Fiscal responsibility, according to Gov. Mitch Daniels

Indiana governor discusses how he guided own state out of debt, offers suggestions on how to fix the debt problem in Washington and more!

This is a rush transcript from "On the Record," May 15, 2012. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: Governor Mitt Romney is blasting President Obama for what he calls the nation's "spending inferno."

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MITT ROMNEY, PRESUMPTIVE GOP PRESIDENTIAL CANDIDATE: The people of Iowa and of America have watched President Obama nearly four years now, much of that time with Congress controlled by his own party. And rather than putting out that spending fire, he's been feeding it. He has spent more and borrowed more.

The time has come for a president, a leader who will lead. I will lead us out of this debt and spending inferno. We will stop borrowing unfathomable sums of money we can't even imagine from foreign countries we're never even going to visit. I will work with you to make sure we put out this spending and borrowing fire!

(APPLAUSE)

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VAN SUSTEREN: So what does Governor Romney think it will take to put out a spending fire? Or Indiana Governor Mitch Daniels, what does he think? He did it in his state to some extent. He has advice for Governor Romney.

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VAN SUSTEREN: Governor, nice to see you, sir.

IND. GOV. MITCH DANIELS: Hi, Greta.

VAN SUSTEREN: Governor, if you could get any message from your experience as being a governor of Indiana to Governor Romney in terms of handling the economy, what's the single message that you want to make sure he hears?

DANIELS: Trust the American people. Level with them about the facts. Explain that we're going to have to make some changes. And it's all in the interests of low-income people, of young people, of people trying to climb the ladder of success.

They're the folks who will be penalized if we keep drifting toward Niagara Falls on the current track. So couch everything in terms of their future, and take the message to young people and to middle America at every opportunity.

VAN SUSTEREN: Governor Romney today, Governor, talks about the sharper spending cuts. And President Obama talks about issues like fairness, very different. But in both speeches and both economic policies, the one thing I don't hear is actually something that you brought up when you first became governor. On the first day you became governor, you created Indiana's office of management and budget, which looked at insufficiencies and cost savings throughout the state government. Do you see either candidate focusing in on inefficiencies and waste in their speeches?

DANIELS: Well, I think they both talk about it. It does deserve a close look. I will say, Greta, that perhaps a big difference between the federal and state levels is that, although waste is rampant, we all know that, and there is an awful lot of government we should wring out and no one would miss it, the federal over-spending is overwhelmingly in the safety net or entitlement programs. We have got to address them. The most effective -- it took our team of fraud fighters and spending cutters from Indiana, which I think is the best in America with a record to prove it. If you turned our folks loose on the federal government, you still wouldn't get at the big bucks until you looked at entitlements and, on the other side of the equation, much faster economic growth.

VAN SUSTEREN: You have actually worked in the federal side of this as well. I am curious, what could we do with those entitlements? I realize it's a vast topic and worthy of 10 hours of discussion. But is there something so we could feel good about ourselves and get a grip on what is happening to our growing debt?

DANIELS: It could take 10 hours. But I think I can name that tune in well under a minute, Greta.

First of all, if we would begin to address it, it would make a dramatic, positive difference for jobs and growth in this country. If the world, which really wants to keep financing the United States -- they don't have a better alternative -- the world even saw us start down the path of reconciling our long-term commitments and our means, they would reward that, with, I think, new investment and lower interest rates on a long-term basis.

How do to do it -- a lot of ways. First of all, means test the programs, concentrate the money on low-income people who really need it. Secondly, we should, you know, clearly stop over-indexing the programs, protect people against the cost of living but not necessarily more. Raise the retirement age very gradual to something that lines up with today's actuarial realities. You say to the people in the program today, you're good to go, nothing's going to change for you, but help us make sure that younger people have something waiting for them too.

VAN SUSTEREN: In terms of cutting entitlements, the lower income, I am talking about Social Security, which people don't call entitlements, they say they have paid into it and they deserve it. But entitlements for the very poor who, might be discouraged or don't have jobs, no future opportunity. Do you see a necessity focused on them to rev up the economy? How would you get them inspired and going have and having opportunity?

DANIELS: We should go to a full-throated growth policy in this country, specifically in the interest of those who are jobless or under-employed today and those young people coming up at enormous number of young people, coming out of college, even, without a job, so many of them, living at home. That means, things like lower, flatter tax rates, every economist I know across the spectrum agrees that taking out the -- so many of the preferences and special exceptions and the bookshelves of tax code we have is -- would be positive for growth and jobs.

Absolutely maximizing this great new energy opportunity, which American ingenuity has created for us, natural gas and oil sands and the new means of extraction. We can be the energy producer for the world, after sending billions of hard-earned dollars overseas to meet our energy needs.

VAN SUSTEREN: I know that you are a big supporter of Governor Romney, of course, a fellow Republican. But what is your deepest criticism of President Obama's economic policy? Where in your mind, does it fail? Or is it on the wrong track?

DANIELS: It would be a lot shorter answer if I told you anything they had done right. They have been regulation crazy. They have piled cost after cost, delay after delay in the path of those who would hire Americans. They have been for more taxes, the threat of more taxes on a recurring basis.

And as if that wasn't enough to stop the economic growth, they have chosen to be sadly divisive, castigating individual businesses, business sector, even individuals by name. And so they have had as pure an anti-growth economic policy as one could imagine. And no one should be surprised that the economy has responded as it has, businesses are scared to death to risk any of the money that they have in their treasuries.

VAN SUSTEREN: One last question about the race the other day in Indiana. I know that you were chief of staff, way back when for Senator Lugar. He lost to a member -- a man supported by the tea party. What do you make of the tea party movement in the country right now?

DANIELS: Oh, it's a factor. It was a factor here in our state. But in this contest, very honestly, the winner, Richard Mourdock, started with two-thirds of the regular Republican county chairman and added to that as he went along.

So this was a test between two good friends of mine two, good allies and two really good people. But it would be a complete misunderstanding to label this a tea party phenomenon when in fact, the winner had been very strong majority with rank-and-file Republicans who felt they knew him, had seen a lot of him. He has been elected twice, statewide in the last six years. He's a Republican regular. That was the decisive factor.

VAN SUSTEREN: Last question, but I am curious, Subaru announcing new jobs in your state. If there was a formula, on a national level, how do you get Subaru to do that in your state? They could have gone anywhere, so what's so great about Indiana?

DANIELS: I will be riding my motorcycle up there to help them celebrate tomorrow morning, not for the first time. It's simple. In all the major rankings, the best states to do business, Indiana's come rocketing up the list in the top five. We are the only state everywhere in the top 10 or 20. That's what happens when you commit yourself completely to jobs and economic opportunities.

So we have lowered taxes and kept spending down. We have a triple-A credit rating so businesses know that taxes are not going back up. We have the lowest property taxes in America. We have a regulatory approach which has high standards, but it's quick, consistent, and not punitive. We don't talk about crucifying anybody out here as this guy at the EPA just did. We have built the best infrastructure in the country. If do you that then people notice and people have a good experience when they invest and, like Subaru, they come back and invest again.

VAN SUSTEREN: Thank you. I think we should look to see what works and try to copy that stuff. Maybe you will get other states copying you.

DANIELS: Come see us in Indiana and we will show you.

VAN SUSTEREN: Thank you, governor.

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