What if we switched to a form of proportional representation that put a portion of the budget under the control of each party? When I fill out my income taxes each year, I also register my political party, and the taxes I pay go into a separate budget under the control of my party? People could be entitled to government benefits (or not entitled) depending on their party membership. So the Democrats could produce whatever handouts they liked, and Republicans could build fences. If I'm a centrist, maybe I could start a centrist party, or just split my taxes between R & D.
Other government revenue would be split proportionately among the parties.
Hayek described something vaguely similar in his "Constitution of Liberty" if I recall correctly. I think he had a separate body determining the amount of the budget, and then a parliament could wrangle over how to spend the budget.
Government debts? Okay, I need to think about this a while. Any suggestions?