A Budget Chief Called "The Blade"

Mitch Daniels has a sharp knife--and sharp elbows

When George W. Bush spies Mitch Daniels, he usually greets his budget director with a grin and a nickname: "The Blade." Daniels, a slight, reticent man who looks more like a clerk than a slasher, is doing his best to live up to his handle.

The former Reagan operative, who was plucked from his post as senior vice-president at Eli Lilly & Co. (LLY ), has rushed into his new job at the Office of Management & Budget with scalpel in hand. Daniels fought hard for an accord that commits Republicans to holding the growth of discretionary spending to about 5%, vs. last year's 8%, brushing aside Senate moderates' calls for more social spending. And when Democrats complained that he was singling out Clinton initiatives for cuts, among them a popular program that puts more cops on the beat, Daniels declined to feel their pain. At OMB, his aides have adopted as their theme song the Rolling Stones hit You Can't Always Get What You Want.

Daniels' elbows are just as sharp as his budget knife. When Senate Minority Leader Thomas A. Daschle (D-S.D.) claimed the decision by Congress to fund only $1.25 trillion of the President's $1.6 trillion tax cut was a triumph for his side, Daniels told CNN: "There are some jobs--and I guess Senator Daschle's is one--that require you to say silly things from time to time."

Ouch! Washington should expect more such machete strokes from Mitch the Knife. A onetime political director in the Reagan White House, Daniels was happily toiling for Lilly and had no plans to join Team Bush. But Dubya's first choice for budget director, Stanford economist John F. Cogan, passed up the job, and the Bushies had to scramble.

Vice-President Dick Cheney, along with Al Hubbard, a Bush chum who heads an Indianapolis chemical company, sold the President on Daniels on the strength of his rep as a conservative loyalist--qualities the Bush crew thinks were lacking in Richard G. Darman, Bush Sr.'s OMB honcho. Darman was an intellectual powerhouse. But his role in pushing the elder Bush to abandon his "no new taxes" pledge made him anathema to conservatives. So it was hardly a surprise when Dubya made clear that he wanted a sort of anti-Darman as budget chief.

Enter Daniels. Although he lacked apparent credentials as a numbers-cruncher, the Indianapolis native got the nod over such OMB wannabes as former House Budget Committee Chairman John R. Kasich. Daniels was so green that when it came time to shape the fiscal 2002 budget, Cogan was airlifted in to assist. "Mitch was no budget guru. He was just a smart guy we had confidence in," says White House Chief of Staff Andrew H. Card Jr. "It was an important pick. The President knows as an ex-governor that the budget drives policy. "

Daniels forswears any grand ambitions to formulate policy. Instead, he wants to quietly slog through Bush's checklist of budgetary challenges. Among them: preparing for the Baby Boomer retirement wave by boosting Social Security returns, coping with the Medicare cost explosion, and doing some behavior modification on a Congress grown accustomed to gluttony at the federal trough. In addition, Daniels vows to help Bush fulfill his promise to curb regulation of business by applying stringent cost-benefit analysis to proposed rules. "These are very ambitious goals," Daniels says. "One of the reasons I went to work for President Bush is that he was prepared to go after big game."

RED INK. Fortunately for the Blade, he comes to this task with something his predecessors didn't have--money. While most recent budget chiefs had to agonize over buckets of red ink, Daniels shows up for work every day knowing the projected 10-year surplus is $3 trillion. If the current economic slump proves but a bump in the gold-paved road of higher productivity, Bush's economists reckon there will be enough dough to pay for tax cuts, keep programs growing above the rate of inflation, and still have $840 billion left over for emergencies. "The [new] budget is conservatively assembled," Daniels insists.

Still, Daniels' role as a spear-carrier for Bushonomics rankles Democrats. "It says something about this Administration that they picked a political guy [for OMB]," says House Budget Committee member Michael E. Capuano (D-Mass.). "Daniels' main job is to pretend that the budget is not going to be negatively impacted by these huge tax cuts."

Sour grapes, say Daniels' defenders. "It's true that Mitch initially didn't know much about the budget," concedes former Reagan Budget Director James C. Miller III of Citizens for a Sound Economy, an anti-spending lobby. "But he's a very fast study and is using his business experience to delegate." Adds Thomas A. Schatz, president of Citizens Against Government Waste, a nonpartisan watchdog group: "I have been very impressed. Daniels has a good handle on issues and is an excellent manager."

He'll need those skills in the months ahead as his job gets tougher. Although budget experts give the OMB chief credit for trying to rein in spending, the Administration's new budget is far from an all-out war on corporate subsidies and congressional pork-barrel projects. And no one knows whether the Blade will turn out to be a dull penknife when it comes time to confront Defense Secretary Donald H. Rumsfeld's ambitions to add up to $20 billion to the defense budget.

Like other Republican budget directors, Daniels dreams about reforming entitlement programs. But prospects are dicey, at best. The stock market meltdown has pushed Bush's plans for private Social Security accounts off into the future. And Medicare, which the OMB chief says is "headed for Niagara Falls, financially," could prove tough to revamp. Democrats want a costly new prescription-drug benefit for seniors added to the program, but the White House fears that it won't be able to push through structural reforms if it agrees to this goodie up front.

One area where business expects Daniels to have an immediate impact is in choking off the flow of new regulations, something he calls "an immensely important mission." Up to now, he has been reviewing a torrent of last-minute Clinton regulations, many of them seemingly designed to make Bush look bad if he chose to overturn them. "The place was booby-trapped," says Daniels.

In the future, Daniels plans to make OMB a strong filter for proposed regulations that could stifle economic growth. For his chief antiregulatory cop, he has tapped John D. Graham, director of the Center for Risk Analysis at the Harvard University School of Public Health. Graham is a controversial choice because critics think his Harvard center provides "rent-a-scientist" testimony on behalf of business interests. More important, Graham wants to roll back health, safety, and environmental safeguards, critics charge.

HOOSIER WIT. "Graham's view is paralysis by analysis," says Joan Claybrook, president of Public Citizen, a consumer organization allied with Ralph Nader. "He will be the instrument of industry, a backdoor entry point for every business that doesn't want to be regulated."

Daniels will try to weather the criticism with his trademark quiet intensity and dry Hoosier wit. "He's a gentle spirit but a tough man," says Bush strategist Karl Rove. Daniels is also not quite the numbers naïf foes make him out to be. At Lilly, he was responsible for strategic planning and directed North American operations, jobs that required a good bit of data sifting. "He has a 60-pound brain in a 120-pound body," enthuses Lilly CEO Sidney Taurel. "He never engaged in groupthink or told me what I wanted to hear."

In his new Washington assignment, Daniels seems determined to escape the Beltway Syndrome and will be doing his slicing solo. He has kept his family back home in Indianapolis and commutes every two weeks for a little family R&R and some golfing with old chums. Says Daniels: "It's a good idea for a budget director to live where people think a trillion dollars is a lot of money."

By Lee Walczak and Richard S. Dunham, with John Carey and Lorraine Woellert, in Washington

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