Selling the Budget: Mitch Daniels
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MARGARET WARNER: That comes from the President’s new budget chief Mitch Daniels, head of the White House Office of Management and Budget. Welcome to the program.
MITCHELL DANIELS: Thank you.
MARGARET WARNER: Let’s start with the Democrats’ criticism of this. They are saving given the size of the tax cut there is just not enough money to pay for that and all the things he has promised to do.
MITCHELL DANIELS: I agree there is not enough room for the President’s tax cut. There is vastly more than enough room. In fact, the astonishing thing that the budget depicts would be the extent to which the American taxpayer is being overcharged. We can pay down debt at historic levels — essentially, eliminate debt in our fiscal affairs. We propose to protect Social Security completely. There is $600 billion more of Social Security left uncommitted in this budget. Beyond the $600 billion, there is a trillion dollars because we agree with our opponents that we cannot see the future with precision, we set aside another trillion dollars for potential new needs or contingencies. And with all of that and funding our new priorities –there is room to the tax cut that the President has recommended. It would be inexcusable to keep collecting that money from Americans under those circumstances.
MARGARET WARNER: All right. Let’s go back to some of these elements, because the Democrats quarrel with each of the building blocks of what you just laid out. The size of the tax cut – you’re saying $1.6 trillion – they’re saying once you add the retroactive portion, which I gather the President does support and other, the interest on the debt it’s well over $2 trillion.
MITCHELL DANIELS: We welcome their enthusiasm for a larger tax cut than the President has proposed. But he has been consistent and not just since taking the oath but for a long time. The size of this tax cut is $1.6 trillion.
MARGARET WARNER: So if you want to put in the retroactive feature, are you saying you’ll carve it out of the 1.6 (trillion dollars) – and you won’t increase it above that?
MITCHELL DANIELS: I think that we’ll work with the Congress to shape the tax cut. There may be some eliminates of it that need to be phased or staged in a different way. You may have the same elements but longer time periods. But the President has said, as he did last night, there are people who think it’s too large. people who think it’s too small and he thinks it’s at the right size.
MARGARET WARNER: All right. Now another criticism they make is that it rests on if not rosy economic assumptions ones that really can’t be known, and that is you are projecting over 3 percent annual economic growth for the next ten years, how realistic is that?
MITCHELL DANIELS: I think we have to have a lot of sympathy for our Democrat friends at this point in time. Their carefully crafted sound bites have suffered a fatal collision with reality. In the first place this budget is built on very cautious assumptions. I make a full confession as a former member of the Reagan administration we did have budgets that anticipated growth above what was then the consensus. Our budget forecasts growth below the Blue Chip consensus over this 10-year time period. It forecasts revenue receipts at rates that reverse suddenly and dramatically the incredible rates at which revenue has been coming to the federal government. It’s a very conservative budget; there are no magic asterisks – no unspecified savings — none of the gimmickry that both parties from time to time have taken part in. So I think they will have to search around a long time before they can make the claims they were hoping to make.
MARGARET WARNER: Does the economist in you tell you that over 3 percent annual growth — we have already had a ten year economic expansion, that that is going to go on for another ten years without some kind of a real downturn?
MITCHELL DANIELS: Our economists, the CBO’s economists, and the whole blue chip consensus could all be wrong. It is certainly possible and it’s exactly because – and here too we would agree with some of our critics, that one should not pretend to false precision. That is exactly why we’ve left $600 billion of the projected Social Security surplus in reserve and why we have left a trillion dollars of the so-called on budget surplus in reserve — taken together well over a quarter of it. A banker looking at this situation would say he was over reserved against the possible bad losses. And it’s good practice but we are very well protected. And there is more than enough room for the tax cut that the President has proposed.
MARGARET WARNER: This opens the door to another criticism from the Democrats. And they are saying that to create this reserve fund you are in part raiding both the Social Security trust fund and the Medicare Trust Fund. Essentially you are counting it twice.
MITCHELL DANIELS: Yeah, this is really bizarre. I’m not really sure. The threat to Social Security really comes from the Democratic plan. Let me tell you why: In pretending that you can lock up as much as 3 or 3.1 trillion dollars and in their quest to keep this money in the government’s hand and not the taxpayers’ hands they are going to lead the nation or they would lead the nation in one of two directions they need to answer for. As you try to retire more than 2 trillion dollars of debt, you will be paying a penalty premium to foreign banks –
MARGARET WARNER: You are talking about the national debt –
MITCHELL DANIELS: National debt.
MARGARET WARNER: — and the fact that you all would only retire about two thirds of it.
MITCHELL DANIELS: We would retire all that comes due between now and 2011 and possibly a little more. You may be able to buy back a little more at the margin. We bought back a fraction of 1% as what was outstanding, but as that pool shrank, the Bank of Japan and pension funds and others who want this ironclad full faith security in their portfolio and have a security that runs out 2020 or later, are not going to part with it as a gesture of solidarity with Uncle Sam. They are going to demand a premium. No administration, Republican or Democrat, is going to pay scores of billions of dollars for no good purpose to make that happen. Let me just add one thing. Therefore that leaves one other option for this unspent money and that is to buy private assets. Chairman Greenspan has warned about this. The public should become alert to that. Senator Conrad will follow me – should tell us which of two courses he wants. Does he want to send a bonus payment to the government of Japan, and to wealthy bondholders, or does he want to begin buying the private economy because there we would have a very good faith difference of opinion.
MARGARET WARNER: Now that you are going to leave about 1.1 trillion or at least a trillion in debt, does that provide actually a lot of your 1.6 trillion or whatever size it is tax cut? Did that turn out to be a great thing for the Bush administration when Greenspan raised this issue and you decided that, in fact, it wasn’t a good idea —
MITCHELL DANIELS: Greenspan didn’t raise the issue. Reality raised the issue. It is a reality that in trying to artificially accelerate the payment of debt you will pay a premium and the numbers will be staggering trying to pay hundreds of billions of dollars, the last few hundreds of billions of dollars of this highly prized security before its time. So this is something that the chairman pointed out, but our adversaries don’t want to come to terms with.
MARGARET WARNER: All right. Mitchell Daniels, thanks very much for being with us.
MITCHELL DANIELS: Thank you.