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Mitch Daniels: 'We all share a common problem'

mitchdanonefinger.JPGMitch Daniels is the governor of Indiana, and George W. Bush's former director of the Office of Management and Budget. Wednesday morning, he published an op-ed in the Wall Street Journal proposing "a time-limited, emergency growth program." Earlier this evening, we discussed that proposal, the extension of the Bush tax cuts and whether the Obama administration is anti-business. A transcript follows, with light edits for clarity.

Ezra Klein: Your proposal seemed very significant to me: When I ran the numbers, I got a rough trillion dollars in tax cuts -- and that’s before you put in stimulus multipliers.

Mitch Daniels: Maybe the phrasing should’ve been more specific. I was only proposing a holiday on the worker share of the payroll tax cut, so that’s only half of the tax. That’s about $335 billion. On the expensing proposal, I accept the point that you don’t know how much uptake there’d be [by companies investing in new equipment to take advantage of the tax break], but that money is either all or mostly recovered over time. If the idea is right that it’s well-matched to our situation, I don’t think it’s crazy to hope that you’ll get significant growth and a big revenue recapture. By the way, I remember when $335 billion was a big number!

I was talking to someone yesterday about the $16 billion stimulus package Bill Clinton offered at the outset of his administration.

I remember my days in the Bush administration. We were just pikers.

But even assuming a price tag more in the $400 billion range, how do you figure that your offset policies will double that number?

I’ve got a fact sheet back at the office. Some of it depends on what you understand the unobligated balance to be. There’s $671 billion from appropriations, at least in the last number we saw. And there’s some unobligated stimulus money. It also depends on how much TARP money is recapturable. And then cutting federal pay is $20 or $25 billion a year. And finally, impoundment is elastic. That would be going after dollars that have been appropriated.

You know, I tried to couch this whole thing in a very conditional way. I’m quite certain there are alternative measures. But the main proposal is to do something now, and do something that stimulates private-sector growth. The payroll tax is scalable, if you decided there wasn’t that much recapture potentially, you could make the holiday a mere $200 billion.

It looks to me like you and the administration are closer to one another than your op-ed admitted. They’ve got a proposal to allow businesses to write-off capital investments; they asked for a line-item veto that’s not dissimilar from your impoundment proposal; they froze discretionary spending, which is at least similar in theory to freezing hiring; and I asked Jason Furman today whether the administration would be open to a payroll-tax holiday, and he said “the president is willing to do whatever it takes to accelerate the pace of job growth and income creation.” Is there more convergence here than people realize?

Well, I wouldn’t necessarily disagree. I wrote the thing two weeks ago, and there was no breath at the time there was any White House interest in accelerated depreciation. As you noticed, I stuck in a parenthesis saying if they’re there, that’s good. The whole point was to suggest that this won’t wait: If the private economy in this country doesn’t begin to grow at a very rapid and sustained rate, we all share a common problem. I can’t help but point out that for the last year and a half, everything they have done has been damaging to the growth prospects of the private economy. It would require a 180-degree turn for them to embrace this.

Everything? What about tax cuts like Making Work Pay?

Yeah, that may have been helpful. I don’t know whether to give them credit or not for the monetary policy. Maybe I was being hyperbolic. But it’s not exaggerated to say that the vast weight of their stimulus has been to grow government at the expense of the private sector. There’s enormous uncertainty from the rulemaking for financial regulation and health care, the EPA is being anti-democratic in their zealotry to regulate carbon. I personally think it would be a bad mistake for the nation to commit to a future of spending a quarter of the economy on the federal government. But if you think that’s right, then you have the biggest stake of all, I believe, in making the private economy as large as possible.

When I’ve spoken to Republican Hill offices about the payroll-tax cut, they say they don’t support it anymore. As an observer, it’s seemed to me that the Democrats have been moving right in their proposals to get some Republican support, but Republicans have been running away from those proposals to deny the Democrats achievements. Do you think there could really be bipartisanship around this package?

I don't know. I can’t tell you. I read accounts today from Democrats saying they couldn’t see anything happening before the election. That might just be the innate caution of the congressional animal. But I think that on the backside of the election, maybe there’d be a greater interest on both sides in finding some points of agreement. Maybe things Democrats won’t do on permanent basis they’ll do on a temporary basis.

What did you think of the president’s proposal for an infrastructure bank?

Well, not bad. This is more like what I thought the original stimulus should be. When the federal government does it, it’s incredibly slow, as we have seen. At the governor’s meeting with the president, back before all this, we told him that he needs to throw out the rulebook, bypass the processes that make this stuff take years. So the new proposal isn’t bad, it’s an improvement. But I don’t agree with borrowing the money or raising taxes to pay for it. I think federal spending and deficits need to come down as part of the growth package.

What do you think happens to the economy if the two parties don’t get it together and we do nothing?

I’m very concerned. I’ve been searching every day for evidence that the economy is getting on its feet in a big way. I haven’t been able to find it. I still see as many downside risks as up. So I don’t overclaim for this set of ideas, but I do think that all parties here have a stake in action soon that aim at private-sector growth. That might require a little something from both sides. Republicans have to accept the responsibility to step forward constructively, and Democrats have to accept that we’ve been headed in the wrong direction with the expansion of government.

As you were Bush’s OMB director and you’re concerned about deficits, I have to ask: Do you think the extension of the Bush tax cuts should be offset?

I just think it would be foolish to raise taxes of any kind. Raising taxes on anyone right now would be counterproductive. I think some on the other side are moving towards that position, too. The biggest stroke on the deficit would be a major new restructuring of at least one of the entitlement programs. It would send a very positive signal and have a lot more to do with long-term deficits and debt than whatever we do with the tax cuts.

Do you agree with Peter Orszag, your successor at OMB, that the Bush tax cuts should be extended for two years and then either offset or allowed to expire?

I don’t know, depends on what the economy is doing in two years. The current set of tax rules has proven that it can generate lots of revenue. It’s just not a time right now to raise taxes or even threaten to do so. Once again, we all know how much money is cowering on the sidelines, and it’ll stay their as long as there’s an attitude of hostility to the private economy and the people who participate in it. We didn’t even talk about the self-defeating nature of the administration castigating various private actors. It may be good politics, but not good economics.

Can you give me some examples?

Well, I don’t track every word of this. But we’ve seen speech after speech criticizing the wealthy and Wall Street and energy businesses. It reflects a mentality that is not in their best interest when they need the private sector to come back.

But Wall Street is enjoying record profits. The health-insurance industry is doing great. It’s hard for me to find evidence that the actors who the administration has criticized are cowering on the sidelines. It’s everyone else who’s holding back. The administration is never criticizes small business and they’re trying to get them $30 billion for new loans, but it’s small business who’s struggling right now, not Wall Street.

But I’ve just come off a road trip. Small businesses are petrified. The rhetoric may not be aimed at each and every business, and as you say, ironically, those that were bashed the most are faring a bit better now. But I think everything else we’ve talked about, the substantive policies, are much more important. But as a coda, it doesn’t help encourage investment or hiring or growth to lash out so often at people who see themselves as just pursuing an honest living.

Photo credit: By Darron Cummings/Associated Press

By Ezra Klein  |  September 8, 2010; 6:46 PM ET
Categories:  Interviews  
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Comments

"But as a coda, it doesn’t help encourage investment or hiring or growth to lash out so often at people who see themselves as just pursuing an honest living." I think any captain of 'industry' or 'finance' would agree, they feel more comfortable when people are kissing their feet or asses.

"Honest", meaning you cannot be prosecuted under the law... see 'Enron'.

"Living", meaning simply because you're making $500,000 per year doesn't mean you're not on the verge of bankruptcy and homelessness.

This article had me at, "George W. Bush's former director of the Office of Management and Budget."

Posted by: Jaycal | September 8, 2010 7:14 PM | Report abuse

Ezra, I think Daniels' responses show that you gave him more credit than he deserved.

Posted by: spacemonkeymafia | September 8, 2010 7:25 PM | Report abuse

Would the cuts in federal wages also affect the wages of congressmen and their staffers?

Posted by: benmbrennan | September 8, 2010 7:58 PM | Report abuse

Ezra, I appreciated this. Its nice to see a debate get into some actual policy details. You made many good points, but you let him off the hook with some of his contradictions.

His political rhetoric doesn't match up terribly well with the facts, but you let him off easy with his subtle backtracking and reformulations.

Posted by: Nylund154 | September 8, 2010 8:00 PM | Report abuse

Once he starts going into the rant about the administration's economic policies all being hurtful to the economy he really starts to go into delusional territory.

Posted by: benmbrennan | September 8, 2010 8:01 PM | Report abuse

Shows in part that there are some things a Republican can say that a Democrat can't without stirring up controversy (and vice versa).

Posted by: tuber | September 8, 2010 8:05 PM | Report abuse

how is an "infrastructure bank" not borrowing? if the federal govt charters it, then its no different than if the federal govt floated debt to pay for the projects. Just a Fannie Mae for infrastructure...another game to hide from the public what politicans have put us all on the hook for.

Posted by: iculus | September 8, 2010 9:19 PM | Report abuse

Mostly this Mitch Daniels economic recovery plan is straight out of the GOP playbook: smaller government, cut entititlements, continue de-regulation, and above all, lower taxes! I would not dismiss because it is GOP standard dogma, but because we have tried all of this stuff for several years. The results have been disastruous.

Mitch Klein (the nice journalist) could do more to enlighten readers about the disastruous results of the past several years. In other words, how did we get into this eco-mess?

When there is very little "common ground" on the eco-mess, there is less chance of reaching some consensus about resolution. Step one: understand the problem to be solved.

Posted by: rmorris391 | September 8, 2010 9:31 PM | Report abuse

It is fair to say that Mitch Daniels was the architect of the Bush era economic policies. Both anti-tax and anti-regulatory. He has also demonstated himself to be anti-worker. Yet it would be a mistake to dismiss him lightly, given the current political environment and the Administration's undeniable weakness and lack of core ideas. Furman admitted as much - that's the real news here.

Posted by: dcinsider1 | September 8, 2010 10:01 PM | Report abuse

I don't think things will change on the backside of this election, I think no matter what, Republicans will try to deny democrats achievements. Anything to get Obama out in 2012, even if the country is ruined.

It never fails to surprise me whenever anyone mentions raising taxes for the wealthy Republicans respond, "Small businesses!!" and the media lets it slide as if it's a valid point.

Posted by: will12 | September 8, 2010 10:02 PM | Report abuse

I do not understand why the administration does not jump on the payroll tax holiday NOW. They can point to some GOP support for it and they can say that portray it as an alternative to extending the Bush tax cuts for the wealthy. Dems can say the GOP says no to a temporary payroll tax holiday FOR ALL AMERICANS because it wants permanent tax cuts for the wealthiest 2% instead (and Boehner's 2-year extension is intended as a down payment on making those permanent). If you want to make the trust fund whole for the amount of the holiday over time, you could even say that a portion of the revenues from the taxes on that top 2% would be paid over to the trust fund each year for the next 25 years (Some $22.5B per year to make up the entire amount over that time) so that the trust fund would be in the same place in 2037 as it would otherwise be under current law (2037 is the year the trust fund would be exhausted under current law and all benefits thereafter would have to be paid from that year's revenues) to make up for the $335B (it would, in effect, be a way of raising revenue for the trust fund from incomes over the current payroll tax income limit). It benefits the people who most need the help and even those making over $250,000 per year will also benefit to the extent to which they have income subject to the payroll tax. It would clearly be more stimulative than extending tax cuts for the wealthy would be. Even if you assume that there is something anti-stimulative about not extending the Bush tax cuts for that upper 2% for 2011, there is still a net stimulative effect of some $265B (335-70) in 2011 from the payroll tax holiday. With Zandi's 1.22 multiplier that is some $325B in additional GDP, which is more than 2% of current GDP. It is actually a good idea. It is simple and easy to understand and could really change the dynamics of the fall election either because the GOP in Congress tries to stop it (or even succeeds)or because they allow it and Obama looks like a leader. The monies are not needed to pay benefits for the year of the holiday which can be paid for from the employer payroll tax revenues and a portion of the current trust fund surplus which is in invested in US Treasuries which could be sold to the Federal Reserve Bank. Whats not to like?

Posted by: gregspolitics | September 8, 2010 10:59 PM | Report abuse

In fact, to further simplify, since the real impact of ending the Bush tax cuts for the wealthiest 2% is to have those revenues available to help reduce the long-term deficit more than 5 years from now, the administration could even say that the monies realized from not extending the tax cuts for the wealthiest Americans would be paid over to the trust fund over the next 5 years until the holiday revenues lost had been repaid to the trust fund.

Posted by: gregspolitics | September 8, 2010 11:07 PM | Report abuse

Ding ding ding....we have a winner.

Mitch Daniels: "The biggest stroke on the deficit would be a major new restructuring of at least one of the entitlement programs. It would send a very positive signal and have a lot more to do with long-term deficits and debt than whatever we do with the tax cuts."

President Obama just did healthcare reform and CBO scores it as reducing the deficit by a trillion dollars over ten years. That leaves cutting Social Security, something 2/3 of voters oppose or raising taxes on the rich, something 2/3 of voters favor. Why Ezra reacted to Mitch Daniels like he was Brad Pitt seeing Angelina Jolie on the set of 'Mr. and Mrs. Smith' is a mystery but it's clear sane fiscal policy is Jennifer Anniston in this love match.

Posted by: jamusco | September 8, 2010 11:20 PM | Report abuse

Hey, Ezra, Mr. Journalist.

Mr. Software Developer here. Yeah. I'm gonna write some code that will spank your liberal ass all over the internets. Yeah. Uh huh. You and Obama's. Yeah. Uh huh.

We're gonna take "The Narrative" out for a "make over". Yeah. Uh huh.

Buh Bye, Mr "Journalist". Yeah.

Posted by: soma_king | September 9, 2010 1:26 AM | Report abuse

The "problem" is your liberal, progressive Narrative.

I have the solution.

Posted by: soma_king | September 9, 2010 2:18 AM | Report abuse

Hey, Ezra,

Thanks for the inspiration! I'm working on a piece of software that will suck the life out of your progressive narrative!!

Your "text-based" economy is doomed to fail. I'm gonna rip the heart out of your corrupt Narrative.

There is nothing you can do about it.... Except REPENT.

LOL

Posted by: soma_king | September 9, 2010 2:53 AM | Report abuse

Ezra,

I'll make sure you get a liberal dose of "whoop-ass". See, I have that power because I write software, not phony "journalism". Where's the 4th Estate when you need them??

You'll be powerless in a few short years. And there's nothing you can do about it. I have the power. You have NO idea what I'm talking about. And you cannot defend against the onslaught of TRUTH that will sink the island of sanctuary that is your "safety zone".

I will enjoy watching your ideology die a slow, painful death. You have NO idea what I'm talking about, but you will find out, slowly but surely, it will dawn on you that you have no straws left to grasp. Sort of like what is happening to Obama now. But on a grander scale... LOL I WILL ENJOY YOUR DEMISE.

Posted by: soma_king | September 9, 2010 4:02 AM | Report abuse


You guys should stop complaining because, one the health care we have now isnt as good as it was supposed to be. also the law has just been signed so give it some time. so if u want to say u have the right to choose tell that to ur congress men or state official. If you do not have insurance and need one You can find full medical coverage at the lowest price by calling 877-882-4740 or check http://bit.ly/9fDY7U If you have health insurance and do not care about cost just be happy about it and trust me you are not going to loose anything!

Posted by: bettyhadley9 | September 9, 2010 7:08 AM | Report abuse

"We all share a common problem," but under Mr. Daniels' proposal, we will not all share in the cost of solving that problem. Mr. Daniels is proposing that federal employees essentially be subject to a payroll tax of 10% for the next year or so. A federal employee pay reduction that transfers $20-25 billion per year back to the Treasury is a tax. No other part of the "all" is expected to shoulder this burden. The cynicism of his plan is blatant, especially when he goes on to proclaim that "I just think it would be foolish to raise taxes of any kind. Raising taxes on anyone right now would be counterproductive." Mr. Daniels should take his own advice, and stop "lash[ing] out so often at people who see themselves as just pursuing an honest living."

Posted by: CareerHUDfieldEmployee | September 9, 2010 7:49 AM | Report abuse

"Mitch Daniels: "The biggest stroke on the deficit would be a major new restructuring of at least one of the entitlement programs. It would send a very positive signal and have a lot more to do with long-term deficits and debt than whatever we do with the tax cuts."

President Obama just did healthcare reform and CBO scores it as reducing the deficit by a trillion dollars over ten years. That leaves cutting Social Security, something 2/3 of voters oppose or raising taxes on the rich, something 2/3 of voters favor. Why Ezra reacted to Mitch Daniels like he was Brad Pitt seeing Angelina Jolie on the set of 'Mr. and Mrs. Smith' is a mystery but it's clear sane fiscal policy is Jennifer Anniston in this love match.
"

You forgot the elephant in the room.

Medicaid.


Why do you liberals insist that 'tax hikes' on the rich can simultaneously go to 10 different causes at the same time?

Posted by: krazen1211 | September 9, 2010 10:08 AM | Report abuse

krazen1211 - I said "healthcare reform" which I thought most people would read as covering both Medicare and Medicaid. See the report in today's news from the Office of the Actuary, Centers for Medicare and Medicaid Services - amazingly enough, one agency! I took you to the zoo and you said 'Aha, but what about the elephants?'. The elephants are at the zoo.

Posted by: jamusco | September 9, 2010 11:41 AM | Report abuse

"krazen1211 - I said "healthcare reform" which I thought most people would read as covering both Medicare and Medicaid. See the report in today's news from the Office of the Actuary, Centers for Medicare and Medicaid Services - amazingly enough, one agency! I took you to the zoo and you said 'Aha, but what about the elephants?'. The elephants are at the zoo."

The problem is that healthcare reform expanded Medicaid.

It is well documented that health care reform will INCREASE US healthcare spending.

http://www.google.com/hostednews/ap/article/ALeqM5iCs08Khy15jLwNozWb1RVTSLXIjwD9I4G0PG1

Factoring in the law, Americans will spend an average of $13,652 per person a year on health care in 2019, according to the actuary's office. Without the law, the corresponding number would be $13,387.

That works out to $265 more with the overhaul.

The big picture numbers are $4.6 trillion with the overhaul in 2019, and $4.5 trillion without it. The nation will spend $2.6 trillion on health care this year.


The US spent $110 billion on Medicaid in the year 2000, and ~$290 billion in the year 2010. If there is a program that needs to be further slashed, it is Medicaid.

Liberals at the NYT always talk about the massive infrastructure spending of the 50s and 60s. How did they do it without deficit spending?

Well, there was no government health care industry complex, and a very limited government education industry complex.

Posted by: krazen1211 | September 9, 2010 12:49 PM | Report abuse

What exactly is the "growth of the government at the expense of the private sector?" He liked the tax cuts, which was 1/3 of the stimulus. Another 1/3 was aid to states - which he took advantage of. The last 1/3 was infrastructure and investments that had economic merit. He seems like a reasonable guy, but it's all the same b.s. I'd like to know what entitlement cuts he has in mind so he can give his rich buddies their tax cuts.

Posted by: petersg | September 9, 2010 11:39 PM | Report abuse

My job in the Federal Government is to make IT projects run more efficiently (i.e., on time and on budget). Should my pay be cut too? Maybe then, my effort is not worth it. I work just as hard, if not harder, than I did in the private sector, and to make comparable pay in the Government when I joined, I had to go for a position near the top of the pay scale. They expect much more from you when you are up in the higher $ brackets, with increased politics, regulation, and transparency requirements–this isn’t a free lunch.

Try for a Federal job if you are so unhappy with your private sector job. The grass may not be as green as you think.

I may not be excited about the balance of this article, but I think our problems are much bigger than how much the post office worker or the meat inspector is making.

Posted by: foxnews2010 | September 10, 2010 12:57 AM | Report abuse

Has anyone wondered what the effect of cutting the pay of over 2 million workers by 10 percent really is? It is on par with cutting employment by 200,000 people! Did Daniels not pick up on one of the factors that "helped" the recession get worse?

While the CATO insititute and others say federal workers are overpaid, do we really want FDA investigators working for minimal wage? Should the feds pay for someone bright enough to evaluate the process used by genetic engineers before the product is made available to the public? Perhaps the federal government should be the model employer!

The worst part is that Republicans often want to lift everyone up and suddenly it is a case of pushing feds down. Why, because they are easy targets? Is it because thet are mainly Democrats? Ever heard of a self fulling prophacy?

Posted by: markbutler2 | September 14, 2010 7:57 AM | Report abuse

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