In the wake of last week's election results, it is now time for either despair or jubilant celebration, depending on your point of view. Many Democrats have convinced themselves that the blame for their defeats can be placed exclusively on high unemployment as well as a combination of Republican "misinformation" and "uninformed" voters. In contrast, many Republicans have convinced themselves that the American public has decisively rejected President Barack Obama and given Congressional Republicans a mandate to push their own agenda. As a result, both groups foresee two years of bitter partisan gridlock.
The problem is that both of these narratives are wrong. The most important political change over the past two years has been the migration of moderates: These people overwhelming supported the Democrats in 2008 but have fled the party en masse. Approval ratings of congressional Republicans are just as low as approval ratings of congressional Democrats. Moderates voted Republican this year not because they believed the Republicans deserved to win but because they believed the Democrats deserved to lose.
While Mitch McConnell, the Senate Republican leader, may talk about making Obama "a one-term president," the House Republican leadership has been more measured. They know that the voters are still suspicious of them: Hence why Eric Cantor, the Republican House Whip, acknowledged that, if the Republicans did anything radical like shut down the government, they would likely lose the House again in two years' time. As such, while gridlock will probably be the dominant theme, I foresee three areas of possible cooperation between the White House and the House Republicans.
First, the Republicans should be largely supportive of Obama's education reforms. Education reform is a Nixon-in-China moment for Obama: He has risked alienating one of the Democrat's biggest groups of supporters, the teachers' unions, with his attempts to improve America's disappointing public school system. Increased school choice and higher standards have long been an important part of the Republican Party's educational platform. Furthermore, Boehner already worked with important Democrats on No Child Left Behind in 2001 despite the objections of more senior Republicans.
Second, while new government spending will not be forthcoming, some new tax-cuts to support the economy may be. Both Peter Orszag and The Economist have proposed extending the Bush tax cuts until 2013 and then letting them expire; this seems like a politically-feasible, temporary compromise. Obama should then propose further temporary tax cuts. After all, Boehner complained about "bailouts" and "stimulus spending" not tax cuts. There may also be public support for this agenda: While exit polls showed that 39 percent of voters said deficit-reduction should be Congress' first priority, almost as many said job creation and 18 percent said tax cuts. If unemployment remains high, Obama risks being a one-term president.
Finally, there is also a possibility of medium-term tax reform. America's tax system is broken. The IRS estimated that Americans waste $194 billion and 6.6 billion hours annually because of Byzantine tax code. Additionally, the corporate tax causes large economic distortions it discourages investment, encourages corporations to use debt finance rather than equity and increases the amount of resources that corporations put into tax avoidance and lobbying. Sen. Ron Wyden, D-Ore., and Judd Gregg, R-N.H., pointed the way forward on both problems with their proposed "Bipartisan Tax Fairness and Simplification Act of 2010" last February. They proposed simplifying the federal income and corporate tax codes and reducing the corporate tax rate to 24 percemt while eliminating many deductions. The Obama administration and Congressional Republicans already claim to support these ideas.
I fully expect that Congressional gridlock will prevent any progress on climate change or immigration reform, and that there will be bloody partisan battles over health care and financial reforms. But there is still a possibility of progress on important issues such as education reform, temporary tax cuts, and medium-term tax reform.
