[T]his windfall means that tax revenue as a share of the economy is climbing back to normal levels. As the nearby chart shows, at 17.5% of GDP this year, Uncle Sam's tax take is close to the 17.9% postwar average. And CBO estimates that as the economy continues to grow, the tax take will slowly rise throughout this decade to 17.8%.
This is because more Americans are thrown into higher tax brackets as their incomes rise. Economists call this "real bracket creep," and what it means is that most taxpayers will see their tax burdens gradually rise even under the lower Bush rates of 2003. The burden will be that much higher still if the lower Bush rates are allowed to expire after 2008 (on dividends and capital gains) and 2010 (on income taxes).
The CBO estimates above are also featured in this graphic, which accompanied the editorial:
But that graphic cuts off at 2010, and the CBO estimates it presents do not include the costs of extending the tax cuts that expire in 2008 and 2010. Yet the Journal writes that "The burden will be that much higher still if the lower Bush rates are allowed to expire after 2008 (on dividends and capital gains) and 2010 (on income taxes)" -- a statement that implies that the actual tax burden would be higher than the CBO estimates, rather than lower as will actually be the case.
This is obvious when you look at the CBO report, which lays out the costs of extending the expiring tax cuts and reforming the alternative minimum tax cut. If you reduce projected revenues accordingly (taking into account increased debt service), the Journal's chart looks strikingly optimistic:
In fact, revenue would decline back below 17 percent of GDP -- a level that, before Bush, hadn't been reached since the Eisenhower administration (PDF).
The WSJ continues:
A second fact you won't see in many other newspapers is that the federal budget deficit has also declined to close to its modern average. CBO says the deficit will fall to 2.7% of national output in the fiscal year that ends at the end of next month. It is expected to continue to fall to 2.4% of GDP next year and 2.0% in 2010, even if the Bush tax rates stay in place.
But the situation worsens dramatically over time if AMT reform and tax cut extensions are enacted, as the Journal's own reporters showed (subscription required) -- take a look at the graphic that ran with their story:
You can see that the Journal's 2010 date is cherrypicked -- the effects of extending President Bush's tax cuts are modest in that year, but explode over the next five.
Once again, the lesson here is simple: never trust the Wall Street Journal editorial page.