• With: Gov. Mitch Daniels, R-Ind.

    This is a rush transcript from "Your World," May 21, 2012. This copy may not be in its final form and may be updated.

    STUART VARNEY, GUEST HOST: Mitch Daniels agrees. His state was the number one job creator last month, as he pushes to keep taxes low. And he joins me now.

    Governor, welcome.

    GOV. MITCH DANIELS, R-IND.: Thanks, Stuart.

    VARNEY: This huge tax increase come January the 1st, Social Security taxes, income taxes, dividends, capital gains interest, estate taxes, they all go up. Surely we are not going to do that, are we?

    DANIELS: One hopes not. It would be the coup de gras possibly on what is already the most anemic recovery certainly from a recession this deep we have ever seen.

    Charles there in your preceding segment nails it. He lacks a little energy, but otherwise he's talking sense.

    (LAUGHTER)

    DANIELS: The record of economic history is very clear. The countries that have rebounded the most swiftly from a bad situation, debt situation, did it by reducing spending, not by raising taxes.

    The so-called stimulus experience we've just been through here, complete and abject failure by any measure, and if we needed any fresh evidence.

    VARNEY: In Indiana, you flat out reject tax increases. You're not going to do it.

    DANIELS: You don't say, never, ever, but we have certainly practiced the alternative of lowering taxes and reducing spending.

    We have now I think the second or third lowest per capita state spending in the country.

    VARNEY: Yes.

    DANIELS: But I can prove to you, by the way, that state services have improved.

    No, I mean, if your goal is to create an environment of opportunity, a climate for investment and job growth, then you really want the cost of hiring people to be as low as possible. Taxes is one good example. The indirect, but very real cost of regulation is another.

    This administration has just piled cost after cost after cost on the backs of those who otherwise might have hired someone.

    VARNEY: I'm looking at a headline here. It says go Midwest, young man, Indiana's plan to steal California jobs.

    I've lived in America for 40 years. The jobs have always gone to California. They've never gone from California to the Midwest. Are you telling me that that's what's happening now?

    DANIELS: Yes, sir, I am.

    And the hard proof is just in where people are moving. We gained a lot of population in the last few years. We're gaining college graduates in our state. For the first time in American history, California's actually hemorrhaging people, as you've seen, and, by the way, the people they can least afford to lose, those who lead companies, those who have the money that's been paying those high taxes they charge.

    VARNEY: So, at the federal level, no tax increases. Cut taxes. Go for tax reform? Is that your plan?

    DANIELS: Yes, tax reform, absolutely.

    VARNEY: When I say tax reform, I mean lower tax rates and fewer loopholes, and that brings in more money to the treasury; is that the plan?

    DANIELS: It has in -- every time we've tried it, and it's time to try it again.

    A couple bookshelves full of tax code have grown up since the 80s; the last time that this was done was very successfully. And there's another point, Stuart. It is very fair when people point out that everyone in society, from the wealthiest on down, ought to contribute to getting out of this terrible debt corner we're in.

    The best way to do it is not to ratchet up rates in a dysfunctional tax system that we have. It's to do what you just said. The wealthier people benefit disproportionately from all these exceptions and exemptions. And that's the way they can participate.

    VARNEY: Now, President Obama is saying, look, the stimulus worked. And could you make the case that, well, we've got 2 percent growth. You could make -- could you make the case that stimulus worked? Or do you just reject that out of hand?

    DANIELS: I'll go with Charles rather emphatic opening, which he said, no; and he's right.

    We should be growing at two or three times this rate should have been by now, given the depth of the recession we went into. No, I think the evidence, the empirical evidence here says that the policies of high taxes, punitive regulation, and spending of borrowed money has retarded, rather than helped in any way what would otherwise be a natural recovery.

    VARNEY: Is it a political winner to say, I'm going to cut tax rates, abolish loopholes, and, by the way, we will ultimately cut spending on entitlements? Is that a political winner?

    DANIELS: I happen to think it is, but whether it is or not, it is what the nation must do.

    We've got to get busy – we've got the object lesson of Europe sitting right in front of us. This is not a matter anymore for the theoreticians and economic abstraction.

    We've got the case study sitting right there. We're only are a few feet behind them. And if we weren't the reserve currency of the world, we would probably be in the same situation there and so we better get on. I remember Saint Augustine is supposed to have said, Lord, make me chaste, but just not yet.

    (LAUGHTER)

    DANIELS: And that is what too many of our politicians on both continents are saying.

    VARNEY: Still some questions about the vice presidential slot with Mitt Romney. And I'm reminded of Mr. Sherman, William Tecumseh Sherman.

    He said, "If drafted, I will not run. If nominated, I will not accept. If elected, I will not serve."

    Would Mitch Daniels, Governor Mitch Daniels, make a similar Shermanesque statement about the vice presidency of the United States?