Everyone knows about the chasm between social conservatives and moderate Republicans. But another intra-Republican fissure is widening — the one between anti-tax conservatives and business interests.

It’s hardly a new phenomenon — witness the Club for Growth’s efforts to torpedo moderate Republicans in Congressional primaries — but the tension is rising in a number of states. [IMGCAP(1)]

Item: In Arizona, fiscal moderates in the GOP joined with Gov. Janet Napolitano (D) and the Democratic minority in the legislature to pass targeted spending increases in 2003 and 2004. Then, in the 2004 election, several legislators who backed the plan were defeated in the GOP primary by hard-line conservatives. The next session brought a series of gubernatorial vetoes and a bitter public relations battle, with more to come.

Item: In Washington state, the majority Democrats picked up enough GOP support from the suburbs and big business to easily pass a major transportation package funded by new taxes. But rural voters and hard-line conservatives rebelled. They secured a flood of signatures and

put the measure on the ballot in November. Many now expect a repeal.

Item: In Pennsylvania, a group called Young Conservatives of Pennsylvania is running 30-second radio ads that target Senate President Pro Tem Robert Jubelirer (R) for “raising our taxes and his salary since 1975.” Chris Lilik, who heads the group, told the news service Capitolwire that “one of the problems we have in this state is that we really don’t have strong conservative leadership.”

If there is a ground zero for this intraparty skirmishing, it’s Colorado, where the Republican governor, Bill Owens, and major business groups have joined Democrats in backing a pair of ballot measures that would adjust the state’s Taxpayers’ Bill of Rights, or TABOR. The law restricts spending to a rate equal to population growth and inflation, while also returning excess tax revenues to residents and requiring voters to approve all new taxes.

Colorado’s vote has a compelling story line: Owens was once a darling of the Right, but his high-profile effort has now made him an outcast.

“Because he didn’t defend TABOR, his national political career is over,” said anti-tax activist Grover Norquist.

Colorado’s TABOR was also one of the first instituted in the modern era — in 1992, after several rejections by voters — and is easily the most restrictive. While 30 states have TABOR-like laws, most are easier to circumvent.

Even critics of Colorado’s TABOR concede that it has restrained spending effectively. So for fiscal conservatives, a decision by voters to ease Colorado’s TABOR would send a worrisome signal to other states — and to the federal government.

“Especially given the Republican spending spree going on here in the nation’s capital, Colorado really represents the gold standard,” said Matt Kibbe, who heads FreedomWorks, a grass-roots anti-tax group. “So I can’t imagine any more important priority in the states.”

Indeed, FreedomWorks’ chairman, former House Majority Leader Dick Armey (R-Texas), has been active in Colorado this year, even debating Owens one-on-one.

The problem with TABOR, critics say, is that it’s working too well. During a recession, Colorado’s TABOR — unlike similar laws elsewhere — has a “downward ratchet” that forces the government to stick to depressed revenue levels in the following year. And those caps can’t rise quickly after a recovery.

Because Colorado’s spending limit never fully recovered from the 2001 recession, Owens and his supporters want voters to let the state keep $3.6 billion in excess revenues over five years and then set the new spending limit based on the highest revenue year during that five-year period. (The ballot measure only affects state government; many local governments have already raised TABOR caps through voter approval.)

Owens has the support of most business groups, including the banking, realty and home-building industries, as well as from unions and nonprofits. They all fear that if TABOR continues as is, cuts to higher education, road construction and health care could hamstring the state’s competitiveness.

Some Republicans in the Legislature joined Owens in passing the measure, and the city council of staunchly conservative Colorado Springs backed the governor, 7-1. But amid concern that angry primary voters could sweep them out of office, a majority of Republican legislators opposed loosening TABOR. Both leading Republican gubernatorial candidates are also opposed.

“The moneyed interests, the local interests, the Chamber of Commerce types will be very alienated from a lot of the rank-and-file activists in the party,” said independent pollster Floyd Ciruli.

The Colorado situation is mirrored elsewhere. More than a dozen state legislatures considered new tax and spending limits during the 2003 and 2004 legislative sessions, according to the National Conference of State Legislatures. While none passed, grass-roots activists are making a concerted effort to improve their success rate, often via ballot initiative.

Californians will vote this fall on a more modest anti-spending measure backed by Gov. Arnold Schwarzenegger (R), while an Ohio measure backed by Republican gubernatorial candidate Ken Blackwell is expected to make the ballot in 2006. Conservatives are working to place a similar measure on Maine’s ballot in 2006, and other efforts are under way in nearly a dozen other states.

Because many of these states have gubernatorial elections in 2006, the anti-spending push could set the tone for debate and shape voter turnout nationally.

But analysts are unsure how much the anti-spending push will hurt Republicans.

“In a perfect world, it turns out the Republican base,” said one Republican strategist in a state now undergoing a TABOR fight. “In the likely reality, it will get botched so royally that it only brings out the super goofy.”

Still, while moderate Republicans could be the most immediate victims of GOP bloodletting, many Democrats fear that it could become a winning populist message, much like opposition to gay marriage in 2004.

“In most states, when pollsters ask people for their initial read of TABOR measures, they’re very popular,” said Kristina Wilfore, executive director of the liberal Ballot Initiative Strategy Center. “Tax votes are usually protest votes about unaccountable and irresponsible government.”

Democratic governors who have faced hard-line opposition are selling themselves as fiscally responsible. In a mid-August interview, Wisconsin Gov. Jim Doyle trumpeted the budget he signed, which he said held the line on taxes and made deep cuts but still “allowed schools to increase spending by 3 percent — not extravagant, but enough to operate.”

“The message I have worked very hard on, and which most if not all Democratic governors are already articulating, is that we can manage government on a limited budget,” Doyle said. “I have a Republican Legislature in Wisconsin, and they spent most of their time on divisive social issues.”

While Democrats face their own intraparty fights over taxes and spending, the conditions are set for years of trench warfare between hard-line Republicans and fiscal moderates. While most of the action will be at the state level, the rancor could spill into Congressional races as well.

“We’re an issue-driven organization and have a long history of taking on Republicans as well as Democrats,” said FreedomWorks’ Kibbe. “We don’t think it undermines the GOP in any way, because voting against taxes and for fiscal restraint is always good politics.”

In many states, low primary turnout and non-competitive legislative districts can mean that Republican caucuses in state legislatures are overrepresented by hard-liners at odds with the population’s preferences for both low taxes and targeted spending, said Phoenix-based GOP lobbyist Stuart Goodman.

As for Colorado’s TABOR, “I think the general assumption is that the backers will eke this one out,” said pollster Ciruli. “The one downside to that theory, and I wouldn’t argue with it because it’s possible, is that there could be modest turnout, so you could end up with a more conservative” electorate than in a major election year.