STANFORD – Successful political candidates try to implement the proposals on which they ran. In the United States, President Barack Obama and the Democrats, controlling the House of Representatives and (a filibuster-proof) Senate, had the power to do virtually anything they wanted in 2009 – and so they did.
Obama and his congressional allies enacted an $800 billion “stimulus” bill that was loaded with programs geared to key Democratic constituencies, such as environmentalists and public employees; adopted a sweeping and highly unpopular health-care reform (whose constitutionality will be determined by the Supreme Court this year); imposed vast new regulations on wide swaths of the economy; embraced an industrial policy that selects certain companies for special treatment; engaged in borrowing and spending at levels exceeded only in World War II; and centralized power in Washington, DC (and, within the federal government, in the executive branch and regulatory agencies).
The last election that was followed by such a sweeping change in policy direction occurred in 1980, when President Ronald Reagan overhauled taxes, spending, and regulation, and supported the Federal Reserve’s course of disinflation. While the 1988, 1992, and 2000 elections were also quite consequential, the policy shifts were not nearly as large as in 1980 and 2008.
The country rebelled against Obama and the Democrats’ lurch to the left with historic Congressional election victories for Republicans in 2010. Since then, many Republicans have been deeply disappointed that the House of Representatives has been unable to roll back much of Obama’s agenda. But the US political system is set up to make it much harder to accomplish something than to block it. It is not easy to do a lot while controlling only one-half of one-third of the federal government.
The 2012 election is shaping up as a referendum on Obama’s policies and performance. The economy is improving slowly, but it remains in bad shape, with high unemployment and millions having left the labor force. Republicans are expected to retain control of the House and regain a majority in the Senate.
Former Massachusetts Governor Mitt Romney, the Republican frontrunner to challenge Obama in November, and the party’s other leading candidates, including former House Speaker Newt Gingrich, want less spending, major reforms of government programs, lower taxes, trade expansion, and less and more-targeted regulation than does Obama.
Romney, for example, has a detailed 59-point economic program, including a cap on federal spending at 20% of GDP, which would require reductions similar to those in the 1980’s and 1990’s. Gingrich and the other Republicans have an even more aggressive agenda of cutting taxes and reducing the size and scope of government. The eventual nominee would be wise to incorporate his opponents’ best ideas and top people into his campaign.
A Republican presidential victory, together with Republican control of the House and Senate, would likely lead to substantial reduction, repeal, and replacement of many Obama initiatives, attempts to reform taxes and entitlements, and measures to impose greater fiscal discipline. High on Romney’s agenda is a reduction of the corporate-tax rate, from 35% to 25%, the OECD average level (the other Republican candidates would lower it still more), which would redress a major competitive disadvantage for American multinational companies’ global business.
A Republican victory would also most likely lead to a major push to open up many more energy-exploration opportunities within America, which Obama has stymied. Romney has promised tougher negotiations on trade and currency with China, but is generally far more likely to push new trade agreements than the labor-supported Obama administration. If, however, Democrats retain control of the Senate, this will be far more difficult to accomplish. A Republican president also would make appointments to many key policymaking positions, from the Federal Reserve and the Treasury to regulatory agencies.
If Obama is re-elected, and Republicans control the House and Senate, his legislative agenda will essentially be a dead letter, and he will spend the next two years, at least, negotiating its reform and rollback. In this scenario, the policy center of gravity in the Republican party would shift to House Speaker John Boehner, the chairman of the House Budget Committee, Paul Ryan, House Majority Leader Eric Cantor, and other key Representatives, including David Camp, Kevin Brady, and Kevin McCarthy, along with several Senators.
In that case, Obama would be wise to move to the center (as Bill Clinton did after the Democrats lost control of Congress in 1994) and work with congressional Republicans to shape sensible tax and entitlement reforms. But that seems unlikely: since the Democrats’ massive defeat in 2010, Obama has moved even further to the left, embracing a more populist agenda.
Regardless of the outcome of this year’s presidential and congressional elections, various Republican state governors are likely to gain a higher national profile. All of them – including Mitch Daniels of Indiana, Chris Christie of New Jersey, Bob McDonnell of Virginia, and former Governor Jeb Bush of Florida – declined to seek the Republican presidential nomination, but will be on the short list for 2016 should Obama win in November.
Supreme Court Justice Louis Brandeis famously described the states as “laboratories”: they should be allowed to experiment and learn from each other which policies work. For example, Clinton and the Republican Congress based landmark 1996 welfare reform on policies originated by Wisconsin Governor Tommy Thompson and successfully emulated by New York City Mayor Rudy Giuliani, both reformist Republicans. The current cohort of Republican governors offers similarly innovative state-level solutions – for example, on spending, debt, and unfunded pension and health liabilities – as models for the country.
Until November, divided government and contentious campaigning will most likely prevent significant policy moves. But, following the election, taxes and spending, trade policy, federalism, regulation, and defense will take a different course – how different depends on who wins – with important implications for America’s fiscal position, external balance, and much else, including its relations with the rest of the world.