Monitor Breakfast: Mitchell Daniels

On Bush administration budget priorities:

"What this finally comes down to, really, is how much priority one attaches to debt reduction. At the bottom, that is what it all comes down to. And this administration places a high priority on that. That is what happens with surpluses – if they are bigger, we reduce more debt, if they are smaller we reduce less debt. All I can say is that this administration – this president – still believes that is a very important goal. But there are at least three things more important – fighting terror, defending the homeland, regenerating economic growth in the short term which, by the way, is the best long term way to get back to big surpluses."

"One conversation, two minutes , no discussion of policy. He asked what I thought the prospects were (for economic stimulus legislation). He obviously came to the worst place in Washington for insight because I gave him a totally incorrect prediction. I thought the Congress would ultimately pass something."

"We will have – are likely to have a small deficit – historically very small – in the year we are in now, 02, and the year we are about to propose, 03. We have a fighting chance, an excellent chance, of surplus in the year after that and beyond. And obviously the president believes the tax cut is conducive to long term fiscal health, part of a solution, and we think it ought to be left as it is so it can have its positive effects over time and people can plan on it."

"...as soon as it became clear we were gong to see $40 billion of emergency money – half of which was for domestic purposes, half for the war – creativity blossomed all over town. We were literally flooded. At one point we were able to count $300 billion of suggestions. I hate to point fingers but if you want. I do remember that among the very first ones to arrive – they were very quick – was one to instensify security at the Bureau of Indian Affairs , a well known terrorist target. Also a lot of requests for unspecified enhancements at court houses all over America."

"The tax cut as it was passed, one would have to say, was very cautious. Because if the surpluses are not there, Congress will have multiple opportunities, if the majority thinks it is wise, to raise taxes. Those tax cuts are not coming out ahead of the surpluses, quite the opposite. I will contrast that to what perhaps Senator Kennedy will say at noon. If you doubt the value of long term forecasts, then don't spend the money before the revenue proposals they are supposed to match."

"We would roughly double the amount of money spent on what we now think of as homeland security. The base of that is in the neighborhood of $12-13 billion. It will be a major step forward. It will pay for that list of things Governor Ridge has identified as necessary and recommended to the president. Our starting point in constructing this year's (budget) submission was to take the president's direction that we are in a two front war and that winning it and defending the physical safety of Americans is the first priority of government and we will do what is necessary. The rest of government will need to take second place and to be restrained in order that we keep the totality of the budget to a reasonable level. Homeland security along with the reconstruction of our defense base will be the two big additions you will see."

"Nothing about what we understand he will say...does anything to improve deficits – quite the opposite. He wants to spend all this money and apparently get going on that theme. If you spend the money before it allegedly arrives, you probably do not improve your net situation. The things he is naming will all be part of the president's budget."