REPUBLICANS and Democrats in the Legislature have been glaring at each other for several months over the prospect of tax increases to balance the budget. A few days ago, the Democrats blinked.

If it is an indication that some Democrats are willing to favor more spending cuts instead of tax increases, that's good news for three reasons.

The budget crisis can be resolved in a more timely manner, taxpayers will be spared an increased burden, and there will be less of a financial blow to businesses trying to recover from a protracted economic slowdown.

State Sen. Tom Torlakson, D-Antioch, said he is willing to give up on new taxes if the votes are not there in order to get a budget passed.

"The reality is we're heading toward insolvency. We are heading toward fiscal harm of a very significant nature."

Torlakson is right. California cannot afford to put off a budget solution indefinitely. The state already is operating on borrowed money and is facing increasingly high deficits the longer it takes to reach an agreement on the budget.

Gov. Gray Davis also seems to be coming around on tax increases. He has sent Senate Republicans a proposal that would shift taxes rather than impose new ones. His plan would transfer a half cent of the current sales tax from local government to a state fund dedicated to paying off a $10.7 billion loan over five years.

To make up for the loss to local governments, the state would return some property tax money it took back in the early 1990s to fund schools.

Schools would get more money from the general fund, which would lose $2.6 billion in each of the next five years. In fact, the $2.6 billion cut in the general fund is similar to what Davis offered last January and changed in May.

We are in a budget crisis largely because of a huge increases in spending during the boom years, not because taxes were too low.

Experience shows that the best way to increase revenues is through economic expansion, not increases in tax burdens for businesses and individuals. A 1 percent growth in the economy translates to a 2 percent increase in tax revenues.

California taxes are among the highest in the nation and the cost of doing business in this state is excessive because of high real estate, workers compensation and energy costs. It makes no sense to add to that burden while we are trying to get out of an economic slump.

That is why we are encouraged by some real progress toward resolving the budget crisis without undue increases in taxes.