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Monday, December 11, 2006

Who Feeds the Iraq War Beast?

Republicans like to talk about "starving the beast," cutting government revenues through tax cuts as a means of forcing cuts in government programs. But there's another way to force cuts in programs, create another beast that demands to be fed. Kevin Hassett says there is a new "beast" in Washington, and feeding it will have enormous costs over the next few years, so much so that other, non-beastly parts of government must be cut, or the food supply - taxes - must be increased:

Time to Face Facts About Surging Iraq War Costs, by Kevin Hassett, Bloomberg: The report by the Iraq Study Group added fuel to the fiery foreign and defense-policy debate last week. But it also focused the attention of budget experts on the past and future costs of the war.

As one pores through the spending numbers, one thing is clear: The costs will be steep no matter what. The open question is, will Congress continue to act as if that doesn't matter? ...

One can project with some precision the different possible budget paths that would occur depending on whether the war goes well or continues to go poorly. Those different paths could have an enormous impact on our fiscal future.

Lee Hamilton, co-chairman of the Iraq Study Group, suggested last week that the costs of the war may rise to more than $1 trillion. While that number may seem sensationalistic, the basic logic behind it is easy to reconstruct. Things could be that bad, but it will depend on how soon the U.S. is able to extricate itself from the situation.

As of fiscal year 2006, Congress had appropriated $437 billion for the wars in Iraq and Afghanistan and for the global war on terror overall. The latest numbers added $70 billion to that total, bringing the amount spent on all three operations to $507 billion. ...

[T]he research service estimated that Operation Iraqi Freedom cost $6.4 billion a month, a number that has climbed recently to $8 billion a month. ... It seems likely the costs will rise. After all, salaries, equipment and fuel will all become more expensive. If the average cost per month rises to $10 billion, then it would take about 62 months to push the costs to $1 trillion.

While it is impossible to feel a great deal of confidence about what the future may hold, it seems pessimistic to assert that the current level of expenditure would endure for so long.

An alternative path would see the U.S. gradually reducing the level of troops engaged in the war on terror, including forces in Iraq. One recent Congressional Budget Office estimate looked at the possibility of a drawdown from the current level of about 258,000 troops engaged in those conflicts to 74,000 by 2010, staying steady at that level thereafter. In this scenario, the cost of the conflicts would be about $371 billion between 2007 and 2016, lifting the cost of the Iraq war and war on terror operations to about $800 billion.

It may be possible to be more optimistic than that, but prudent budgeting probably shouldn't take that flight of fancy. That means the likely budgetary costs of the Iraq war are enormous going forward, even in the best-case scenario.

A high cost, of course, doesn't imply that the policy isn't working..., it may well be that any alternative path would be less desirable. But it does raise an important fiscal policy issue.

Democrats made a big deal in the last election about introducing Paygo rules that enforce responsible budgeting. But there is a very real risk that almost all the incremental cost of the Iraq war will be excluded from the new rules. As we enter the budget season, it is important to recognize that new rules will accomplish nothing if the debates are about hypothetical budgets that have nothing to do with reality.

Keeping a war with enormous costs out of the Paygo process, even when the more optimistic future scenarios have a heavy cost, disguises the fiscal-policy problem. The fact is the Iraq war may well require about half a trillion dollars over the next five years, and an expenditure like that necessitates tough choices.

Making room for that much spending will likely require cuts in other programs or tax increases or both. When Paygo legislation and budgets are drawn up early next year, Iraq should be part of the picture. Anything else is self deception.

We could raise the taxes of those who voted Bush into office by a half a trillion dollars to cover the costs of this folly:

CBPP: Through fiscal year 2006, the tax cuts enacted since the start of 2001 have had a direct cost of $1.0 trillion. Another $850 billion in direct costs will be incurred before the tax cuts are slated to expire, for a cumulative cost of $1.9 trillion.

Somehow, that seems a lot fairer than cutting government programs that help those in need. Having those, generally, who supported the administration's tax-cuts and the creation of the Iraq war "beast" pay to feed it is a much more equitable alternative. Finally, it is worth noting that these are only the budget costs, not the total economic costs of the war (a point Kevin Hassett makes here).  Those estimates are much higher.

    Posted by on Monday, December 11, 2006 at 11:03 AM in Budget Deficit, Economics, Iraq and Afghanistan, Policy, Politics, Taxes | Permalink  TrackBack (0)  Comments (47)

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