"The idea I like is to deny them the tax deduction if they're caught doing it," he said. "It's a fairly clean way to get at it, and really employment is the magnet that leads to the illegality."
The bill sponsored by Sen. Mike Delph, R-Carmel, passed the Senate earlier this session and would have made Indiana the second state in the nation after Arizona to put immigration enforcement in the hands of local law enforcement.
On Monday, the 9th U.S. Circuit Court of Appeals upheld an injunction that stopped major parts of the Arizona law, on which Indiana's proposal is based, from going into effect.
Delph said some law enforcement provisions will remain under the proposed amendments that will be considered Thursday. He said those include a measure that would allow police to arrest someone based on their immigration status if there is probable cause to think that person already has been ordered to be removed or detained by federal officials.
The changes, if adopted Thursday by the House Public Policy Committee, could allow Daniels, who is mulling a run for the presidency in 2012, to finesse a thorny political issue.
He would be able to sign a bill targeting illegal immigration. And while his position may not satisfy all in the Republican Party, particularly tea party activists, for whom illegal immigration is a key issue, it would put him on the side of some of Indiana's largest businesses that have opposed the bill because they believe it could hamper their ability to hire talent from other nations.
Daniels said the problem with the bill's initial provisions, which allowed police to check someone's immigration status if they had reasonable suspicion that they were here illegally, is that "it wouldn't work."
"We don't tend to believe in things that are policies that are emotionally satisfying to somebody but don't have any practical effect," he said.
Daniels said Indiana State Police and others in law enforcement told him that because of training requirements, only a handful of Indiana police would be able to deal with immigration issues.
Focusing on employment instead of law enforcement eliminates the concerns that the bill would lead to racial profiling and people being targeted because of how they look and sound, he said.
Delph said he will "let the legislative process work" and then decide whether he can accept the changes, or try to toughen the bill in legislative negotiations between the House and Senate.
"At the end of the day, you either enforce the rule of law, or you don't," he said. "It's my hope that the state of Indiana will speak with one voice saying we support the rule of law."
Information from: The Indianapolis Star, http://www.indystar.com