CHRIS WALLACE, ANCHOR: Now we continue our summer series of interviews with some of the prime contenders for the 2012 GOP presidential nomination. Joining us from Indianapolis is the governor of Indiana, Mitch Daniels.
Governor, your state's private sector has added 46,000 jobs so far this year. That's a growth rate of 2 percent, which is triple the national average. What should Washington be doing to boost hiring in the private sector?
GOV. MITCH DANIELS, R-IND.: Washington should be doing everything it possibly can, because vibrant economic growth of a sustained nature and over -- and at a rate that we have rarely, if ever, seen is our only chance of keeping the terrifying deficits that we're now looking at from getting even worse.
So here in Indiana, we've done everything we know how -- and this preceded the recession -- to try to build the best sandbox in America, lower the cost of doing business, keep taxes down particularly in this recession, make regulation fair and consistent, and try to have the most inviting climate anywhere for jobs and investment.
I'm hopeful national policy will take that same direction.
WALLACE: What about more stimulus? They are going to pass in the House and send to the president this new bill -- I think it's $26 billion - - more state aid, keep teachers hired. They're also talking about a $30 billion fund, lending for small business. Do you support that kind of stimulus?
DANIELS: Really don't. You know, the -- it amounts at this point in time to asking the citizens of responsible states like ours to subsidize those places who have been more reckless. It's provably not going to help the economy.
It's this notion sort of a trickle-down government. You pour a few more bajillion (ph) dollars in the top of the funnel and maybe a little demand and a few private sector jobs will fall out the bottom. It's really not the way to do it.
I really wish that national policy would head in the direction of encouraging the private sector jobs on which everything else, including government's appetite for revenue, depends. WALLACE: Indiana ended the fiscal year in June a couple of months ago with a surplus of $830 million and a string of balanced budgets. What should Washington do to get a hold -- control of these trillion-dollar deficits?
DANIELS: Well, the issue is spending, first and foremost. And we've done those things necessary to control it. Now, this isn't new for us. When we came to service five and a half years ago, Chris, our state, unlike most, was bankrupt. And so we've been working on this for quite some time.
You'd really be amazed at how much government you'd never miss. And we have brought down per capita spending substantially here. But I can prove to you, because we measure everything, that service levels on those things that matter most are better, not worse.
And one can only hope that facing the genuine emergency, I think really survival-level problem, that we are facing fiscally, nationally, that our leaders in Washington will consider changing direction.
WALLACE: On the other hand, sir, let's look at your record as the first budget director for George W. Bush back in 2001. When you came in, there was an annual surplus -- annual surplus -- of $236 billion. When you left just over two years later, the country had an annual deficit of $400 billion.
DANIELS: Well, fair enough. And you know, recessions do that. I will just tell you that in two and a half years of service I was never in a debate with a member of Congress -- of either party, by the way -- where they wanted to spend less and I wanted to spend more. It was always the other way around, and Congress got their way on too many occasions.
Listen, I agree that more money was spent then than needed to be. But you know, have a look around. Those deficits -- we would love to be back at those levels today. The deficit before this recession started, and a year to go in the Bush administration, was one-sixth the size of the ones we are running now and told to expect for the next few years.
WALLACE: But let's talk about another aspect of fiscal policy that happened when you were in Washington, and that's the Bush tax cuts, now a big issue, whether or not to allow them to be extended for 10 years. That would cost $2.9 trillion, according to all the budget counters.
How do you pay for that if you want to extend all the Bush tax cuts?
DANIELS: First of all, it's hard for me to understand why you'd raise anybody's taxes in the middle of a recession. And secondly, I think it misses the big point. You don't know that that revenue will show up. In fact, there's a good chance it won't.
If you slow down growth, this -- these ambitious growth targets which are baked into the administration's own forecast -- if you slow it down by just 1 percent, it costs, you know, close to $3 trillion right there.
Our entire focus, really, Chris, in this country has got to be on reviving the private sector, the jobs that count and pay the bills for everything else.
And so we should be looking, I think, to perhaps even an emergency program that, while not raising taxes, opens the door or encourages investment, not this targeted winners and chooser -- winners and losers approach that we've seen lately, but in a macro way that encourages the money that's sitting on the sidelines to come on the playing field and put people back to work.
WALLACE: And how do you do that?
DANIELS: Well, you could incentivize, as we have on some past occasions, investment made now. You could -- you could offer some sort of moratorium or holiday or opportunity to speed up regulatory permitting, which takes sometimes forever, to make job-creating investments.
I think that the president, at least temporarily, should have impoundment power or some sort of an enhanced power to reduce spending. We've had it here in Indiana. It's the only reason that we're still in the black when so many other states have gone in the hole and raised taxes.
WALLACE: Let's talk about government spending, because there are an awful lot of critics, conservatives, who say -- and one of the reasons that the -- that the GOP lost its majorities in Congress is they feel that your party lost its way on government spending.
Let's talk about some of your tough ideas, Governor. You say we need to fundamentally change entitlement programs, basically form a completely different agreement and arrangement for people below a certain age. Explain what you mean.
DANIELS: Well, of course we do. you know, we're going to have to get people together, Chris, in this country to do things that the cynics have said through the centuries democracies eventually would prove unable to do.
And this is the best example I can think of. You know, you can believe in limited government, as I do, or very expansive government, as others sincerely do, and still come to the conclusion that arithmetically there's no way we can pay for the Social Security and Medicare systems of today.
We are practicing child abuse in a literal sense when we deposit those costs on folks to come, so...
WALLACE: So be -- so be specific. Tell me your top idea for how you would change Social Security going forward. And obviously, we're talking about people not close to the current retirement age. DANIELS: Well, my preferences would be to means test it. Let's concentrate these resources on the people who definitely need them. Why are we sending a retirement check to Warren Buffett?
I would raise the retirement age to something that more matches the modern survival and mortality numbers, and -- but I would say any -- there's a Chinese menu of steps we could take. Changing the indexation formula is another one that could make Social Security healthy once again, especially for the folks who need it most.
And I would be for almost any combination of items off that menu.
WALLACE: Governor, you...
DANIELS: Medicare's a bigger issue.
WALLACE: Let me just -- I have to move forward here because we're beginning to run a little bit out of time.
You also gave an interview to The Weekly Standard in June that upset a lot of social conservatives. Let's take a look at what you said. "And then he, Daniels, says, 'The next president, whoever he is, would have to call a truce on the so-called social issues. We're going to just to have to agree to get along for a little while,' until the economic issues have resolved."
A truce on issues like abortion and same-sex marriage?
This was simply an expression of this fundamental idea -- I truly believe for the first time in my life our nation is facing challenges that threaten the survival of America as we've known it.
And to do the very difficult things, things like we were just discussing -- reforming Medicare and Social Security, disciplining federal spending, creating the conditions for long-term growth in our country -- we're going to have to get together an unusual consensus of people.
Stop dividing people as these issues do -- as this administration likes to do, sadly -- and try to come together in concert to do some very difficult and novel things. And this was really just an expression of the -- of the hope that we might, at least temporarily -- nobody changing their mind, nobody surrendering their principles -- put first things first.
WALLACE: After first ruling out a run, a possible run, for president in 2012, you now say that you're open to the idea, and I want to ask you a couple of aspects of that.
Will you start visiting Iowa and New Hampshire, which up to this point you haven't? Will you form a political committee to start raising money for a possible run? DANIELS: No. I have turned down scads of invitations to just those places and many others. I've turned down your show several times -- out of respect for you said yes today, finally. I have not decided to do this.
Many people have asked that I at least keep an open mind, and I've said all right. But you know, that's -- my attention is entirely fixed on the challenges and, I think, opportunities facing Indiana and trying to do the people's business well here, and that's where it's going to remain.
WALLACE: So in the final...
DANIELS: If the question's still of interest to people later, they can ask me then.
WALLACE: So in the final minute, what would it be -- you say you're open to the idea. What conditions would have to prevail for you to decide, "You know what, I'm going to get into it?"
DANIELS: You know, Chris, you live in a world of secret agendas and code words, but not all of us operate that way. You can believe it or not, but I'm telling you my point of view.
You know, I do -- I am hopeful, honestly, that people in both parties will step forward and recognize the republic-threatening dimension and nature of the fiscal disaster that is waiting for us, the threat to our economy if it doesn't begin growing at a much faster rate and stay there, and the mortal threat that terror and of weapons of mass destruction the world faces if we don't face squarely who our enemy is and what they're up to.
So I'm hoping we'll see people step forward and really hit those things head on, and maybe I'll be one of them. But there's a lot of ways to contribute to that debate.
WALLACE: Governor Daniels, I want to thank you so much for coming on today and talking with us. And whatever the role is, please come back, sir.
DANIELS: I'd like that.
DANIELS: Chris, my own views and record on these issues are very, very clear. And I respect the sincerity of those like Ted Olson who see them differently.