Where to now?

So if you accept, as I do, that the Keynesian requirements will not allow a tax increase immediately, then what can this divided government we have given ourselves do in the next two years that will contribute to fiscal responsibility.

Well they could work on some of the long term problems which would give we the people and the money people confidence in our long term seriousness.

Here are two examples that would be major contributions to solving the long term problem and involve very little immediate pain.

Make Medicare benefits taxable with the income from it devoted to Medicare payments. Those of us who have medium to high incomes would pay a medium to high tax on that. Our poor mothers living on SS would still not owe any tax. Phase it in if you have to to sell it.

Use the higher of the wage inflation index and consumer price index for SS increases for lower income people and the reverse for higher income people.
(The reason that you cannot just eliminate SS for the wealthy is that it would "make it into a welfare program" and reduce support for it.)

Another long term thing that would cost very little is to get serious about immigration. See Immigration 2 on 7/6/2010 for more on that.

The next steps would be harder. They would require some maturity in Congress so it is less likely. Have the Ds recognize that you cannot greatly increase government programs (like healthcare) without raising taxes and quit kidding us. Have the Rs realize that you cannot restore fiscal sanity without some tax increases and quit kidding us.

Once the recession is over, then you can construct a tax structure that
raises enough revenue to pay for whatever level of spending that you have chosen.