The Political War on Taxes

dollars under pressure in old...
dollars under pressure in old...

Let's be clear. The fiscal cliff was not an economic crisis. It was a political one. And for the Republican Party, it was an existential one. For more than forty years, the GOP has defined itself as the tax-cut party. This tax-cut agenda once helped the GOP -- on the outs since the Great Depression -- return to the center of American politics. But as the last election showed, the promise of tax cuts for everyone may no longer assure the GOP of victory at the polls.

The GOP's rebirth as the tax cut party began in the mid-seventies. Before then, the GOP championed fiscal responsibility and balanced budgets.

This changed at the end of the 1960s, when Republicans sensed an opportunity to return from the political wilderness. Democrats were floundering, their base divided over the War on Poverty, Vietnam and, most importantly, Civil Rights. Despite this disarray, the GOP hadn't figured out how to turn the Democrats' problems to their own advantage.

Tax cuts provided the answer.

The GOP's new agenda took shape in an economy plagued by spiraling inflation and stagnating wages. Stagflation undermined faith in the bedrock American institutions -- and particularly in government. For decades, Americans had benefited from both robust economic growth and rising levels of economic security. But by the end of the 1960s, the great postwar boom had come to an end.

The collapse undercut the Democrats' popularity at the same time as it reduced faith in Keynesian ideas that had, for decades, guided U.S. economic policy. As this economic consensus weakened, new theories -- chief among them supply-side economics -- competed for attention.

At first, some GOP leaders and conservative activists may have genuinely believed that tax cuts would both help the economy grow and lower the nation's debt. But it was immediately clear that the GOP's commitment to tax cuts had more to do with political branding than economics. In 1976, Wall Street Journal columnist and early supply-side enthusiast Jude Wanniski called for the GOP to remake itself into the "Santa Claus of Tax Reduction."

Over the last four decades, the GOP has taken this advice. By the early 1990s, the older cohort of GOP lawmakers who had tried to hold the line against tax cut militants had retired and been replaced by a new generation of true believers.

The GOP's tax cut fundamentalism has even changed the way the country thinks about paying for our wars. Most Americans didn't pay any federal income tax until World War II, when Congress and President Franklin Roosevelt proposed to use the IRS to raise "taxes to beat the Axis." Sixty years later, as the U.S. prepared for war in Iraq, the story was quite different. "Nothing," House Majority Leader Tom DeLay, told the country in 2003, is "more important in the face of a war than cutting taxes."

The irony is that the GOP's faith in the power of tax cuts has become more intense in the face of mounting evidence that the supply-siders were simply wrong when they predicted that rate cuts would produce economic growth and reduce the deficit.

Of course, for many, it was never about economics. It was about winning elections. Americans for Tax Reform founder Grover Norquist may have given away more than he intended when he admitted that he first envisioned his organization's taxpayer protection pledge -- which has been signed by the vast majority of Republican members of congress -- as a way for the GOP to win elections by branding "itself as the party that wouldn't raise taxes."

Given the fiscal challenges the nation faces -- spiraling deficits, ballooning debt, and major shortfalls in popular entitlement programs like Social Security and Medicare -- tax cut fundamentalism has become a dangerous basis for policy-making. Perhaps more threatening for GOP lawmakers, much of the party's tax cut agenda is unpopular with voters. According to a Washington Post poll, almost 75 percent of Americans favor raising income taxes on those with annual incomes above $250 thousand.

The GOP has a choice. It can double down its increasingly unpopular tax agenda. Or it can return to its roots. The GOP was once the party of fiscal responsibility -- of balancing spending and revenue -- even if this meant raising some taxes.

Eighty-five years ago, Supreme Court Justice Oliver Wendell Holmes reminded us "taxes are what we pay for civilized society." More than 40 years later, another Republican, President Richard Nixon, defended the federal income tax as giving "life to the people's purpose in having a government to provide protection, service and stimulus to progress."

Nixon and Holmes were right. Maybe it is time for the GOP to remember its past.

Molly Michelmore, associate professor of history at Washington and Lee University in Lexington, Va., is the author of Tax and Spend: The Welfare State, Tax Politics, and the Limits of American Liberalism (University of Pennsylvania Press, 2012). Her book traces the development of taxing and spending policy, which are areas not commonly examined together, from the New Deal of the 1930s through the Reagan revolution of the 1980s.