12 in 2012: Fiscal Conservatives Eye Daniels' Dexterity in Managing Indiana Budget

Indiana Gov. Mitch Daniels, seen in this file photo, is one of 21 Republican governors who sent a letter to the Obama administration criticizing the nations new health care law. (AP)

Some fiscal conservatives are looking to pave the road to the White House from Indiana, where Gov. Mitch Daniels has done what others before him have proven unable -- chopped a deficit-plagued budget and forced the state to live within its means.

The skill has earned the two-term governor a reputation that could attract voters nationwide in 2012, many of whom say -- according to exit polls in Tuesday's election -- that runaway government spending is their top concern.

Elected in 2005 after coming off a stint as President George W. Bush's budget chief, Daniels inherited a state budget that hadn't been balanced in eight years. On his first day in office, he took drastic action -- selling the state's largest toll road and decertifying government employee unions -- and within a year, the Hoosier State books were even.

"We are paying all our bills. We do have money still in reserve. We did it without raising taxes," he told Fox News' Bret Baier in an interview.

Daniels' first year in office was tumultuous for another reason -- he proposed a 1 percent surtax on people earning more than $100,000. The idea, widely rejected, pushed his approval rating down to 33 percent.

But it didn't stay there.

In 2008, President Obama carried Indiana -- and so did Daniels, winning reelection by 18 points and now governing with a 65 percent approval rating.

Now, it's a question of whether the job he performed in Indiana can be applied across the U.S. map.

Daniels demurred at the idea.

"People have said, 'Keep an open mind,' or, 'reopen your mind to this,' and I've said, 'All right,' but nothing's really changed in my outlook at this stage," he said.

Indiana is a must-win state for Republicans in 2012, and Daniels' opponents will find objectors among his current constituents.

Pork-busters disapprove of his support for federal government subsidies for corn ethanol production. Social conservatives don't like that he suggested calling a truce on social issues until the economic emergency has passed.

"We have a transcendent issue -- the debt, who's now growing at a terrifying rate. All I'm saying is that it would help if the awareness grew that we are in this together in this country in a way that we have rarely been -- apart from wartime," Daniels said.

Daniels calls the debt a national security issue, and says he wants to work on relations with China

“I do believe at this point in our history, the gravest security threats to us will come in a rush if we go broke. We are borrowing now more than the -- far more than the entire defense budget,” He said. .

Daniels’ experience as Bush’s director of the Office of Management and Budget may help or hurt his chance in 2012.

When Daniels entered with the president, the nation had a $236 billion surplus. When he left, the country had a $400 billion deficit.

Daniels argues that he didn’t pass the budget, and doesn’t have a say over how appropriators spend. He also notes that $400 billion would be an improvement over today’s figures. He adds that Social Security and Medicare spending can’t go unchecked.

“We're headed for a really interesting historical moment. Those who are against change in these programs -- are the enemy of Social Security. They're the enemy of Medicare. The rescuers are those who are prepared to make big changes so we have something that'll still work in 10 years or 20,” he said.

Observers say Daniels’ lack of dynamism is made up in substance. The motorcycle-riding governor lives up to that as he notes that the problems for the country are ones he never expected to see – and must be fixed soon.

“You can't run a family, gas station, let alone a country with these levels of debt. And it's mathematically certain we're going broke if we don't change in a very large way,” he said.

Watch “Special Report With Bret Baier” through Nov. 19 for the series “12 in 2012” -- profiles of potential GOP contenders for the White House.