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Who Will Pay for Iraq and When?

by Jonathan Coppersmith on Nov 2, 2006

Jonathan Coopersmith

In all the heated words about the Iraq war, we’ve heard little or nothing about paying for it. Regardless of how you feel about the war, you must concede that it is going to cost us all dearly.

The Iraq war is consuming over $1.4 billion a week — or $200 million a day. In the time it takes you to read this article, the American government will have spent $700,000 on the war. The war has cost $200 billion already. Economists have estimated the war’s ultimate bill will be $1-2 trillion, which includes costs such as the hospitalization and long-term care of tens of thousands of wounded veterans, interest payments on the wartime debt and replacement of worn-out equipment.

The enormous expense of the Iraq war is no surprise: historically, wars cost money, lots of it. In the past, paying for wars has often provided the impetus for new and more efficient ways of taxing citizens. Lotteries, an essential source of income for 42 states today, helped pay for the Revolutionary War. The income tax first surfaced in the United States to pay the huge costs of the Civil War, although the Supreme Court declared the tax unconstitutional after the war.

Half a century later, in 1913, Congress passed an income tax. That progressive tax began at 1 percent for married couples making over $4,000 and rose to 7 percent on incomes over $500,000. To pay for World War I, the top rate rose to 77 percent on income over $2 million, although the number of people earning $2 million then was minuscule. To pay for World War II, Congress expanded the number of people paying income taxes from 4 to 42 million and increased the top rate to 91 percent. Excess-profits taxes brought in even more money, as did sales of savings bonds.

And those were “good” wars. Controversial wars, such as the Iraq war today, have been harder to fund. Lyndon Johnson and his successor, Richard Nixon, failed to raise taxes sufficiently to pay for the Vietnam War, partly because of opposition to the war from liberals and others and to Johnson’s war on poverty from conservatives. Neither left nor right wanted to fund what they considered as dangerously misguided government policies.

Consequently, growing deficits and cuts to politically vulnerable parts of the federal budget marked attempts by Johnson and Nixon to pay for the war in Vietnam. Among the cuts were scientific and technical research that could have had long-term benefits; cutting such funding meant slower long-term growth. The deficits also helped spark an inflationary spiral that persisted through the 1970s. This inflation reduced the value of the dollar, a less direct but longer-lasting cost of the Vietnam war.

The most impressive wartime financing ever was by President Bush’s father, George H. W. Bush, in the first Gulf War of 1990-91. The first President Bush and his advisers worked through diplomacy to persuade countries like Japan to pay almost all of America’s immediate war costs.

In the case of Iraq, instead of raising taxes to pay for the war, the current Bush administration is cutting them, adding hundreds of billions of dollars to the federal deficit. The Bush administration has raised the ceiling on the national debt from $5.95 trillion in 2001 to $9.62 trillion in 2006, an increase of over 60 percent in five years. All this debt must eventually be repaid by taxing us, our children and our grandchildren.

Why this flight from financial reality? No politician likes to raise taxes. The Bush Administration has made cutting taxes a policy hallmark and has vigorously opposed any discussion of raising any taxes.

Before it invaded Iraq, the White House disavowed its treasury secretary, John Snow, who estimated the war would cost $100-200 billion. The administration argued that the war would cost only a few tens of billions of dollars, hardly enough to get excited about. Since then, the administration has funded the war through annual supplemental requests instead of regular budget appropriations, effectively hiding the war’s cost.

For their part, Democrats have not tried to pay for the war by raising taxes for fear the Republicans will call them “tax-and-spend” liberals. Although this is a far more responsible policy than being a “borrow-and-spend” conservative, a platform of fiscal frugality will not win elections in today’s polarized political climate. Nor, afraid of being accused of not supporting the troops, have Democrats attempted to challenge funding for the war.

Equally important, investors, including the Chinese government, are financing the war in Iraq by buying Treasury bonds. Foreign investors are not buying bonds because they agree with American foreign policy; they buy bonds as a good investment that will be repaid with interest — by taxes on Americans for decades to come.

Both the Congress and the president deserve blame for not fulfilling their constitutional duty to find the funding for the Iraq war. But especially for an administration that uses historical events to justify its actions, it’s sad that the president and his supporters have not learned one of the most important lessons of history: fiscal responsibility.

Jonathan Coopersmith is associate professor in the Department of History at Texas A & M University.