Well, that was quick. America’s supposed generational shift toward an embrace of high-tax, high-service Big Government didn’t even make it a full two years. The new public policy consensus — built around favorite liberal issues of the environment and income inequality — promoted by Washington elites has been a flop with the public.
The nation’s ruling class thought for sure the financial crisis and subsequent Great Recession would create so much economic insecurity that it would be easy to pass a broad expansion of the welfare state — all financed by a combination of higher income taxes on the rich and new energy taxes on the middle class.
Instead, concerns about the federal budget deficit and competition with China became paramount. And the liberal agenda of healthcare reform and cap-and-trade suddenly seemed terribly off-point. So within a span of seven weeks, Democrats lost control of the House and then their legislative agenda.
First, the $858 billion tax deal. The near-term economic impact may modest. Some $500 billion of that total is merely the “cost” — as government bean counters look at things — of extending current income tax policy. Consumers will save most of the payroll tax cut, while extending the funding of unemployment insurance will make unemployment a bit higher than it would otherwise be.
But longer-term, the package is extremely bullish. It shows clearly that the “battlespace” of the coming Republican-Democrat fiscal clash will almost entirely be on the spending side of the ledger. There is little appetite among the public for sending more tax dollars to a wasteful and inefficient Washington. And the debate over restructuring the U.S. healthcare system will be between trusting government rationing or trusting market efficiency and choice.
The failure to pass a 2011 budget is also tremendously positive. It shows the impact of the Tea Party movement has not waned since the November midterms. This creates a situation next year where the flood of new Tea Party Republicans can combine a threat of government shutdown with a refusal to raise the national debt ceiling so as to squeeze spending cuts out of Obama and congressional Democrats.
Indeed, some GOP insiders believe the president — with a bit of nudging — may be ready to strike a deal to reform the tax system and cut future Social Security benefits along lines suggested by his own debt commission earlier this month. And as the tax compromise shows, Obama now seems willing to anger some within his own party in order to get legislation passed and win the reelection.
But if Obama does manage to somehow eke out a second term, it will be as president of a country that he may understand a bit better than he did two years ago. His true value and concerns in 2008, it turns out, were not those of most of his countrymen. Most Americans were not itching for government-run healthcare, a vast energy bureaucracy, an expansion of union power or new penalties on success and wealth creation. To a great extent, the term Tea Party America is redundant. The U.S. remains a center-right nation, and prosperity usually ensues when its leaders understand this.