A Dark Horse for 2012?

Wall Street Journal | By John Fund

When the freshman Senate class of 2004 was sworn in, its most up-and-coming stars were two basketball aficionados born in 1961. One was Barack Obama.

The other was South Dakota’s John Thune, who became that year’s political giant by narrowly defeating Tom Daschle, the Senate’s Democratic leader.

The two men have often joked about playing hoops together, but they’ve both been busy. Mr. Obama, of course, now lives in the White House. Mr. Thune has also risen, last year becoming head of the Republican Policy Committee, a leadership post that puts him in charge of generating the party’s position on key issues. Of late he’s been mentioned as a dark horse presidential candidate by Republican strategists who aren’t enamored by any of the likely 2012 contenders.

Mr. Thune clearly respects his old colleague and admires the grit and skill he showed in becoming president. But when we meet in his Senate hideaway, he’s is all business. He outlines to me just how he and his colleagues plan to frustrate ObamaCare should it pass the House—as soon as this Sunday—and head back to the Senate. Mr. Thune and fellow Republican Judd Gregg of New Hampshire are laying out the obstacle course the bill will have to navigate in the Senate.

House Democrats are only planning to approve the Senate health-care bill passed last Christmas Eve because of promises that problems in the legislation—ranging from sordid special-interest provisions to an unpopular tax on high-cost health care plans—will be “fixed” in the Senate using the arcane reconciliation process. That process allows legislation to move through the Senate with a simple majority vote, so long as it pertains directly to the budget and meets strict guidelines in reducing the deficit.

Policy changes are frowned upon and subject to a challenge that, if upheld by the Senate parliamentarian, require the given provision to have 60 votes to pass. If 60 votes aren’t there, it must go back to the House for another grueling debate and vote. Call it Congress’s version of March Madness.

“House members who think the Senate will do their bidding are taking an incredible leap of faith,” Mr. Thune says as he tosses me a soda from a stash in a nearby closet. “We will leave no stone unturned making senators take tough votes.” He claims that the threatened Democratic resort to reconciliation is a complete abuse of the process. “Take the hijacking of the student loan program, which would be sent to us in an attempt to find money to pay for health care. There were no hearings on what is a sweeping policy change that eliminates jobs and nationalizes an entire industry. That will be a target,” he warns.

Mr. Thune is also convinced that the purported deficit savings from the “Cadillac” tax on high-cost health-care plans—likely to start in 2018—would reduce revenues to the Social Security program and would fall outside the current budget window. If so, both elements would be the subject of procedural challenges that could punch large holes in the health-care bill.

Mr. Thune makes no apologies for such tactics: “The American people have made it clear they don’t like this bill, it will lower the quality of health care and it is the wrong medicine for an economy in recession.”

So what should be done to reinvigorate the economy? Earlier this month, Mr. Thune put forth his own modest proposal to take the stimulus bill money that remains both unobligated and unspent—some $160 billion—and redirect it to provide incentives for small business to create jobs. His plan would allow them to pay off investments in equipment and physical capital more easily, eliminate capital gains taxes on their investment, and allow for 20% deduction for small business income. “Less than 1% of the stimulus bill was dedicated to small business tax relief, even though they create 60% to 80% of all new jobs,” he says.

But I wonder if he thinks these measures will be enough to jar a moribund economy. I note that Mark Bloomfield, the head of the American Council for Capital Formation, wants to revive an idea that he helped enact into law back in 1978, when the country was sliding into recession and governed by a Democratic president and Congress. Against all odds, Mr. Bloomfield and his allies assembled a bipartisan coalition that cut capital gains taxes. Does he think a similar approach could be tried today?

Mr. Thune notes that Congress is now more partisan than in those days, but that the economy is in such bad shape that some Democrats are recognizing “they can’t go back to the well again for another traditional stimulus bill.” So a new approach could have appeal if the economy doesn’t recover. President Obama himself has observed that the U.S. has the second highest corporate tax rate of any industrialized country. “I’m always for cutting capital gains taxes and marginal rates because you get more revenue and economic activity,” Mr. Thune tells me as he forms a steeple with his long fingers.

But he maintains the first priority must be to reduce “the economic and policy anxiety” the Obama administration has created, which has slowed down recovery. “We should be implementing trade deals, but they’re stalled in Congress. We should be reining in the EPA’s [Environmental Protection Agency] regulatory overreaching; I’ve had two coal-fired power plants stopped in my state.”

He links domestic policy with foreign policy by noting that the policy uncertainties created by the Obama White House weaken the U.S. position in the world. “When the president went to China, their leaders wanted to talk about health-care reform and how a new entitlement would impact our ability to pay our debts. We need to ask the question: if we pursue lots of new spending when we owe all this money do they have leverage on us we should worry about?”

Policy debates aside, I ask Mr. Thune what he thinks about the current state of the Republican Party. “We have to recognize that people hate Congress in general, and suspect both parties,” he says. “We’ve got to get to high ground with a long term, governing philosophy that convinces people we will get taxing and spending right in the future. We lost control of Congress because we weren’t always in accord with our principles,” he admits.

Should Republicans regain control in November or in the next election cycle, Mr. Thune says it will be important for them to revisit internal reforms that often were avoided or watered down the last time the GOP took over after their 1994 landslide. He ticks them off: “We have to address the static scoring of the Congressional Budget Office that limits good policy choices” because of its blinkered view of how the economy functions. He becomes passionate when he discusses a budget process he says was designed by liberals when they seized control of Congress in the 1970s and created a built-in bias towards higher spending. “It’s clearly a broken, dysfunctional system that’s bankrupting us.”

Mr. Thune suggests moving “to a two-year budget, where you spend one year legislating it and then the second year conducting oversight of government agencies and investigating to make sure the taxpayers’ money is well spent. We have to pass budget resolutions that have real teeth and that get us away from a trend line where the federal government is spending a fourth of our economy and back to its traditional share of 18% to 20%.”

He praises the recent action of House Republicans to impose a one-year moratorium on earmarks and notes that this past week GOP senators voted 25 to 15 for the same reform. But the question of earmarks raises the issue that federal spending doesn’t occur in a vacuum. It often results from the pressures members of Congress get from the folks back home. Mr. Thune himself worked to get the Senate to agree to an annual mandate of eight billion gallons of questionable ethanol production. He also authored a part of the last farm bill that set up a permanent assistance program for farmers who lose crops to natural disasters. Is there room for a more rational farm policy going forward?

“Yes,” he quickly responds. “We should move to fewer direct subsidies and embrace a model that combines a crop insurance program with risk management tools. If we do that, we can make sure the heartland remains the nation’s breadbasket, but requires less direct federal intervention.”

The clock above us buzzes, indicating a vote is about to take place on the Senate floor. Mr. Thune has to go, but I have to ask him about all the speculation that as a photogenic, youngish senator with a proven record of winning elections he would make a good presidential candidate in 2012. He laughs and pointedly reminds me he is running for re-election this year (albeit against nominal opposition) and has no other plans. So does he want to make a Shermanesque statement that he won’t run? He stays relentlessly on message: “I am running for re-election to represent South Dakota.”

Mr. Thune may not be talking presidential politics but others are, given that there is no clear front runner. “He could be the 2012 federal version of Bob McDonnell,” GOP strategist Mark McKinnon told Politico.com. “He’s unquestionably conservative but not in an ideological way—more in a Midwestern, rural, country, small-town way. So he’s acceptable to all factions.”

While he has a low national profile, he does have some assets: name ID in the parts of the first caucus state of Iowa that get neighboring South Dakota media, a $6 million bank account he could use for a presidential run, and a fundraising list of 100,000 names from his race against Mr. Daschle. Balanced against that is his somewhat low-key personality and the fact that he’s been a creature of Capitol Hill for 20 years: first as a staffer, then as a House member and now in the U.S. Senate.

As a senator, Mr. Thune certainly makes sure he fulfills his duties. He’s stayed until the last possible moment to answer my questions, but it’s now time to vote. At 6 feet 4 inches, he uses long strides to cover the distance to the Senate floor in short order. But he will be back in his office soon enough. He has to hold another meeting on how to stop ObamaCare in case the House dumps it in the Senate’s lap again.

Mr. Fund is a columnist for WSJ.com.