If Obama does win reelection, he has one shot at truly remaking American politics. He has an ace in the hole, if he plays it correctly. Ironically, it comes from his presidency’s darkest days — the debt ceiling crisis of 2011.
Because of the deal that ended the debt ceiling crisis, large cuts in defense and social programs will take effect at the beginning of 2013. That is also when the Bush tax cuts expire and the country returns to Clinton-era tax rates. But once that occurs, the baseline for political bargaining between the two parties will be totally different than it has been for the past 12 years. Without lifting a finger, the Democrats will have made the tax code more progressive and achieved major cuts in defense expenditures. And America will be well on the way to solving its deficit problems, as trillions of dollars of new revenues will come pouring in over the next two decades.
This new status quo is hardly ideal for the Democrats. There are cuts in reimbursements to Medicare providers and other reductions in social spending. Moreover, the combination of higher taxes and lower government expenditures may well send the economy into recession. But however unpleasant for Democrats, the new status quo is simply unbearable for most Republicans. And it drives a wedge between different parts of the Republican coalition. Defense contractors and hospital administrators will demand relief from the spending cuts, while the rich will demand lower taxes. But nothing will happen until Obama signs new legislation. And that allows Obama — and his party — to have a say about what tax reductions and expenditures are passed.