On Monday, May 5 — before his fellow Indiana Republicans renominated him for a second term — Gov. Mitch Daniels met with me at his cavernous office in the State Capitol in Indianapolis. A few weeks ago, there had been speculation in the press that 59-year-old Daniels, onetime top aide to Sen. Richard Lugar (R.-Ind.) and Office of Management and Budget director under George W. Bush, might be on John McCain’s list of potential running mates.
“John’s too smart for that, and I’m too smart for that,” says Daniels with a laugh, noting that the Hoosier State has not gone for a Democrat for President since 1964 and that he would have to relinquish the GOP nomination for another term in the job he loves Tieless and wearing a checkered shirt, without any press aides or other staffers in the room, Daniels proceeded to point out the paintings of his predecessors that fill the walls of his office and tell me anecdotes about each of them. He recalls Robert F. Kennedy and his dramatic victory in Indiana’s last contested Democratic presidential primary (1968) until this year. The Republican chief executive knows quite a bit about the late New York senator and he sometimes startles Lincoln Day audiences by quoting RFK.
“We don’t know what Bobby Kennedy would have been like had he not been assassinated in 1968 and been elected President,” says Daniels, “But let’s face it — he had his experience with big labor and big business. He had certain instincts that conservatives shared. He was very suspicious of concentrated national power and had some seminal ideas about local empowerment in the short time he was [a presidential candidate].”
The governor goes on to give me a jolt by inquiring by name about my wife and her sister, both of whom he last saw more than fifteen years ago. As one former Indianapolis newsman later told me, “Mitch is Karl Rove in elective office. Whether it’s history or political contacts or names of people, he’ll retain it if he feels it’s important.”
He’s What McCain Isn’t
But it is Daniels’ mastery of economic and budget issues that makes perhaps the best case for him to run with John McCain, who once admitted that economics is not his strong suit.
A graduate of Princeton and Georgetown University Law School, the young Daniels worked on the staff of then-Indianapolis Mayor Dick Lugar from 1971-76 and, following Lugar’s election to the Senate, on his Washington staff from 1976-82. He ran the National Republican Senatorial Committee when Lugar was chairman of the campaign unit (1983-84) and then served as Ronald Reagan’s White House political director from 1985-87. Following stints as chief executive officer of the Hudson Institute and president of the Eli Lilly Company’s North American pharmaceutical section, Daniels went back to the public sector when he accepted President-elect George W. Bush’ offer to become budget chief.
In that job, Daniels’ passion for spending cuts earned him contempt from many lawmakers, with then-Senate Appropriations Committee Chairman Ted Stevens (R.-Alaska) remarking that the only way the OMB director could repair his relationship with Capitol Hill was to “go home to Indiana.”
He did. In 2004, Daniels defeated Democratic Gov. Joe Kernan and thus became the first Republican governor of the Hoosier State in sixteen years.
Looking back at his OMB days, Daniels doesn’t argue with the charge that Republicans lost the lower spending issue in the last couple of words. As he told me, “I happen to agree we didn’t get done nearly what needed doing in terms of weeding the federal garden. It wasn’t for lack of effort on the part of some of us, but you can’t quarrel with that verdict. One thing I like about my present opportunity is that here you can cut spending and make it stick.”
He then made a strong case that he has taken his “present opportunity” and made good on promises to not only lower taxes, but reduce the size of government.
“We have 5000 fewer employees, which is about 15% [fewer] than three years ago,” the governor says proudly, “We just passed the biggest tax cut in state history, which is a one-third reduction in property taxes and a permanent cap on homeowners at 1%, rental property at 2%, and business property at 3% (of assessed value). Those are just caps. After the reduction, most property will be below those caps. It’s a protective ceiling, it’s a maximum.”
Daniels also noted that he has overseen a change in state tax laws that benefits small business and fresh industry in the state. He recalled how “until three years ago, if you bought a piece of new manufacturing equipment, there was no sales tax. It was deemed a tool of work. But if you bought a piece of lab equipment, or, say, a computer, you did pay sales tax. We abolished that. It was a very backwards looking view at the economy. A spectrometer or a centrifuge was not viewed as a tool of work.”
(A strong executive hand in balancing the state budget comes not from the line item veto, which the governor of Indiana does not have, but from impoundment and rescission powers. The state does not have to spend every penny the legislature votes for. Recalling how Presidents used to have similar powers with regard to Congress, Daniels observed that “Presidents lost it in the Watergate period. It’s one of the casualties of Watergate. Impoundment and rescission power was taken away from Presidents. [Rescissions exist] in extremely weakened form.”)
If there is any criticism from conservatives on the Daniels Administration’s tax and spending agenda, it comes from his successful push for increases in sales and cigarette taxes as he was overseeing the cuts in the property tax and the accompanying caps. Daniels admits “We raised the sales tax 1%, but there’s a $1.72 of reduction [reduced property taxes] for every dollar of sales tax. We returned some of the surplus to taxpayers and the caps deliver the rest of the relief.
“So for many homeowners, even after the relief is delivered, they’ll still be above a 1% cap. If so, next year, then you’ll get a haircut down the middle to 1% and that can’t be shifted to someone else.”
As for the cigarette tax, the governor insists he is not a “nanny state man”, that he has not supported a statewide smoking ban that has been enacted by many sister states.”
“I have struggled with this,” Daniels told me, “I’ve been a very active proponent of better health behavior, as we are one of the least healthy states in the country. We have the second highest rate of smoking, and one of the lowest cigarette taxes. By the way, President Reagan said “you want more of something, tax it less. If you want less of something, tax it more.” I don’t have any problem with a consumption tax on something you wish people would rather didn’t consume. We used every penny to fund the free market health care for the uninsured.”
Overall, Gov. Daniels gets high marks for his performance from conservative groups such as the American Legislative Exchange Council. In a recent ALEC study completed by economists Arthur Laffer and Stephen Moore, Indiana was rated twelve out of fifty in terms of economic outlook (the forecast based on the state’s standing in terms of policy varaibles such as marginal personal and corporate taxes and debt service as a percentage of tax revenue.
Other accomplishments of his tenure include a ten-year plan (“Major Moves”) to privatize state transportation assets instead of raising gasoline taxes or state borrowing. Last year, Daniels was one of three Republican governors who wrote President Bush to urge a veto of the $35 billion extension of the State Children’s Health Insurance Program (SCHIP) passed by Congress. He believes “SCHIP has its value, but not without limit. The argument, as I recall it at the time, was should Hoosiers be subsidizing health care for wealthy coastal people. It was headed for four-times poverty. It wasn’t SCHIP, yes or no. It was SCHIP to what reasonable limit. But if you think that Republicans have to have our own answers, then I’m for it. We passed what I believe is the most free-market plan for the uninsured around. Basically, it’s HSAs, it’s for low income people, with a couple features I believe enhance that model.”
Considered a cinch for re-election this fall, Daniels’ coattails may even turn the one-seat Democratic edge in the state House of Representatives into a GOP majority. This was one topic of discussion three colleagues and I had with three prominent Republicans over dinner at the Oceanaire Restaurant in Indianapolis on the same evening I met with Daniels. No one really took seriously the idea he would be put on a national ticket — well, not exactly. When the subject came up, all three began discussing just what mechanism would replace Daniels as the gubernatorial candidate if and when he got the call from McCain.