Fiscal policy: real world (state governments) vs. fantasyland (federal government)

WASHINGTON — There is a great divide in American politics. It's not between Democrats and Republicans. It's between the president and Congress in Washington, on one side, and governors and legislators around the country on the other.

The record of the Washington politicians is summarized in the report that came out of the Congressional Budget Office last week. That nonpartisan scorekeeper announced it projects the cumulative national debt to increase in the next decade by $9.8 trillion.

That unimaginable sum is more than a trillion dollars higher than the Obama administration's estimate. It means a lower future standard of living for Americans because of vastly increased debt.

As Rep. Paul Ryan of Wisconsin, the senior Republican on the House Budget Committee, pointed out, the report projects the annual cost of interest on the debt to rise from $209 billion this year to $916 billion by 2020.

Most of that debt is now held overseas by nations such as China and Japan, so we are draining huge sums from ourselves and handing them to others to use in buying us up — or competing against us.

That is the story that has been written and is still unfolding in Washington, with budgets shaped by both Democrats and Republicans. It is a saga of national ruin.

The state side of the story is told most clearly in another report this week, this one from the private Center on Budget and Policy Priorities. Staff members Nicholas Johnson, Catherine Collins, and Ashali Singham summarized systematically what I had heard anecdotally from many of the governors when they were here last month for their annual winter conference.

The recession knocked state tax revenues down by $87 billion in the fiscal year that ended last September — an 11 percent decline that was the steepest on record.

In response, the first thing the states did was to cut spending. General fund outlays were reduced by 4 percent in fiscal 2009 and by another 4.8 percent in 2010 — even as Medicaid rolls swelled and other recession-related expenses climbed.

But the governors and legislators did not stop there. Two-thirds of the states, 33 of 50, also raised taxes last year, adding more than $30 billion in revenues.

Ten states hiked taxes enough to increase revenues by more than 5 percent over the previous year's collections. This happened in California, Florida, Indiana and Nevada, which have Republican governors, as well as in Delaware, Massachusetts, New Hampshire, New York, North Carolina and Oregon, all governed by Democrats.

While the federal government was handing out tax rebates and now is preparing to extend many of the Bush-era tax cuts, 13 states were raising personal income taxes, 17 were passing sales tax and various business tax increases and 22 were lifting excise taxes on tobacco, alcohol or gasoline.

California, with chronic budget problems, a Democratic-controlled Legislature and a Republican governor, bit the bullet and temporarily raised its income-tax rate across the board and its sales tax by 1 percent and also lifted its vehicle tax.

All the states except Vermont operate with a constitutional requirement that they balance their budgets. But I was reminded during the governors' conference how different the psychology is in the state capitals and in Washington.

Governors live in the real world, where budgets mean something more than a formula for shifting burdens to the next generation and where there is much less room for partisan game-playing.

Once again this year, Congress has passed a "pay-as-you-go" bill requiring it to make compensatory cuts whenever it increases appropriations for some worthy purpose. Then it turned right around and began waiving the requirement when circumstances pinched.

Discipline is visible in the states. It is still a stranger to Washington.

David S. Broder's column appears regularly on editorial pages of The Times. E-mail davidbroder@washpost.com