C. Sawicky,
Washington state is very instructive on this taxation debate. The public, through voter initiatives, are in the process of de-funding the government. They don't want an income tax. They got rid of a car registration fee that was both somewhat progressive (it was based on the price of the car) and the most important source of revenue for all transit, thereby punching a huge hole in the budget. They have also voted for specific education, public health and safety expenditures in large numbers. It's not just the typical American desire to lose weight by eating ice cream. The voters don't trust the Governor and the legislature when they claim the state is out of money, despite the fact that the state has a balanced budget law and legislators threaten to sue every time the budget seems to be artificially deflated.
In this environment that seems so hostile to Democrats, Democrats are winning the argument on public policy, slowly but surely. That's because people now can see a direct connection between Republicans tax cuts and a drop-off in valued government services. Put more debt into the picture and you blow the connection in the public mind.
For a long time one could look at Democratic spending programs in terms of justice for the downtrodden, but progress has its price. The mainstream are increasingly identifying themselves as no different from the downtrodden and vice versa. The connection between justice in liberal-democratic terms and government spending is no longer there in the minds of the public. That's a good thing. It means that Americans are finally seeing themselves as one people. It also means that the start for justice in economic/Marxist terms is just beginning and it will require a different approach.
If the government is going to become the main funder of the economy, as you and I hope, it first must prove it can run a tight ship. That's a ways off now and it's going to be farther off if we get back into the deficit spending mode. Look who are embracing deficit spending now - the Republicans for goodness sake! Why is it suddenly in their political interest to openly encourage the government to spend beyond its means? Of course it's always been in their interest for government to do it, but why have they now embraced it openly?
I would have been surprised by the new Keynesian Republicanism but for a nice article in the New Yorker (which I can't find, natch, and) which suggested that the new Republican approach is to force the government into overspending. This, Repugs hope, will prevent Democrats' spending their way into the hearts of the middle class as the baby-boomers got older and more government-dependent. So long as you agree that there is some level of government debt which is too high (I assume you must), the Democrats will inevitably fall on the side of fiscal responsibility if they are to have the money to keep winning votes as the population ages.
Thus, even crassest Democratic strategizer will see that his party must embrace balanced budgets and surpluses if they are going to compete out into the next couple decades. The argument between Republicans and Democrats used to be whether government can do good for Americans. Now the argument is what good, for whom and when.
I am not conservative. I question the value of government spending under a super-pro-capitalist regime. Why wouldn't I? The liberal fight is not just to keep the public sector large. The Republicans are all for that, so long as their constituencies don't have to pay.