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CNN Novak, Hunt & Shields

Interview With Mitch Daniels

Aired February 02, 2002 - 17:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
AL HUNT, CO-HOST: I'm Al Hunt. Robert Novak and I will question President Bush's budget chief.

ROBERT NOVAK, CO-HOST: He is Mitchell Daniels, director of the Office of Management and Budget.

(BEGIN VIDEOTAPE)

(voice-over): In his State of the Union address, George W. Bush confirmed that last year's budget surplus had become this year's budget deficit.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Our budget will run a deficit that will be small and short-term so long as Congress restrains spending and acts in a fiscally responsible manner.

NOVAK: But the president called for more spending in the two areas of the war against terrorism: defense and homeland security.

BUSH: It costs a lot to fight this war. We have spent more than $1 billion a month, over $30 million a day. And we must be prepared for future operations.

My budget nearly doubles funding for a sustained strategy of homeland security, focused on four key areas: bioterrorism, emergency response, airport and border security and improved intelligence.

NOVAK: Budget details will be released Monday.

Mitch Daniels, at age 52, is an old political hand who began as an aide to Mayor Richard Lugar of Indianapolis, accompanied Lugar to Washington following his 1976 election to the Senate.

After serving for eight years with Senator Lugar, Daniels joined the Reagan administration in 1984 as a White House aide.

He was a senior vice president with Eli Lilly Pharmaceutical Manufacturers prior to his appointment by President Bush.

(END VIDEOTAPE)

NOVAK: Mr. Daniels, the budget, last year, spending increased 20 percent even though there were caps, spending caps or limits, imposed by Congress. There are no such caps now.

How in the world are you going to restrain the Congress from widening and enlarging their budget deficit, as the president says he hoped to do, without budget caps?

MITCH DANIELS, OFFICE OF MANAGEMENT AND BUDGET DIRECTOR: Well, first, a clarification, Bob. Spending increased about 7 percent just what the president had agreed to prior to September 11. And the 20 percent figure is accurate, but only when you take into account the emergency spending that the war necessitated.

Your question's a good one. And we would support some new regime of structural limits under which Congress might agree to live.

But the short answer is that we have to appeal to Congress to be very careful in the new environment, to limit the spending on things not directly related to winning a two-front war.

And the president and his ability to sign or not sign those bills is the final defense.

NOVAK: Let me see if I understand what you're saying, Mr. Daniels. You're saying you would support new caps on spending, but you're not going to propose them? You mean, if somebody on the Hill comes up with an idea, you'll say it's OK, but you're not going to push for it? Is that what I correctly interpret you saying?

DANIELS: The president's position has been consistently that the caps ought to modernized.

They were neither that before he got here, by the way. They had been observed in the breach for a couple of years before he arrived, so they hadn't been all that effective.

And he's in favor of a some new limit. It's going to have to take into account, as almost all these proposals do, the exceptions. And we're living with three of them right now: war, recession and emergency. We do need the flexibility to deal with the problems that may come.

NOVAK: Mr. Daniels, the veteran watchdog organization, the National Taxpayers Union, doesn't quite accept the president's posture as the guardian of fiscal responsibility.

Let's take a look at what it said the day after his State of the Union address. Said, "President Bush proposed at least $106.6 billion in new annual federal spending last night, 52 percent of which is largely unrelated to homeland security or national defense."

Is that so?

DANIELS: I haven't seen their report. For that to be so, they would have to be looking at long-term projections.

The president did propose certain things, like Medicare reform and prescription drug coverage, that would start very small and extend over time.

Overwhelmingly, as you will see on Monday, the new spending the president suggests is for the two fronts of this war: winning against terrorism overseas and the new requirements to defend Americans at home.

HUNT: Mr. Director, Senate Budget Committee Chairman Kent Conrad said the other day that, with your upcoming budget, we are going to return to, quote -- I quote Senator Conrad -- "red ink on a grand scale," end quote.

That's pretty worrisome, isn't it?

DANIELS: Nobody likes red ink, certainly not this president.

I think "grand scale" overstates the case badly. We look to run, historically, very, very small deficits to this year and in the next year, and hope to be in balance in surplus thereafter.

If you look back at recessions, Al, all the way to the Second World War, this would be by far the smallest deficit we ever have run in a recession, and those recessions were not overlaid with the cost of war.

So nobody likes red ink. All of us want to be back into paying down debt soon, but first things first.

HUNT: Well, let's talk about some of the particulars. The Congressional Budget Office, run by a Republican, 10-year projection, 2002 to 2011, says that they seem be to going from a $3.1 trillion surplus to a $700 billion deficit.

Now, that doesn't count the president's requests for homeland security and defense spending. That doesn't count the farm bill. That doesn't count tax extenders. So the situation probably would even be worse. Also, Mr. Daniels, it does not include Social Security.

Doesn't that mean that, inevitably, that you and Democrats (sic) are going to have violate your pledge and raid that Social Security trust fund, the surplus?

DANIELS: Well, let's try to get the facts straight. We do have projections, both we do and CBO, of gigantic surpluses over a 10-year time frame. They're lower than last year's, but...

HUNT: Counting Social Security?

DANIELS: Counting Social Security.

Incidentally, they are as high or higher as any forecast before last year's. Last year's right now is an outlier. But, for all I know, next year's could be back at $5 trillion. It all depends, as we've now learned, entirely on the economy and how well it performs.

HUNT: Would you be willing to go along, then, with Tom DeLay and some of the House conservatives who want to draft into law a required balanced budget?

DANIELS: Well, I think what Congressman DeLay and others are asking is whether we ought not strive to get the balance in this next year and the year after. That's a good target to shoot for.

But the, as we see it, the demands of the war and the demands of defending Americans will put that just a little out of reach, not much as I indicated. And it means we would get there in about a year or two.

NOVAK: Mr. Daniels, some of us who were around here even before you came have some memories of the '60s when Lyndon Johnson had a guns-and-butter budget during the Vietnam War, which some economists believe created the stagflation that was not corrected until Ronald Reagan almost 20 years later.

Doesn't this look like a guns-and-butter budget that you have submitted to Congress?

DANIELS: We would say quite the contrary. I think it's a very important historical precedent, and I've been trying to draw people's attention to the contrast between the decisiveness with which FDR moved when war came in '41 and Harry Truman moved in working in the early '50s. Both of them cut non-war spending very drastically and right away.

Now, we didn't propose that because we don't think the situation is perfectly analogous. But I think what you'll hear more of next week is complaints from various special interests who are used to seeing their projects grow by big numbers year on year, and we will propose to slow that down.

NOVAK: Well, for example, President Clinton's AmeriCorps has now got a new name, volunteer corps, and it's -- what do you call it now? The Citizens...

DANIELS: USA Freedom Corps.

NOVAK: Freedom Corps, I'm sorry. And it's $5.8 billion. You've taken a program, which looks like a domestic program to me, and really expanded it, haven't you?

DANIELS: No, sir. The USA Freedom Corps is an umbrella over not just the AmeriCorps program but also the Peace Corps program. And the president does propose an expansion of national service and the ethic of giving back to the country. And for that reason, a new feature would be a corps related to homeland security.

These things, we think, are fairly modest. And again, they're in the context of a budget that grows very, very slowly outside the war- related functions.

HUNT: Mr. Daniels, we're going to have a take a break in a moment, but let me ask you this one question.

I think one expansion that most everyone can support is for homeland security. And you're going to have some expensive new programs in there for port and border security and to protect against the bioterrorism and nuclear threat.

The Democrats on Capitol Hill say that they proposed exactly that about seven weeks ago in December and there was a presidential veto threat, and so they had to back down. And their claim is that, if you had accepted that back in December, you could have had all of this homeland security months and months ahead of time; instead you played politics.

DANIELS: No, instead, we chose to move deliberately and methodically. You don't fight a war through a committee of 535 members. You had a cacophony of members all proposing something, many times very thoughtless, to deal with the issue right in front of them.

And the president said, look, we've asked for more than enough money to carry us for several months. That's proven true; we have spent less than a quarter of all the funds appropriated back in October by now.

And what he said was, "Please, give Don Rumsfeld a chance, and Tom Ridge the chance, to recommend to me an integrated program for homeland security. And we will bring it to Congress, our board of directors, for their approval."

HUNT: We're going to take a break now, but we'll be back in just a minute to ask Mitch Daniels, to stimulate or not to stimulate?

(COMMERCIAL BREAK)

NOVAK: Mitch Daniels, the chairman of the Federal Reserve Board, Alan Greenspan, has said there's no need for a stimulus package. And in fact, the Fed, this week, did not cut interest rates again. And on Friday, unemployment went down for the first time -- the unemployment rate went down for the first time since September 11.

Do you think, since the House Republican Whip Tom DeLay says we ought to have a balanced budget for the next budget, that we can't do it if we have a stimulus package, that the time has come to set the stimulus package aside?

DANIELS: No, I don't, and the president, as he said the other night, doesn't either. His position is, we ought to leave nothing to chance.

Yes, there are encouraging signs, but if you're unemployed today, the unemployment rate is 100 percent.

And the president would rather act, try to ensure that recovery comes quick and comes strong. He's always said throughout his career that recession was one of the acceptable justifications for temporary red ink.

NOVAK: Well, I think you would find, of course, if you checked with the House Republicans, there's no enthusiasm for going through this fight with the Democratic Senate right now. But isn't the support for the stimulus package now coming mainly from the K Street lobbyists, who want to get their tax extenders, their little tax privileges for special industries extended into law, and they're not interested in the broader economy? Isn't that where the pressure is coming from for the bill?

DANIELS: I don't think there's much pressure there. I've just been with the House and Senate Republicans at their retreat. I think there's a lot of sentiment for moving forward.

I think there is some very natural and appropriate concern that we get a genuine jobs package, one that does grow the economy and isn't simply a mish-mash of spending and palliative measures that don't bring the recovery on sooner. That's a legitimate concern. We ought to be watchful.

HUNT: Mr. Daniels, the Congressional Budget Office looked at the tax proposals in the stimulus package several weeks ago. Again, it's run by a Republican. They concluded that your tax proposals were the least stimulative, that accelerating the tax cuts for middle- and upper-income taxpayers, the corporate tax cuts -- that far more stimulative would be something like a payroll tax holiday or a sales tax holiday.

If you're going to stick with a stimulus package, are you at least willing to consider reshaping it so it will provide more stimulus?

DANIELS: The answer is yes.

I would say, first of all, that the president's charge at the outset was, please identify the elements of a package that would do the most, be the most effective.

Now, our economic team came up with a set based on that instruction, and we came to a different conclusion than CBO. Honest people can differ.

But in the budget, the president will basically lay out the outlines, once again, of a program. He has tried to maintain flexibility about its specific elements.

We still believe that rate reductions, immediate help for consumers at the low end, and something to stimulate business investment is the right combination.

HUNT: But you were open to modifying that to consider payroll or sale tax holidays in place of some of those others. Is that correct?

DANIELS: Let's see what direction the debate takes. We did not believe those were relatively as effective as the proposals in the package, which passed one body and got within a couple yards of the goal line in the Senate, in fact had the votes to pass.

NOVAK: Mr. Daniels, in your first year as budget director, you made a noble attempt to try to cut back on earmarks. That's when the members of Congress earmark funds for pet projects in their district without authorization, without hearings. I think you'll agree you failed.

Are you going to try again, particularly since there is this pressure on the budget, to crack down on congressional earmarks?

DANIELS: I'm not sure everybody thought it so noble as you describe it, but we think it's the right policy. And we will certainly not recommend repeating all the earmarks that Congress chose to insert in the last year.

We've got a very special issue right now: Congress underfunded the Pell grant program for college students, and the president wants to see that program fully funded.

NOVAK: So you're going after earmarks again?

DANIELS: Well, we're spread a menu for the Congress. We've not identified specific ones, but we've given them $2 in potential reductions. These are things they put into the education bill, when they did not put in enough money to fund college grants.

NOVAK: One of the most notorious earmarks, Mr. Daniels, in the last -- just a few months ago, was a deal for leasing, by the Air Force, of Boeing planes. Tremendous cost to the taxpayer. That was passed, signed by the president.

Is this money actually going to be spent for this corporate welfare for Boeing?

DANIELS: I don't know if the transaction will happen or not.

There are right and wrong ways to do leases. If they're done right, they do protect the taxpayers' interests.

And we have laid out a way to do this that would be justified. I'm not sure if the parties will choose to go forward or not.

HUNT: Mr. Daniels, let's talk for just a moment about the defense budget. Candidate Bush promised a top-to-bottom Pentagon review, said we're going to invest in new technologies and get rid of some of the Clinton defense programs.

And yet, from what we hear about your upcoming budget, it seems to have cut almost nothing, that the F-22, the Ospreys, the Crusader heavy artillery are all funded at even as high, if not higher, levels.

The question is, didn't you give the Pentagon a blank check? And what have you cut?

DANIELS: I'm actually quite optimistic the transformation will occur, for two reasons: One, last week you did see Secretary Rumsfeld, in his usual blunt way, say that he's tired of people walking in with the same mentality he heard before 9-11. And he does want to see, and will insist on, transformation of our department.

HUNT: But not reflected yet in the budget, is it?

DANIELS: I think you'll see a lot in this budget that goes to unmanned vehicles and retrofit of nuclear submarines for cruise- missile purposes and (UNINTELLIGIBLE) that matches the modern threat.

And I think the president has made the point more than once that the conflict in Afghanistan is driving a transformation. In order to meet that threat organically, some real change in military operations is taking place.

HUNT: Mr. Daniels, we're going to take a break right now.

But when we're back, we'll ask "The Big Question" to Director Daniels.

(COMMERCIAL BREAK)

HUNT: And now "The Big Question."

You mentioned to Bob Novak a moment ago about the controversy with the Congress over the Pell grant. The ranking Democrat on the House Appropriations Committee, after you said this, the other day, put out a statement in which he said, quote, "This does not reflect the professionalism that the president of the United States deserves from an OMB director."

Have your relations with the appropriators soured so much that it really is going to be hard with them?

DANIELS: I don't think so, and I sure hope not. I haven't seen that statement, but I don't find anything unprofessional about what we've done.

We have said that we believe that Congress has allowed earmarking and pet projects to get out of hand. We don't expect them to disappear, but they've multiplied seven or eight times in the last four years, and we think a little moderation is in order.

I try to say that very politely and not naively every time, that I don't think we're going to go away on this issue.

NOVAK: Mr. Daniels, do you think that that statement by Congressman Obey, David Obey, Democrat of Wisconsin, or any of your other dealings with Obey, reflect the level of professionalism you would expect from the ranking Democrat on the House Appropriations Committee?

DANIELS: I have a lot of regard for all of the Appropriations leadership. There's some inherent tension between their job as they see it and my assignment from the president. And I'll do my best to keep things as civil as the president insists that we keep them.

NOVAK: So it's OK for him to talk that way, as far as you...

DANIELS: Sure.

NOVAK: You just turn the other cheek?

DANIELS: He's an elected official, and he speaks for the people who elected him. And I have no objection to his speaking his mind. He's a pretty candid fellow.

NOVAK: Mr. Daniels, thank you very much.

Al Hunt and I will be back with a comment after these messages.

(COMMERCIAL BREAK)

HUNT: Bob, Mitch Daniels is a good soldier on the budget wars that are upcoming, but I detected a sense of ambivalence on the economic stimulus package, even showing flexibility -- we may change our tax proposals if congressmen persuade us.

NOVAK: You know, Al, I didn't think -- understood exactly what the administration's is on new caps on spending. He said they would support it, he didn't say they would propose them. But he's relying on self-restraint by Congress, even in particular when Congress levels those earmarks, he may be sadly disappointed in that regard.

HUNT: Bob, alas, you did not go for our bait to get into a new fight with David Obey, but I think the tension between Mitch Daniels and the appropriators on Capitol Hill is inherent, it's going to continue, and it's because of those big tax cuts.

NOVAK: And Al, the fact that he didn't go for that debate and slam David Obey, which would have been tempting, in the case -- he only spent 10 years in the executive suite at Eli Lilly. He is an old political hand who knows you don't do that. Some of the other people in the Bush administration might be tempted, but not Mitch Daniels.

I'm Robert Novak.

HUNT: And I'm Al Hunt.

NOVAK: Coming up at 7:00 p.m. on "CAPITAL GANG," Congressman Barney Frank joins the GANG to talk about the president's State of the Union speech and the latest on the Enron scandal. Our "Newsmaker of the Week" is Steve Sabol, president of NFL Films.

HUNT: Thanks for joining us.

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