Mitch Daniels: 'We all share a common problem'
Mitch 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
September 8, 2010; 6:46 PM ET
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