SACRAMENTO, CA - A battle for the soul of the Republican Party is brewing over the issue of government spending. At the national level, Republicans have just pushed through the biggest government entitlement program in 40 years. In California, however, Republican Governor Arnold Schwarzenegger has gone on the offensive against government spending. Sometime soon, Republicans need to choose between these two conflicting visions and define their beliefs about the size of government.

Republicans in Washington have declared their belief: spend as much as necessary to win the next election. To take away a campaign issue from Democrats, Republicans enacted a nearly half-trillion-dollar Medicare drug benefit program. Overall, the new program, although it has a couple of good aspects, doesn't make sound sense for health-care, let alone for fiscal policy.

True, 24 percent of seniors have no prescription drug coverage and five percent have annual out-of-pocket prescription costs of more than $4,000. However, the just-enacted legislation doesn't target these subgroups, but gives a universal government-subsidized drug benefit to every senior in the country.

Indiana Republican Congressman Mike Pence, one of the few GOP lawmakers to vote against the bill, observed, "While the need for some type of benefit is real, the need for a universal benefit is not.'' The Republican leadership, though, wanted to pass the bill at any cost. Putting profligacy and politics above principle has been a disturbing trend under Republican rule.

In the last two years, the federal budget has grown by 27 percent with Republicans controlling the legislative and executive branches. Congressman Pence laments, "We Republicans seem to have forgotten who we are and why voters sent us here.''

One Republican who, so far, hasn't forgotten why voters supported him is Arnold Schwarzenegger. Upon assuming the California governorship, Schwarzenegger barnstormed the state to rally public opinion for his cost-cutting efforts to address the state's massive budget deficit. The new Republican governor labeled liberal legislators "overspending addicts'' and, in great Hollywood style, tore up a huge credit-card prop declaring that "we want to take away the state's credit card from the politicians, and cut it in half, and throw it in the garbage can so they can never do that again.''

Schwarzenegger initially proposed a tough cap that would have cut spending by 16 percent from the current expenditure level and adjusted future spending based on population and per-capita income growth. Although Schwarzenegger dropped the cap idea because of implacable opposition from the overwhelming Democratic majority in the legislature, he negotiated a deal to require that state spending not exceed state revenues and that there be no more borrowing in the future.

More interesting is the fact that Schwarzenegger has not been afraid to take on entrenched special interests. He shocked the education establishment by telling CNN that he's considering suspending Prop. 98, which guarantees education a big chunk of the budget. He also proposes reductions in sacred-cow social programs and transportation projects. He even wants to cut university outreach programs that have been criticized as dressed up race-based preference programs.

Regardless of whether his proposals are eventually approved, Schwarzenegger is offering the Republican Party an alternative fiscal vision. For fiscally conservative Republicans, who make up the vast majority of the party, the prescription for long-term success may lie in Sacramento, not Washington.

Lance T. Izumi is a Senior Fellow in California Studies at the California-based Pacific Research Institute for Public Policy. He can be reached via email at lizumi@pacificresearch.org.