, once the Hudson Institute’s chief executive, described himself as an acolyte of Kahn’s and marveled at the creative thinking evident in his 1982 book, “The Coming Boom.”

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.

Daniels also suggested support for increasing gasoline taxes. Kahn wrote, in a passage Daniels read from Thursday, “One fully justifiable tax would be on imported oil. Any large importation of oil by the U.S. raises security problems. There are, in effect, external costs associated with importing oil that a tariff would internalize.

“Now, maybe that transgresses some philosophical viewpoint of yours,” Daniels told the well-heeled crowd of 250. “But to me, that’s an interesting point today, just as valid as the day he wrote it.

“Now, none of us is Herman’s equal. But we are all his heirs, if we choose to be,” he added.

These comments come on the heels of a September profile in Newsweek, in which Daniels said tax increases might be necessary to tackle the federal deficit. “At some stage, there could well be a tax increase,” Daniels told the magazine. “They say we can’t have grown-up conversations. I think we can.”

Daniels has previously clashed with Norquist over the former’s refusal to sign the “No New Taxes” pledge.

Musing about tax hikes in speeches and interviews isn’t something a serious Republican contender usually does, but the soft-spoken Daniels’ biggest strength may be that he’s not a typical GOP candidate.

Conservative bona fides afford him the credibility to be more candid than other possible 2012 contenders. He inherited a $200 million deficit in 2004 and transformed it into a $1.3 billion surplus. He paid off the state’s outstanding debts, doubled venture capital investment in the state and reduced the number of government jobs by 15 percent. His well-established reputation as a penny-pincher makes it hard to stereotype him as a tax-and-spender.

“He thinks outside the box, and you don’t see that too often today in politics,” said former Vice President Dan Quayle, who introduced Daniels at the Willard InterContinental Hotel, just two blocks down Pennsylvania Avenue from the White House. “Because, you know, you have the conventional campaigns. You’ve got all the consultants. You’ve got things you can do and can’t do. It’s pretty well, many times, scripted. But Mitch has always been a person that would think outside the box. And that’s why, I think, he’s been tremendously successful in Indiana.”

Ironically, Quayle lost reelection in 1992 partly because President George H.W. Bush — who led the ticket — reneged on his pledge not to raise taxes. In that same year, independent candidate Ross Perot, who led what some see as a precursor to today’s tea party movement, proposed a 50-cent-a-gallon tax on gasoline to help eliminate the federal budget deficit and reduce consumption.

Milling about Thursday night were members of the old-guard GOP establishment and neoconservative luminaries from the George W. Bush-era, including Defense Secretary Donald Rumsfeld, Dick Cheney chief of staff Scooter Libby and ex-World Bank head Paul Wolfowitz.

Allan Tessler, the chairman of Hudson’s Board of Trustees, called Daniels “a rare hybrid,” a think-tanker and politician “all wrapped in one.”

That, indeed, is how he sounded in his speech: more theoretical than an average politician but not as aloof as many intellectuals who work in ivory towers.

Daniels, for his part, says he feels optimistic about the country’s future if only its leaders will “think long term and skeptically about what is commonly accepted and (then) practically, openly-mindedly following the facts where they lead.

“The people of Hudson were trained by Herman and his group to think in a way that was principled, yes, but practical, immensely practical,” he said, before receiving a standing ovation at the end of his 26-minute speech.

Former Japanese Prime Minister Shinzo Abe said word of Daniels’ stellar reputation on economic stewardship has reached Asia. “To tell the truth, we could use some of your ingenuity in facing down our fiscal challenges,” he said during the dinner’s program.

Daniels also caused a stir among social conservatives in June when a Weekly Standard story reported his proposal for a “truce” so that the country could focus on pressing economic issues. He backed off his comments, but not before serious damage was done.

In a brief interview after his speech, Daniels downplayed the significance of his comments. He stressed that he would support a VAT “under only the right circumstances,” reiterating his desire for it to be paired with  a flat income tax.

“If you think that the paramount problem for the country is the debt, and we’ll never get on top of it without really robust growth, one of the things you want is a very different, more pro-growth tax system,” Daniels told POLITICO. “And a quarter century ago, (Kahn) was writing about one. That’s all. There are other ways to get at it.”

“The point here is: think about solutions, think about outcomes,” Daniels added, when pressed on whether he’d back oil tariffs.

An aide said Daniels’ chief political focus this month is on winning control of the Indiana state House. Republicans need just three seats to claim the majority. The governor, with two years remaining in his second term, personally recruited several candidates and hopes to use them to push through significant reform legislation.

POLITICO reported last month that Daniels has been holding a series of private dinners with top Republican business leaders, policy types and donors at the governor’s mansion in Indianapolis since this spring.

Reflecting his stature, C-SPAN filmed Daniels’ speech for airing at a later date.

And Max Eden, a senior at Yale, just started what he calls the “Student Initiative to Draft Daniels” for a presidential run. He said there are eight students in New Haven already behind the effort, and that they’re already setting up chapters at 20 other colleges. The Ohio native, who met Daniels for the first time Thursday, hopes to build a large grassroots network after the midterms.

The only problem: Eden’s a registered Democrat.


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