Since Irving's story is concerned with pre-Revolutionary times and the immediate time after the American Revolution, whether America per se has improved or not is not the issue since it was a country yet in its infancy within the setting of "Rip Van Winkle" as evinced by the discussion of his being a Tory. Rather, the contrast for Rip is between the time before the Revolution in which he was a younger man living in one of the thirteen British colonies and the twenty years after he awakens to the birth of a new country. And, indeed, a great deal has changed!
For, when Rip returns home from the mountain and his long-induced sleep, he finds his village a strange place as he is greeted by a cacophony of voices and asked is he is a Federal or Democrat. Then, when Rip declares that he is a loyal subject of King George, a general shout "burst from the bystanders" that he is a British sympathizer. But, Rip is finally able to identify himself, especially to his son. Then, he is informed that he is now a free citizen of the United States of America. To Rip this news is not as wonderful as the news that he has been freed of "the yoke of matrimony" since Dame Van Winkle has died. The noisy and contentious crowd of the newly-formed country and the "Babylonish jargon" that he now hears is not nearly as comforting to him as in Colonial times,
He looked in vain for the sage NicholausVedder with his broad face, double chin, and fair long pipe, uttering clouds of tobacco smoke instead of idle speeches....In place of these a lean bilious-looking fellow...was haranguing vehemently about rights of citizens.
Clearly, Irving connotes a nostalgia for the days in which America belonged to England, before it was a raw new country seeking its place in the world. The Romantic Irving satirizes his contemporary post-revolutionary society, suggesting that it may be too disputatious, dogmatic, and rationalistic. He would rather it retain the calm, stability, and natural beauty of the colonial village.
This tale actually presents a challenge to Irving's readers about the myth that America is a nation that is always constantly improving and getting better, and it does this centrally through challenging the idea of the American Revolution actually making a tangible and meaningful difference to American society. This is the dream of America that is shattered through Rip's long protracted sleep, as this allows Irving to conflate pre-Revolutionary American and post-Revolutionary America and to observe the ways in which not much has actually changed after all. Note the following quote that describes Rip's situation after he awoke from his enchanted slumber:
Rip, in fact, was no politician; the changes of states and empires made but little impression on him; but there was one species of despotism under which he had long groaned, and that was—petticoat government.
Through the character of Rip, who remains untouched and is able to observe the ways in which the Revolution has not materially changed anything except for the presence of the American flag and the exchange of the picture of the King for Washington, the author suggests that the dream of America improving with the Revolution is not actually entirely accurate, and that less change occurred than his readers might expect.