In January 2001, Daniels accepted President George W. Bush's invitation to serve as director of the Office of Management and Budget (OMB).
He served as director from January 2001 through June 2003.
In this role he was also a member of the National Security Council and the Homeland Security Council.

During his time as the director of the OMB, Bush referred to him as "the Blade," for his noted acumen at budget cutting.
The $2.13 trillion budget Daniels submitted to Congress in 2001 would have made deep cuts in many agencies to accommodate the tax cuts being made, but few of the spending cuts were actually approved by Congress.
During Daniels' 29-month tenure in the position, the projected federal budget surplus of $236 billion ballooned to a $400 billion deficit, due to tax cuts, the War in Afghanistan (2001–present), Iraq War.

Nobel economics Laureate Paul Krugman noted Daniels is “held up as an icon of fiscal responsibility” without having earned it.
Commenting on Daniels leadership he wrote "what I can’t forget is his key role in the squandering of the fiscal surplus Bush inherited.
It wasn’t just that he supported the Bush tax cuts; the excuses he made for that irresponsibility were stunningly fraudulent.”

Following the September 11, 2001 attacks, Congress passed legislation authorizing the creation of the Department of Homeland Security.
Just before the legislation was signed by Bush, Republican lawmakers inserted language into the bill that authorized protection from liability corporations that manufactured thimerosal, a controversial vaccine preservative that has been the subject of multiple lawsuits.
Eli Lilly was once the largest maker of thimerosal and is a major target of the lawsuits.
Daniels was the budget director at the time of the bill's passing and some have raised concerns over potential conflicts of interest.
Congress repealed the thimerosal provision following expressions of public displeasure.

Shortly after the invasion of Afghanistan, Daniels gave a speech to the National Press Club in which he challenged the view of those who wanted to continue typical spending while the nation was at war. "
The idea of reallocating assets from less important to more important things, especially in a time of genuine emergency, makes common sense and is applied everywhere else in life," he said.

Conservative columnist Ross Douthat stated in a column about Daniels' time at OMB that Daniels "carried water, as director of the Office of Management and Budget, for some of the Bush administration's more egregious budgets."
But Douthat, while calling Daniels "America's Best Governor," defended Daniels against accusations that Daniels inaccurately assessed the costs of the Iraq war.

In the final days of 2002, when an invasion of Iraq was still a hypothetical question, Daniels told the New York Times that the cost of war with Iraq "could be" in the range of $50 to $60 billion.
It was not clear whether Daniels was referring to the cost of a short invasion or a longer war, but he did indicate the administration was budgeting for both.
He also described the "back-of-the-envelope" estimate by Bush Economic Advisor Lawrence B. Lindsey that it would cost $100 to $200 billion as much too high.
Two days later, after the New Years Holiday, an OMB spokesperson clarified Daniels' remarks, adding that the $50 to $60 billion figure was not a hard White House estimate and "it is impossible to know what any military campaign would ultimately cost.
The only cost estimate we know of in this arena is the Persian Gulf War and that was a $60 billion event".

Three months later, on March 25, 2003, five days after the start of the invasion, President Bush requested $53 billion through an emergency supplemental appropriation to cover operational expenses in Iraq until September 30 of that year.
According to the Congressional Budget Office, Military operations in Iraq for 2003 cost $46 billion, less than the amount projected by Daniels and OMB.
Douthat and other defenders of Daniels accuse Daniels' critics of mischaracterizing the six-month supplementa
In January 2001, Daniels accepted President George W. Bush's invitation to serve as director of the Office of Management and Budget (OMB). He served as director from January 2001 through June 2003. In this role he was also a member of the National Security Council and the Homeland Security Council.
During his time as the director of the OMB, Bush referred to him as "the Blade," for his noted acumen at budget cutting. The $2.13 trillion budget Daniels submitted to Congress in 2001 would have made deep cuts in many agencies to accommodate the tax cuts being made, but few of the spending cuts were actually approved by Congress. During Daniels' 29-month tenure in the position, the projected federal budget surplus of $236 billion ballooned to a $400 billion deficit, due to tax cuts, the War in Afghanistan (2001–present), Iraq War.
Nobel economics Laureate Paul Krugman noted Daniels is “held up as an icon of fiscal responsibility” without having earned it. Commenting on Daniels leadership he wrote "what I can’t forget is his key role in the squandering of the fiscal surplus Bush inherited. It wasn’t just that he supported the Bush tax cuts; the excuses he made for that irresponsibility were stunningly fraudulent.”
Following the September 11, 2001 attacks, Congress passed legislation authorizing the creation of the Department of Homeland Security. Just before the legislation was signed by Bush, Republican lawmakers inserted language into the bill that authorized protection from liability corporations that manufactured thimerosal, a controversial vaccine preservative that has been the subject of multiple lawsuits. Eli Lilly was once the largest maker of thimerosal and is a major target of the lawsuits. Daniels was the budget director at the time of the bill's passing and some have raised concerns over potential conflicts of interest. Congress repealed the thimerosal provision following expressions of public displeasure.
Shortly after the invasion of Afghanistan, Daniels gave a speech to the National Press Club in which he challenged the view of those who wanted to continue typical spending while the nation was at war. "The idea of reallocating assets from less important to more important things, especially in a time of genuine emergency, makes common sense and is applied everywhere else in life," he said.
Conservative columnist Ross Douthat stated in a column about Daniels' time at OMB that Daniels "carried water, as director of the Office of Management and Budget, for some of the Bush administration's more egregious budgets." But Douthat, while calling Daniels "America's Best Governor," defended Daniels against accusations that Daniels inaccurately assessed the costs of the Iraq war.
In the final days of 2002, when an invasion of Iraq was still a hypothetical question, Daniels told the New York Times that the cost of war with Iraq "could be" in the range of $50 to $60 billion. It was not clear whether Daniels was referring to the cost of a short invasion or a longer war, but he did indicate the administration was budgeting for both. He also described the "back-of-the-envelope" estimate by Bush Economic Advisor Lawrence B. Lindsey that it would cost $100 to $200 billion as much too high. Two days later, after the New Years Holiday, an OMB spokesperson clarified Daniels' remarks, adding that the $50 to $60 billion figure was not a hard White House estimate and "it is impossible to know what any military campaign would ultimately cost. The only cost estimate we know of in this arena is the Persian Gulf War and that was a $60 billion event".
Three months later, on March 25, 2003, five days after the start of the invasion, President Bush requested $53 billion through an emergency supplemental appropriation to cover operational expenses in Iraq until September 30 of that year. According to the Congressional Budget Office, Military operations in Iraq for 2003 cost $46 billion, less than the amount projected by Daniels and OMB. Douthat and other defenders of Daniels accuse Daniels' critics of mischaracterizing the six-month supplementa
Mitch Daniels