By Adam Hughes, Budget Policy Analyst, OMB Watch
Indiana's Republican Governor Mitch Daniels, former Office of Management and Budget (OMB) director under President Bush, made a startling announcement Jan. 18: he said he wants to raise taxes in his state.

Daniels orchestrated the president's massive first-term tax cuts while heading OMB. He has often been described as a true Reagan Republican, favoring lower taxes, smaller government, and a strong national defense. President Bush even coined the nickname "the blade" for Daniels, referring to his knack for cutting programs and taxes.

But Indiana now faces a budget squeeze that has forced cuts in jobs and social services. Heavy industry and manufacturing have left the state. Younger works say there is little to keep them there. The state has a $600 million deficit and owes back payments of $710 million to schools, universities, and local governments.

So Daniels announced in his first State of the State address he wants to raise income taxes on those making over $100,000 per year by one percent for just one year -- certainly a tough choice given Daniels' lifetime support of lower taxes.

The federal fiscal situation is even worse than Indiana's and we face many of the same difficult choices. Because of Bush's tax cuts, the federal government now has a long-term structural fiscal problem. The U.S. has reached a point where the economy cannot grow enough to bring in sufficient revenues to put the budget into the black. Yet repealing some of the old tax cuts is not even being considered. In fact, the president wants those cuts extended permanently.

Experts warn the problem will only get worse. Health care expenses are expected to rise close to ten percent per year over the next decade. Social Security only needs minor fixes to remain solvent, but revenue will need to be increased to avoid benefit cuts. And based on Bush's inaugural address, it is fair to assume supplemental military spending will remain high for the foreseeable future.

The president has repeatedly vowed to cut the deficit in half by 2009 and has often described his forthcoming FY06 budget as a "tough" one. But what he means by "tough" is his budget will cut programs serving low- and middle-income Americans. These cuts will include non-defense discretionary spending and perhaps also spending caps for entitlement programs like Medicaid and Food Stamps. These cuts will undoubtedly be tough for millions of Americans who depend on those programs for food and health care.

What will not be tough about the budget is the president will not ask those who can afford to pay a little more to do so, as Governor Daniels bravely did. Currently, 57 percent of the federal deficit is due to the massive 2001 and 2003 tax cuts. Repealing those cuts on only the richest one percent of Americans (those making above $1 million per year) would bring in enough revenue to make Social Security fiscally solvent for 75 years. Considering this, the president's preference instead to cut health care and nutrition programs for millions of low-income children and families is hard to understand.

Governor Daniels' budget was not without its own spending cuts (to Medicaid and education for example). But what is different -- and courageous -- is Daniels' request that all Hoosiers help shoulder the burden, if only a little bit.

President Bush should take a lesson from his old budget director about how to be tough on budgets. Cutting programs serving low-income populations to reduce a deficit caused mainly by tax cuts to the richest people in the country is not tough at all -- it is callous and cowardly. It may be an easier way, but it is the wrong way.
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Adam Hughes is Budget Policy Analyst at OMB Watch, a government watchdog group in Washington, D.C.