Recession triggers bitter federal system conflict. (Commentary).(Column)

The Bush White House and Congress are quarrelling with governors and mayors in what may be the federal system's most bitter conflict in a century or more.

While Washington talks economic stimulus, including politically expedient tax cuts, the recession is ripping into state and city budgets, triggering immense deficits--a cumulative shortfall as high as $67 billion for the current fiscal year, according to the National Conference of State Legislatures.

"Nearly every state is in fiscal crisis," reports the National Association of State Budget Officials. With a stalled national economy, state tax collections have plummeted.

And all that Washington is doing seems to make matters worse.

The Bush administration's signature tax relief bill, together with anti-recession legislation that Congress passed this year, created huge revenue gaps for the states that had linked their inheritance and business taxes to federal formulas. Some states took political heat for tax increases necessitated by "uncoupling" from the federal formulas; others are accepting billions in lost revenue.

Buckling in to the big Internet operators, Congress and the Bush White House have deprived states of the potentially rich new revenue flow from taxing Internet services.

Then there's federally forced spending. State outlays for Medicaid, largely mandated by Washington but costing about 20 percent of state budgets, zoomed up 13.2 percent in 2002, the largest increase in a decade. A bill in the Senate to shift some of Medicaid's expense to the federal government, at least temporarily, was recently blocked by the White House.