Obviously I'm glad about the election results, but more for negative than positive reasons. It should help to slow down the criminal, totalitarian cabal that had seized control of both the Republican Party and the country, each of which deserves better (in the former case, referring to honest conservatives). But a healthy political system that can deal with actual social and economic problems is still a long way off, and little progress is likely to be made in anything substantive over the next 2 years. So the good news amounts to, "If you're in a hole, the first thing to do is stop digging."
I have read speculation that the Democrats will restore the paygo rules in the Federal budget. This is a stated part of their public position; the speculative part is that enough Republicans will feel they have to go along. That would certainly be a constructive first step.
Bush's Social Security plan would appear to be dead for the next 2 years, which is fine with me although I hold no brief for the current system. His plan was at best a distraction from addressing Social Security's fiscal problems. It amounted to lending people money so they could buy stock and bond funds on margin. If you think this is a good way to address the fiscal problem here, you should also address your own future expenditure needs (such as saving for retirement) by buying lots of stocks and bonds on margin instead of actually saving anything. Not the course that I would recommend.
The expiring tax cuts need to be addressed at some point, if only so people will know what to expect. The Democrats will not want to extend them, and Bush is probably unamenable to anything else. So perhaps we can expect the chicken games on this to continue through the 2008 election, with everything still unresolved. Likeliest exception: I could imagine an estate tax compromise (much higher exemption amount, lower rate as part of a "permanent" new regime), but only if Bush will sign on to make it veto-proof. Meanwhile the AMT will be growing, and I don't see how they are going to be able to make a deal addressing this, especially with paygo rules in place.
On Medicare, just a wild guess: fix the donut hole in benefits even though it blows a further hole in the budget (with paygo suspended for this purpose), and make a small gesture towards paying for it by authorizing the government to use its monopsony power in negotiating with drug companies? (Which power the Administration might then make sure it did not use.) This of course would amount to digging the hole deeper.
Often I prefer gridlock to the alternatives. But here we have both the contrived crisis of the sunsetting tax cuts and the growing AMT, and the broader march towards insolvency. I will start a fresh post to address the question of how, as a political matter, we might get towards addressing those at some point past the 2008 window.