In the near term, if business-as-usual budgeting does not come to an end, the investment tax-cut extensions on dividends and capital gains will not pass. Dow 11,000, reached just this past week, is an important symbolic benchmark of the benefits of higher after-tax investor rewards. The day those tax cuts passed the Senate in May 2003, the Dow Jones average stood at just 8,601, according to Phil Kerpen of the Free Enterprise Fund. The bull market since then has created an extraordinary $5 trillion of new shareholder wealth. Meanwhile, 2005 marked the third straight year of strong dividend activity, where dividend increases by publicly held corporations were 74 percent higher than 2002 levels, according to Dan Clifton of the American Shareholders Association.

Ironically, the Treasury Department has reported the first budget surplus for the month of December in three years, as corporate tax payments hit an all-time high. Total tax receipts were up 12 percent while government spending rose 5.6 percent. Of course, this is good. The Laffer curve is working. At lower tax rates, stronger economic growth is creating higher tax-revenue surprises.

But Wall Street economist Michael Darda reports that federal spending increased 8.1 percent during the last twelve months. Since 2001, the budget has expanded 6.6 percent per year compared with only 3.1 percent growth during the 1993-2000 Clinton years. Though supply-side revenues reduced last year’s budget deficit by about $100 billion -- moving it down toward $300 billion, or roughly 2.5 percent of GDP -- a return to a $400 billion deficit in 2006 as suggested by the White House will be political poison for tax-cut extensions.

Key senators have told me that the Upper Body does not have the votes to lock up this critical pro-growth legislation. And that was before the White House advertised the $400 billion deficit estimate. At both ends of Pennsylvania Avenue, the governing Republicans must show taxpayers and voters that budgeting-as-usual will be stood for no more.

I have little doubt that if John Shadegg becomes House majority leader that this untenable situation will begin to turn around. At the very least, his run for the post becomes a symbol of GOP efforts to grow the economy and end corrupt big-government budget practices with a complete reversal of policy.

These party caucus elections are usually inside-baseball affairs that escape widespread public notice. But given the Abramoff scandal, the continued overspending by Congress, the sad new budget estimates, and the failure of legislators to renew supply-side tax-cut rewards for capital formation and jobs growth, Mr. Shadegg’s campaign becomes a very public affair -- a manifestation of the GOP’s last chance before the mid-term elections to show the public that reform is possible.

Without speedy and significant reform, it will be very difficult for Republicans to restore taxpayer confidence in their ability to govern.