Lawmakers gathered in Olympia for the 2010 legislative session can either set our state up for long-term prosperity or put off the tough budget decisions until 2011 when it will be even more difficult to solve our financial problems.

It will not be easy to fill our current $2.6 billion deficit. Last year, state lawmakers balanced the budget by using $3 billion in federal stimulus money and draining dedicated accounts. This year, that’s not an option.

Families are struggling with a similar situation: mounting bills and shrinking income. To cope, they are cutting back to the bare necessities: mortgage, heat, lights and groceries.

State government should do the same.

As they did in 2003, the governor and state lawmakers should prioritize spending to focus on only the most vital programs. Is running liquor stores really a vital role for state government? In addition, lawmakers should contract out state services when private contractors can do the job for less.

Gov. Chris Gregoire is right to be concerned about our fragile recovery. Unemployment is hovering near 10 percent and no one really knows how many people have exhausted their unemployment benefits and given up searching for a job.

All signs point to a slow recovery and anything federal and state officials do that increases taxes and costs for Main Street employers and families will weaken our anemic recovery.

At times like this, it is helpful to look at what our neighbors are doing.

Oregon is struggling with 12 to 13 percent unemployment, a problem that has spilled over the border into southwest Washington. Some 131,500 private-sector jobs have disappeared since November 2007.

Voters there are locked in a heated battle over ballot initiatives challenging the $775 million in tax increases passed by the 2009 Legislature. Opponents and supporters are spending more than $10 million on a massive, acrimonious media campaign and, regardless of the outcome, on Election Day Jan. 26, people there will be bitterly divided – divisions that will hurt their chance to recover from the prolonged recession.

Further south, California is in total free fall. Voters have rejected various tax increases and lawmakers are staring at a gaping $21 billion fissure in the annual $100 billion budget. Because of the state’s tax and regulatory policies, fully one-third of California’s industrial base has disappeared since 2001, eliminating 600,000 manufacturing jobs.

So, how have California lawmakers responded? My counterpart there tells me the best they have been able to do is agree on just $8 billion in spending cuts, leaving a $13 billion hole – and that is just this year’s headache.

Gregoire and lawmakers have a daunting task in the next 60 days, but they should remember a basic law of economics: taxes are punitive, incentives are positive. If you want less of something, tax it. If you want more of something, provide incentives.

Here are some things the governor and lawmakers can do.

First, position our state so the private sector provides the jobs and tax revenues to fill the state’s empty coffers. Help employers get stronger and expand, rather than target them for higher taxes and fees. This is not the time to drain job producers of precious resources.

Second, recognize that Washington businesses, hospitals and non-profits – which pay some of the highest unemployment and workers’ compensation taxes in the nation – have been hit by even higher unemployment insurance and workers’ comp taxes this year.

Third, understand that increasing the sales tax will make it even harder for struggling families to cope. In our faltering economy, we shouldn’t be discouraging economic activity. A 25 percent surcharge on the business and occupation tax will further weaken struggling employers, making it even harder for them to retain or create jobs.

Finally, remember that what we do in 2010 will set the financial foundation for 2011 and beyond. We need to ensure that we help, rather than hurt, our ability to recover in 2011 and beyond.