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Wednesday, January 1, 2003 - Page updated at 12:00 AM

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E.J. Dionne / Syndicated columnist

Saner fiscal options for the coming year

WASHINGTON — At this time of year, families regularly take stock of their financial situations, and this should be the time for such a reckoning in Washington.

The federal government is in a fiscal mess that will only get worse if political plans now on the table come to fruition. The federal mess is compounded by disasters at the state and local level.

The question for 2003 is who will blow the whistle. Herewith a brief guide to the mess, and the choices.

• Taxing, spending and guts. President Bush will come up with measures supposedly designed to stimulate the economy. In fact, the stimulus argument is an excuse for furthering his campaign to reduce the share of taxes paid by the best-off Americans. He's expected to propose making his tax cut permanent and cutting taxes on dividends.

In 2001, a dozen Senate Democrats dug a deep hole for their country and their party by supporting Bush's tax plan on the flimsy argument that the president had "compromised" with them. If Democrats had hung together and hung tougher, they could have pressed for a more-affordable tax cut that spread more of its benefits to the middle class and the poor.

Will 2003 be a "here they go again" year? Will Democrats again back a fictional "compromise" that will further deplete the Treasury? You can already see its outlines. Bush might agree to add the Democrats' idea of a payroll tax holiday to his other proposals and pronounce the package "balanced."

If Democrats do this, they will be complicit in creating a fiscal crisis that will explode after Bush leaves office — at just the time when the baby boomers are retiring and placing heavy demands on government.

The alternative: a block of at least 41 senators — Democrats plus fiscally responsible Republicans such as John McCain, Lincoln Chafee, and perhaps George Voinovich, Susan Collins and Olympia Snowe, among others — pledges to block further irresponsibility. In the face of charges that they are being "obstructionist," these senators could insist that they are being constructive by demanding a grand fiscal bargain. It would include some short-term stimulus and a freeze on the parts of the Bush tax cut that have not yet taken effect. The freeze would last as long as we considered ourselves on a wartime footing.

Will Democrats and moderate Republicans find their voices, or will they fritter away what little power they have?

• This is war — but not really. Politicians might find the courage to get serious about the nation's fiscal condition if they simply noted that the president is willing to do all he can to fight the war on terror — except for anything that might inconvenience the high-end taxpayers who form his political base.

Here he is, after all, calling for large increases in military spending, preparing for an expensive war in Iraq and saying he will do all he can to defend the homeland — while also proposing to reduce government revenues.

Politicians such as Sens. John Edwards and Bob Graham and Rep. David Obey are beginning to argue that this doesn't add up, and that the fiscal mess in Washington is impairing the federal government's efforts to protect the homeland.

At some point, words and deeds need to come into alignment — don't they? How can a president who says he loves state and local government insist that states and cities pay the bills for Washington's promises?

• Let states and cities eat cake. Governors and mayors, Republicans and Democrats alike, are in deep fiscal holes of their own. Unlike their friends in Washington, the people who run states, counties and localities can't keep piling up deficits.

As Washington sits by, lower levels of government are forced to do all the things the president says he's against: raising taxes, cutting spending on schools, reducing outlays for security, including police and fire departments. States, like individuals and families, are also being clobbered by rising health-care costs.

Governors and mayors are beginning to speak up. Watch for incoming governors Ed Rendell of Pennsylvania and Jennifer Granholm of Michigan and Mayor Martin O'Malley of Baltimore to demand fiscal relief under the slogan: "Enough!" Washington could help cover expenses related to the war on terror, institute emergency revenue sharing, or pick up of more of the costs of Medicaid and thereby help more Americans to keep their health insurance.

In 2003, we'll either put the country on a saner fiscal footing, or we'll dig the hole deeper. Guess which one is more likely?

E.J. Dionne's e-mail address is postchat@aol.com.

© The Washington Post

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