Evergreen Terrace is holding a street-wide rummage sale in Springfield. As Homer dances on the tables selling the items (upstaging Ned Flanders in the process), there is a diversion: the empty house across the street is being moved into. It is occupied by former President George H. W. Bush and his wife Barbara, and Homer takes an instant disliking toward George for getting more attention from the neighbors and hanging out with his friends. After Ned Flanders and his family came over to visit the Bushes as George takes a liking to Ned, Bart decides to visit, and Barbara takes a liking to him. However, Bart's habit of calling adults by their first names and his overall annoying attitude irritates George. Eventually, after Bart accidentally shreds George's newly typed memoirs, the former President takes Bart across his knee and spanks him. Upon learning this, an outraged Homer confronts George, demanding an apology for spanking Bart, but Bush refuses and instead demands Homer to apologize. Both men vow to make trouble for each other, despite that Barbara suggests to George that he should apologize to Homer.
First, Homer sends bottle rockets at George's window, and George puts up a banner on his house saying "Two Bad Neighbors", in reference to Bart and Homer (but is forced to remove it when other neighbors interpret it as an act of self-abnegation). Homer then glues a rainbow-colored wig on his opponent's head just before he is to give an important speech to a local club after he places cardboard cutouts of his sons, George Bush Jr. and Jeb Bush on his front yard to trick him. George retaliates by destroying the Simpsons' lawn with his car. Despite Barbara and Marge urging their husbands to stop, the confrontation continues. Homer and Bart are just making their way through the sewers to release locusts (from Edmund Scientific) in George's house when George spots them and climbs down. Homer demands, once again, that Bush apologize for spanking Bart, but George refuses, demanding that Bart apologize for destroying his memoirs, something that Homer becomes aware of just now but still refuses to apologize. As Homer and George begin fighting, Bart releases the locusts, which promptly attack George.
At the same time, former Soviet Premier Mikhail Gorbachev arrives at the mansion to bring a housewarming present for the Bush family. He later finds Homer and George busting out of the sewers, fighting, until George recognizes Gorbachev. Finally having enough, Barbara forces George to apologize to Homer for spanking Bart, and he does so in front of Gorbachev (much to his humiliation), leaving Homer to finally happily taunt George. Believing that the neighborhood is not worth living in, George decides to sell the house to Gerald Ford, another former President as he and Barbara leave Springfield for good. Ford invites Homer to watch a football game with beer and Nachos at his house. The two quickly get off to a good start, sharing common ground.