WASHINGTON -- The apparent decision by the Bush administration and congressional leaders to abandon a major tax cut bill for this year is a blessing in disguise for state and local govenrments, the municipal bond market, and the long-term future of the economy.

The last thing anyone needs right now is a short-sighted, deficit-exploding, politically motivated tax cut that will do very little to stimulate the economy in the short run and is likely to damage it over the long haul.

Stimulating the moribund economy is certainly desirable, but none of the tax proposals that has been bouncing around -- from President Bush's perpetual capital gains tax reduction plan to the Democrats' montage of tax cuts for middle-income families -- will boost the economy quickly.

The bill for any quickie tax cut is most likely to be paid by increasing the already record federal deficit to an even more astronomical level that will only accelerate the nation's slide down the path toward second-class economic status.

If the deficit soars further and the economy eventually recovers strongly, the result will be a disaster for states and localities and the municipal market. Interest rates will go through the roof, and it will be difficult, if not impossible, for states and localities to finance desperately needed infrastructure and education and training programs.

But the current impasse over a tax measure gives the nation and the municipal market the time needed to end the deficit binge of the last 10 years and launch a thoughtful debate on how to develop an economic recovery package that goes to the heart of the nation's economic problems -- the ability to compete in a rapidly changing world economy.

For states and localities and the municipal market, the best prescription for the economy would be to slash defense spending -- now largely superfluous since the Soviet Union collapsed -- and plow that peace dividend about equally into reducing the deficit and beefing up programs that help revitalize the economy.

Cutting the deficit will help keep interest rates down and allow states and localities to make the investments in both physical and human infrastructure that is needed to allow the United States to continue to attract foreign capital that is threatening to dry up if the nation's infrastructure deteriorates any further.

Plowing part of the peace dividend into domestic programs, such as education and research and development, also would help make long-term improvements in the economy. Part of the dividend could be used to pay for tax simplification, including easing some of the bond curbs to make it easier for states and localities to finance infrastructure improvements.

Congress and the White House, with the urging of municipal market participants, must use next year to bite the bullet and start putting the nation's economic house in order. The nation's future economic health depends upon it.

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