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CNBC Digital Video: Office of Budget and Management Director Mick Mulvaney Sits Down with CNBC’s Chief Washington Correspondent John Harwood

WHEN: Wednesday, April 12th

WHERE: CNBC.com's Speakeasy with John Harwood

As President Donald Trump's budget director, Mick Mulvaney sits in the center of the storm. He is drafting a White House budget that members of both parties call dead on arrival. He's still trying to help bridge the gap between the White House and the House Freedom Caucus over the bill to repeal and replace Obamacare. He oversees administration efforts to overhaul government management and regulations. At 49, Mulvaney doesn't mind political storms. Elected to the house amid the Tea Party rebellion of 2010, he struck a pugnacious stance on government shutdowns and the debt limit, and eventually helped found the Freedom Caucus. That made him a natural fit for a new administration aiming to shake up Washington. Mulvaney sat down over beers at the Tombs, near his alma mater of Georgetown University, to discuss challenges facing him and the administration. A partial transcript from Speakeasy with John Harwood featuring Office of Budget and Management Director Mick Mulvaney follows.

All references must be sourced to CNBC.com.

MULVANEY: Welcome to Tombs. You've been here before.

HARWOOD: I have. And I imagine you've been here a few more times than I have.

MULVANEY: Just once or twice. More times than I want to admit to my kids.

HARWOOD: Donald Trump is a very different kind of president. How do you go about melding what you bring to the table with what he brings to the table?

MULVANEY: I'll tell how I wrote it. And then you can decide for yourself. We looked at the speeches to try and figure out where he wanted to spend more money. And then we also had instructions not to add to the deficit. And I laid out to him the options that Mick Mulvaney would put on a piece of paper. And he looked at one and said, "What is that?" And I said, "Well, that's a change to part of Social Security." He said, "No. No." He said, "I told people I wouldn't change that when I ran. And I'm not going to change that. Take that off the list." And that is how it works. So I get a chance to be Mick Mulvaney. I get a chance to have those same principles. And I give them to the president, and he makes the final decisions.

HARWOOD: He over and over went to West Virginia, went to rural parts of Kentucky and Ohio, said, "I'm going to take care of you guys." He didn't say, "I'm going to get rid of the Appalachian Regional Commission."

MULVANEY: Yeah, and my guess is he probably didn't know what the Appalachian Regional Commission did. And I think I was able to convince him, "Mr. President, this is not an efficient use of the taxpayer dollars. This is not the best way to help the people in West Virginia."

HARWOOD: How cognizant is he of the fact that many of the people who supported him would be hurt by cuts that you proposed in the budget?

MULVANEY: The president is certainly conscious of the people who voted for him, right. But he cares about more than just the Trump voters. So when you say you know, people that voted for him are hurt, that's not the issue. He wants to know, "Are the folks in Appalachia, are the coal miners in West Virginia going to be better off under my presidency whether or not they voted for me?" He doesn't care if they voted for him. I think what the President will tell you is, "The best thing I can do for those folks, whether or not they voted for me, is to figure out a way to get 3.5 percent economic growth."

HARWOOD: I've had interviews with Republicans from Paul Ryan to John Thune who have been making the case that, "We are going to persuade the President that we have to do something about entitlements." How are you going to manage that?

MULVANEY: We're working on it right now. As I mentioned to you before, the example of social security. The list that I gave him, on that list, he went through the list and said, "No, that's Social Security. That violates my promise. Take that off. That's Medicare. That violates my promise. Take that off."

HARWOOD: Is Social Security Disability on that list?

MULVANEY: I don't think we've settled yet. We haven't settled yet on any of the final plans. But I continue to look forward to talking to the president about ways to fix that program. Because that is one of the fastest growing programs that we have. It's become effectively a long-term unemployment, permanent unemployment program.

HARWOOD: You are saying to all of those people like Ryan, like other Republicans, like the Freedom Caucus in the House, "Do not think we are ever going to go after main Medicare and main Social Security throughout Donald Trump's presidency"?

MULVANEY: No. I think the message to the House and Senate is, "Look, you go do what you think is best." And I voted for, say, Medicare premium support in the past when it was part of the Ryan budget. I voted for that probably six times. My guess is the House will do either that or something similar to that.

HARWOOD: Because of his pledge, President Trump would veto it?

MULVANEY: That's not a really conducive way to sort of maintain a relationship between the executive and the administrative branch. Let them pass that and let's talk about it.

HARWOOD: Now, the president gave an interview yesterday and he said he suggested that he intended to propose a trillion dollars in outlays for infrastructure. Will Republicans be comfortable with adding to the deficit to pay for a trillion dollars in infrastructure?

MULVANEY: Bad spending to me in terms of its economic benefit would be wealth transfer payments. It's a misallocation of resources. Infrastructure is sort of that good spending in the middle, where even if you do misallocate resources a little bit, you still have something to show for it. It's tangible, it may help economic growth and so forth. At the other end of the spectrum, at the very other end, is letting people keep more of their money which, while it can contribute to the deficit in a large fashion, is the most efficient way to actually allocate resources. It's a little less important to me if infrastructure adds to the deficit. And I'm really not interested – not interested, excuse me – I'm less interested in how tax reform handles the deficit. Regarding the trillion dollar number, to your specific question, I didn't hear that. I have assumed, and I will talk to the President about it that when Gary Cohn and I talked about this. You've got to give these Goldman Sachs guys credit. They know how to lever up. So Gary has asked me to just assume for sake of discussion a five-to-one ratio. So I'm assuming a $200 billion number.

HARWOOD: And what about the goal of eliminating the debt, which President Trump at one point said he would do at the end of his second term?

MULVANEY: I think it's fairly safe to assume that was hyperbole. I'm not going to be able to pay off $20 trillion worth of debt in four years. I'd be – I'm being dishonest with you if I said that I could. The reason the president doesn't want to raise – change some of the mandatory spending, is because the public's not ready for it yet. They're ready for economic growth.

HARWOOD: You used to be in the shut-down caucus. You've got a potential shut-down at the end of April. Are agencies preparing for the potential of a shut down?

MULVANEY: I don't think we've sent out the instructions yet. I don't see the need to, to be honest with you. So we've gone to the appropriators and said, "Look, if y'all can figure out a way to do this, let's do it together." Shut-down is never a desired end.

HARWOOD: What are the chances it happens?

MULVANEY: I think it's very low. And keep in mind, no one entity can shut the government down. It takes three to tango, the House, the Senate and the White House. And if they can't agree, it happens that you have a lapse in funding. That's the term that the Congressional Research Service uses for what the media calls a shut-down. It's happened 17 times between 1976 and 1994. Those lapses in funding used to be fairly typical.

HARWOOD: Do you think it's not that big a deal?

MULVANEY: I think it depends. I think the government, if you measure it in terms of the dollars out the door, about 83% of the government stays open in a government shut-down. Social Security checks go out, military still exists. The FBI still chases bad guys.

HARWOOD: Last thing. Do you still believe that government can prioritize payments on the debt? You're going to have to raise the debt limit later this year?

MULVANEY: I haven't seen anything that changes my opinion about prioritization. I understand that Treasury's working on some stuff as to whether or not they think they can. The discussion we're going to try and drive is, yeah, we're going to raise the debt ceiling. But we're going to have to do it as part and parcel of a larger thing to try and solve and resolve some of our debt problems.

HARWOOD: Well, that means entitlement reform, right?

MULVANEY: It may. But again, there's a lot of entitlement reform other than just how old do you have to be to get your Social Security benefits.

WEB EXTRAS:

MULVANEY ON EXPECTING A DONALD TRUMP TAX PLAN

Video: http://video.cnbc.com/gallery/?video=3000609415

HARWOOD: I talked to someone in the House leadership today who was saying that in the wake of the health care thing, the problem you had, that we are going to be looking for direction from the White House.

MULVANEY: Here's the message across the board from the health care – the fact that we haven't been able to pass health care yet, which I think you're going to see the White House take more leadership on the issues — on tax reform, on infrastructure, on funding. You're going to see a much more policy-assertive White House going forward.

HARWOOD: That's going to slow down tax reform, right? Because the House had been preparing to move their bill. Now they're waiting to hear from you. That's going to slow them down.

MULVANEY: Well, the House can go and do what they want to do. We are going to formulate our own policies.

HARWOOD: We should not assume that the plan that you put forward is going to resemble the House tax plan?

MULVANEY: I think it's too early to say.

HARWOOD: Because in the beginning of the year, they assumed that you were going to sign on to their bill. Now it seems like that is not happening.

MULVANEY: Again, I think you're going to see the White House have its own tax plan. Haven't gotten there yet. We're working still on his goals and principles, looking at different modules. You can plug in this rate or that rate or this deduction or that deduction or this concept. But at the end of that process, you will have a White House, Donald Trump tax plan that we are going to take down to the Hill and try and sell.

HARWOOD: Will it be corporate tax reform only? Or will it be individual as well?

MULVANEY: Everything. No. You can't – we're going to fix the tax system in this country. And that means corporate, that means pass-through, S corporations, that means dealing with deductions, that means individuals, that means everything. We are shooting – it's a go-big or go-home type of attitude.

MULVANEY ON EXPORT-IMPORT BANK

Video: http://video.cnbc.com/gallery/?video=3000609404

HARWOOD: Have you accepted as a matter of administration policy that you're going to take money from taxpayers and give it to the Ex-Im Bank?

MULVANEY: Yeah. We did talk about the Ex-Im Bank because, as you know, I was a fairly significant critic of that in my time on the House. And I'm very comfortable with where we got with the Export-Import Bank, which is I believe I have a commitment from this president.

He is interested in putting some people on there who are reformers, and who want to make sure the bank sticks to its knitting and doesn't experience some of the mission creep that many of our critics, myself, have seen. Secondly, he's given me and Gary Cohn permission to start talking to other export credit facilities around the world to see if we can lower the level of government interference in the marketplace from all sides. One of the cases I've been trying to make for years –

HARWOOD: But Ex-Im is going to continue to exist.

MULVANEY: Yeah, it's going to continue to exist.

MULVANEY ON HIS JOB

Video: http://video.cnbc.com/gallery/?video=3000609414

HARWOOD: Let me ask you about your job. You talk about working 39 days in a row, coming in on the weekends, staying there till 9:30 at night. How are you doing this without any of the Senate-confirmed deputies that your job comes with?

MULVANEY: The good news is that a lot of the folks have been in the building since transition. We have some folks who've actually served in those roles before who've agreed to come on a temporary basis until our permanent people are appointed. So we're actually close to hitting on all the cylinders. Yes, I'd like to get the other folks in place permanently.

HARWOOD: So you don't feel crippled by the lack of staff, manpower around you?

MULVANEY: No. No.

HARWOOD: Because some of your predecessors in that job who I've talked to say, "I don't know how he's doing that."

MULVANEY: Yeah. No, I've been extraordinarily pleased. And the professional staff – the folks who are here for 10, 20, sometimes 30 years – I think there's been a couple folks there since the 1970s have been really –

HARWOOD: Isn't that called the "deep state"?

MULVANEY: They have really stepped it up. It may be the "deep state." It may be whatever you want to call it. All I know is that I go into these meetings, and I have discussions with these folks about my budget, and I cannot tell which one of them is a Democrat or a Republican and that is the way it is supposed to be.

HARWOOD: You're pleased by what you've found?

MULVANEY: Absolutely. Some of the most professional people.

MULVANEY ON JOURNEY FROM A HOUSE MEMBER

Video: http://video.cnbc.com/gallery/?video=3000609413

HARWOOD: Tell me about the journey from being in Washington as a House member who is taking on a very aggressive administration. Now you're part of an administration. You're even go to one of your old colleagues and telling him the president told you to look him in the eye and warn him that he's going to get a primary opponent. What is that like?

MULVANEY: That story got a little blown out of proportion. It's been an interesting process. I really enjoyed it. And the way I describe to my friends back in the Freedom Caucus I went to go talk to the Freedom Caucus about health care a couple weeks back. And it was really neat because they knew what the deal was. The deal was that I'm just on a different team right now. But it's good competition. It's a real collegial thing still and I enjoy my new role a lot.

HARWOOD: Give me the true story of the Sanford episode.

MULVANEY: Oh, I won't go into details. I just say that I remember it differently. But at the end of the day, the message was generally the same which is that, you know, Mark hasn't endeared himself to the new administration.

HARWOOD: How did you feel doing that? This was one of your old colleagues.

MULVANEY: He's fine. We're professionals. If you're going against them, especially in such a high-profile manner, then you would expect to get called out. That's the business we're in. We're all big boys and girls. And my guess is that the media was a lot more shocked by that than the people who were actually involved with it.

MULVANEY ON WHITE HOUSE STAFF GETTING ALONG

Video: http://video.cnbc.com/gallery/?video=3000609408

HARWOOD: Tell me about the shakedown cruise this administration's on. There's been a lot of turbulence, a lot of controversy. Some things held up in the courts, some staff moves. What does it – how does it feel like inside?

MULVANEY: Entirely different than what you see on television. And I know that's sort of a pat answer. But it is entirely different inside the West Wing. I read many, many times that, let's see, Steven Bannon doesn't get along with Reince Priebus. And neither of them get along with Jared Kushner. And nobody gets along with Gary Cohn. That's all entirely false. And in fact, the one thing I am struck by, and I told the president this. We played golf last week I think with Rand Paul to talk health care for a little bit. And I was talking to the president. And I said, "Look, I can't get over how well the team is working together after such short a period." Keep in mind, a lot of these people had no relationship with each other. I knew of Reince. I had served with the vice president for two years in the House. But I couldn't pick Gary Cohn or Jared Kushner out of a lineup. And for this group to now be able to come together and work as well as we do, I think, should be the story.

HARWOOD: Well, we've had multiple reports just since yesterday that Steve Bannon had threatened to quit. And he was calling Jared Kushner and the New York guys names and said, "They're Democrats and liberals and all that." People aren't just making that stuff up?

MULVANEY: Someone clearly wants to get a story out. But I'm telling you the reality is very much different.

HARWOOD: But that is different –

MULVANEY: Well, I think there's going to be rival folks who want to do stuff in any administration. I mean, Susan Rice wanted to stake out her area and other folks want to stake out their area. I don't think that's unusual. I think, what I'm telling you is, I've not seen anything approaching what I see in the media that the place is tearing itself apart and people are threatening to quit or people are being threatened with losing their jobs. It is not like that at all. Let me put it to you this way. The White House gets along better internally with itself right now than the House of Representatives does. How about that?

HARWOOD: Are you on team Bannon with regard to the deconstruction of the administrative state?

MULVANEY: Yeah, I don't know if I'd use that exact term. But I think the line between deconstruction of the administrative state and "drain the swamp" — there's not that much space between those two things. Washington needs to change.

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