AN INTERVIEW WITH MITCH DANIELS, GOVERNOR OF INDIANA

The New York Times

January 4, 2011

Budget Hawk Eyes Deficit

By DAVID LEONHARDT

Indianapolis

Of all the Republicans talking about the deficit these days, Mitch Daniels, the governor of Indiana, has arguably the most credibility.

Congressional Republicans have spent much of the last decade voting for tax cuts and spending increases, all the while giving speeches decrying the deficit. Mr. Daniels, who took office in 2005, has reduced the number of state workers by 18 percent and held spending growth below inflation. He has raised the sales tax to help make up for a property tax cut. Largely as a result, Indiana finds itself in better fiscal shape than many other states.

Which is why Mr. Daniels is often mentioned as a potential presidential candidate, despite — as just about every profile notes — not looking much like a president (5 foot 7, with a comb-over) and seeming genuinely torn about the rigors of a national campaign.

I recently sat down with him in his office to talk about what small government might actually look like. To be clear, it would be very different from the Tea Party dream, in which taxes could be cut; Medicare, Social Security and the military could be left untouched; and the deficit would somehow vanish. Mr. Daniels is willing to acknowledge as much.

He says he avoids using the phrase “waste, fraud and abuse” because “it’s too glib — there’s no wand you can wave.” He says military spending should be cut. He called the Republicans’ recent attacks on Democratic efforts to slow Medicare’s cost growth “not a proud moment for our party.” He had kind words for the Tea Party but pointed out that it did not have a solution.

“Nobody that I know got up in front of those rallies and said ‘You’re right, you’re right, now here’s what we have to do,’ ” he told me. “ ‘There’s going to have to be a different kind of Medicare in the future, and there’s going to have to be a different kind of Social Security.’ We really are going to have to re-examine a whole host of these things.”

As nice as it as it may be to keep taxes low and government benefits generous, it’s also folly. At some point, we will have to choose.

At some point, a politician — presumably a Democrat, maybe President Obama — will make the case that Medicare, Social Security, a strong military, good schools and a large scientific-research budget are worth the cost of higher taxes. For precisely these reasons, countries, including this one, have tended to raise taxes as they have grown richer.

On the other side of the debate, one hopes, will be a Republican willing to make an honest case for low taxes. These days, Mr. Daniels is the closest thing to being that Republican.

In person, he lives up to his reputation of lacking a politician’s usual airs. Ten minutes before the scheduled start of our interview, he wandered out of his office, on the second floor of the grand State Capitol, and poured himself coffee into a paper cup. He was wearing a bright blue shirt with a logo reading “Indiana accelerates your business” that seemed like something from a company retreat.

Over the next 90 minutes, he laid out what amounted to a three-part vision of American government.

The first part revolves around simply making government work better. “Government is, essentially, the last monopoly,” he said. “Monopolies tend to abuse their position. They overcharge and underserve their customers.” No matter how bad the service at the Bureau of Motor Vehicles, you can’t get your license anywhere else.

So Mr. Daniels has tried to “implant accountability,” as he puts it. The state measures workers’ performance and has given bigger raises to top performers. Mr. Daniels also holds an annual ceremony to celebrate workers who have saved Indiana money.

The focus on performance has allowed the state to reduce its work force, largely through attrition, and still function well. “So far, he’s managed to do it without a noticeable loss of service,” John Ketzenberger, president of the Indiana Fiscal Policy Institute, told me later. Lawrence DeBoer, a state budget expert at Purdue, added, “You’ve got to give them some credit for that.”

Mr. Daniels’s favorite example is that the average wait time at the Bureau of Motor Vehicles has fallen to eight minutes, from 40 minutes, since 2005.

Nothing about this good-government push is inherently Republican, either. Mr. Obama, who talked during his campaign about creating an “iPod government,” would be wise to see what the federal government might learn from Indiana.

The second part of the Daniels agenda is more ideological. To deal with the huge projected deficits, he favors major changes to Medicare and Social Security, rather than any increase in taxes.

Benefits should be cut for high-income and healthy people. The gradual increase in Social Security benefits over time should be cut, so that tomorrow’s retirees get the same benefits (after adjusting for inflation) as today’s. And the eligibility age of both programs should increase.

Today’s children “will live to be more than 100,” he told me. “They’ll be replacing body parts like we do tires.”

He also thinks that people should save money when they choose less expensive Medicare treatments and lose money when they choose more expensive ones. Progressives, he said, believe in letting experts decide which treatments the government will cover. He wants individuals to decide what care they will get.

Today, people understandably push for the most expensive treatments because they don’t pay the bill. He would prefer that if you and your family choose to spend tens of thousands of dollars on your final weeks of life, you understand that “the inheritance you will leave to your kids is going to be wiped out, cut in half or something.” Either way, he acknowledged, the choice is “impossibly difficult.”

Finally, Mr. Daniels likes to describe himself as a Whig, after the 19th-century political party whose modernizing agenda attracted Abraham Lincoln and Henry Clay.

Mr. Daniels says the government must be aggressive at doing things the private sector cannot, like improving schools and building roads. “The nation really needs to rebuild,” he said. As a good Whig would, he has pushed all of Indiana onto daylight saving time — so that the time no longer maddeningly changes as you drive around the state — and he’s consolidated some unwieldy local governments.

How well has the program worked? If you read the conservative hagiographies, you may come away believing that Mr. Daniels has found the secret to prosperity. But that’s not the case.

Shortly before taking office, he gathered his staff in an Indianapolis hotel and told them that their No. 1 goal was lifting the per capita disposable income of the state’s residents. Instead, income growth in Indiana has trailed growth nationwide and in every bordering state but Michigan.

Cutting government is no economic panacea. But it will surely have to be part of the solution to our long-term budget problems, in Washington and in the states. Mr. Daniels, at least, has begun offering a serious choice about what kind of government we should have.

“I’m a believer in self-government, so I think people are entitled to decide this question as long as they’re willing to pay for it,” he told me “What we’re not entitled to do is impoverish our children and pass the bill on to others.”

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