Option 4 - publicly counter an equally ridiculous proposal to Obama. Something including Ryan's Medicare overhaul, complete tax reform (no deductions and lower rates for everybody, eliminate/reduce corp tax rate) and immediate spending cuts across the board (including defense!). This proposal should include a budget that at worst is equal to the current budget. Ideally, it would reduce the current budget 5-10% and hold it there for the following year.
Of course, we know the Dems won't agree to this but make the public see the start difference between a real plan and what Obama is pushing right now.