No new taxes? Not so fast

Mitch Daniels is not a communist, a socialist, or even a garden-variety liberal. On the contrary, he’s a conservative Republican who’s served at the pleasure of two Republican presidents (Ronald Reagan, George W. Bush) and now occupies the Indiana governor’s mansion. He’s even seen in some GOP circles as a potential 2012 presidential nominee. And yet when I asked Daniels earlier this month whether the federal government might have to raise taxes at some point in the future—regardless of which party was in power—his answer was yes.

“At some stage there could well be a tax increase,” he said. “If you believe our fiscal mess is republic-threatening, and if you have to take the third- or fourth-best approach, at the end of the day, I’d do it.”

Welcome to Grover Norquist’s worst nightmare. For the last 20 years, no one principle has united the Republican Party quite like its violent opposition to tax increases—except, perhaps, its equally ardent obsession with tax cuts. When liberal economist Paul Krugman described the GOP as a horde of “tax-cut zombies” just “shambling forward, always hungry for more,” he wasn’t far off; every election cycle, Norquist’s Americans for Tax Reform forces candidates to sign a “no new tax” pledge, and holdouts risk being publicly ridiculed for not signing. But now there are indications that at least some Republicans, like Daniels, are awakening from their stupor. As the crippling recession and mounting long-term deficit projections inspire new calls for fiscal austerity, especially from the Tea Party types currently driving the GOP’s agenda, it’s worth asking whether we’re about to witness the biggest change in conservative politics since the rise of Reagan: the beginning of the end of the Tax Zombie Republican.

To get a sense of how such a staggering shift could be possible, let’s rev up our DeLoreans, restart our flux capacitors, and return to the roots of modern-day Republicanism. Among conservatives, Ronald Reagan is remembered as the tax-cutter in chief: the supply-side hero whose Economic Recovery Tax Act of 1981 slashed the top marginal tax rate by more than half. But the truth is that after his first year in office, Reagan was actually willing (if not always happy) to compensate for gaps in the government’s revenue stream by raising rates. In 1982, for example, he agreed to restore a third of the previous year’s massive cut. It was the largest tax increase in U.S. history. The Gipper also raised taxes in 1983. And 1984. And 1986. The party sainted him for his efforts.

That permissiveness ended with Reagan’s successor, George H.W. Bush. While campaigning for president in 1988, Bush made a solemn promise: “no new taxes.” But in 1991 he accepted a small tax hike as part of a major deficit-reduction package. Conservatives—who’d become militantly, monolithically antitax in the Gipper’s wake—were enraged. Never mind that the package paved the way for the booming economy and balanced budgets of the 1990s, much as Reagan’s apostasies coexisted peacefully with the steady growth of the previous decade. Bush lost the right, and then reelection. Ever since, only the rarest of Republicans has dared to deviate from GOP dogma on taxes—even as the party’s absolutism (see: Bush, George W.) spawned record deficits and squandered its reputation for fiscal responsibility.

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