Here is an eye-opening excerpt from an article in the Wall Street Journal (Online Edition)

So we thought our readers might like to know that so far this year federal tax revenues are booming. Overall, in the first seven months of Fiscal Year 2005 through April 30, they climbed by $146 billion to a total of $1.216 trillion. That's an increase of 13.6% over a year earlier, some four or five times the inflation rate, and the kind of raise that most American families can only dream about. Income tax receipts are driving this windfall, with individual revenues up $66 billion, or 16%, to $547 billion. Corporate income taxes are rolling in even faster, tsunami-like in fact, rising 48% to $134 billion. [...] There are several lessons here, starting with the fact that somebody is earning all that extra income that the feds are getting their share of. The economy has been doing better than media coverage admits, with growth lifting employment and incomes and thus the federal fisc. This revenue boom also is taking place in the wake of the 2003 reduction in dividend, capital gains and marginal income tax rates that Robert Rubin and other worthies predicted would be fiscally disastrous. Apologies accepted.

The "deficit" problem, in short, is not on the revenue side of the ledger. Tax revenues as a share of the economy fell sharply from their Clintonian (post World War II) heights after September 11. But they are now climbing back toward their modern historical average in the neighborhood of 17% to 18% of GDP. This will happen even at the lower Bush tax rates -- or shall we say, because of them -- since as incomes rise more Americans are pushed into higher tax brackets.

It's amazing, amid these results, that some Republicans are reluctant to make the 2003 tax cuts permanent. They should be advertising that their tax policies have helped the economy and will continue to do so if they are extended. The best solution for federal red ink is continued prosperity combined with spending restraint and entitlement reform, not a tax increase.

(hat tip to JK at Three Sources)

Posted by Michael at May 23, 2005 03:03 PM