The Cost of the Iraq War

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Introduction

The United States has appropriated well over $300 billion (PDF) to the war in Iraq, according to the Congressional Research Service (CRS). Some economists predict the entire war, based on projections U.S. forces will remain in Iraq until after 2010, may cost over $1 trillion. The price tag has drawn criticism not only because prewar projections by the White House were closer to $50 billion, but because of the manner in which the bill was budgeted: through supplemental requests, often with little time for congressional oversight or full disclosure of how the money is allocated. “It’s a question of budgetary integrity and the degree to which you are doing this outside the normal budgetary process in a way that lacks sufficient oversight,” says CFR Chair in International Economics Douglas Holtz-Eakin, former director of the Congressional Budget Office. The next supplemental request by the Pentagon, expected next February, will be the largest yet at $160 billion.

What explains the high costs of the war?

In 2002, then-White House Economic Adviser Lawrence B. Lindsey predicted the war in Iraq would run between $100 billion and $200 billion. Mitch Daniels, the Bush administration’s budget director at the time, called the estimate “very, very high.” As it turns out, Lindsey’s estimate was low. Experts say the costs of war have escalated mainly because of a longer-than-expected occupation, stalled reconstruction efforts, and shortfalls in projected Iraqi oil revenue. “I think it was a combination of not wanting to talk about the true cost and wishful, naïve thinking about how this would play out,” says Anita Dancs, research director of the National Priorities Project, a watchdog organization that examines federal budgets. Also adding to the costs, she says, were increased demands by the U.S. military to replace or repair worn-out equipment.

Do cost-of-war estimates vary?

Yes. The CRS, Congressional Budget Office (CBO), and Government Accountability Office (GAO) all provide estimates of the total sum that vary by as much as $7 billion. “Worse yet, Congress doesn’t seem to know how much it appropriated either,” writes Winslow Wheeler of the Center for Defense Information (CDI) in an August 2006 online report. “CRS, CBO, and GAO did agree on one thing: DoD’s [the Department of Defense’s] data on the costs of the wars cannot be trusted.” The trouble, Wheeler writes, is multifold: The CBO has difficulty obtaining data on war obligations, the supplemental requests do not provide enough detail to determine how war funds were obligated, and the DoD is deficient in its financial-management systems, relies heavily on estimates versus actual costs, and provides little documentation. “Our grasp of what war is really costing at the analytical level is not very great,” says Steven Kosiak of the Center for Strategic and Budgetary Assessments. The GAO points to billions of dollars in war expenses that were double-counted in 2004 and 2005.

Why do these costs of war fall outside the normal budget?

The department does not project future outlays or long-term scenarios beyond the current fiscal year because of the “unpredictability and uncertainty” of the changing circumstances on the ground in Iraq and Afghanistan, according to DoD Deputy Comptroller John P. Roth, in a July 18 House Committee on Government Reform Subcommittee on National Security, Emerging Threats and International Relations hearing. Thus, U.S.combat operation in Iraq and Afghanistan do not fall under the DoD’s annual budget but rather are funded through supplemental requests.

“Because the supplementals are prepared much closer to the time the funds will actually be used,” Roth told Congress, “they are a more accurate reflection of conditions on the ground, a more accurate prediction of what the costs of war will be and, importantly, a process that allows quicker access to funds at the time when they are needed most.” During the Vietnam War, supplementals funded U.S. military operations during the early years of the war but were later folded into the regular defense budget. Experts say the DoD plans to expand the rules on what costs can be included in supplemental spending bills to include not only costs related to the operations in Iraq and Afghanistan but also to those more loosely related to the longer war on terror (for example, a recent supplement included $5 billion for transformation of the Armed Forces).

Are military supplemental requests likely to continue?

Some say there is waning support in Congress for supplemental requests. Critics charge that these appropriations generally receive less scrutiny from lawmakers. “It’s not truth in budgeting,” says Dancs. “It would be nice to see more congressional oversight of how this money is being spent.” Holtz-Eakin adds: “[Congress’] ability to scrub the request is limited. They tend to rush more.” According to Kosiak, supplementals are not meant as “the primary mechanisms for covering the cost of military operations,” but rather to cover unanticipated emergency costs. “The Bush administration,” he adds, “is not really fully owning up to the cost of military operations and presents a [defense] budget that doesn’t reflect long-term likely costs of these operations.”

Senator John McCain (R-AZ) passed an amendment in October that requires operations in Afghanistan and Iraq to be funded in the main defense budget, but President Bush attached a signing statement to the bill that would allow for future supplemental requests. Some experts predict as force levels in Iraq decrease, the supplemental requests should decrease in tandem, but some parts of the supplements—including equipment repair—will be phased back into the defense budget over time. 

What accounts for the high projected long-term cost of the war?

The bulk of the costs will go toward the Defense Department’s ongoing military operations in Iraq, which include developmental assistance, reconstruction, and training Iraqi security forces. Another factor that contributes to the high price tag of supplemental requests is equipment wear and tear. The Army is “using up equipment at four times the rate for which it was designed,” according to the Associated Press. Meanwhile, Brig. Gen. Robert Radin tells U.S. News & World Report that next year the number of tanks, armored personnel carriers, and radar systems sent back to the United States for repair will double. Of the most recent $70 billion supplemental request, $24 billion was obligated to repair costs.

A factor not included in the DoD budget that contributes to the escalating war cost is the 16,000-plus wounded soldiers. Dancs says half of them have inflicted lifetime injuries, while one-fifth suffer from serious brain or spinal injuries (much of this is covered by Veterans Administration budget). The most recent supplemental includes funds to expand post-traumatic stress disorder for soldiers returning from Iraq and Afghanistan . 

Are the costs of the war in Iraq expected to increase?

Given the ongoing transformation of the armed forces and the stresses on the military, experts expect the overall annual defense budget—currently $440 billion—to increase slightly over the coming years. But most predict the costs of the war in Iraq (as well as the larger war on terror), as approximated by the supplemental requests to Congress, to increase slightly, as they have since 2003, but may begin to decrease if U.S. forces redeploy in the years ahead. All told, economists Linda Bilmes of Harvard University and Joseph E. Stiglitz of Columbia University estimate the final war cost could top $2 trillion (PDF), based on U.S. withdrawals from Iraq by 2010 to 2015 and accounting for the “value of statistical life” for troops killed. But CFR’s Holtz-Eakin remains dubious of their math. “Try not to be seduced by an economist,” he says. “The question will always be: How much lower [would the costs] have been in an alternate universe without the wars in Afghanistan and Iraq? That’s the difficulty with this game. Who knows how it would have played out?”  

How has the cost of the Iraq war affected the U.S. economy?

Dancs says that because the war in Iraq is being deficit-financed, she expects larger deficits, more debt, and the need for taxpayers to make interest payments on that debt. “We’re borrowing to pay for this war,” she says. Others, including Bilmes and Stiglitz, say the war has raised oil prices, slowed the U.S. economy, and lowered global income. Yet Holtz-Eakin disagrees with these assessments. “[W]ar spending may have accelerated the U.S. recovery and global growth,” he wrote in the Financial Times. “Unfortunately, the net economic impact requires the analyst to predict the future: Would oil prices have risen the same, more, or less with Saddam Hussein in power and Iran rattling its proto-nuclear saber?”

Experts agree that compared to U.S. gross domestic product (GDP), the annual cost of the war in Iraq remains small. “Defense spending as a percentage of GDP is at historical lows,” Gen. Peter J. Schoomaker, the U.S. Army chief of staff, recently told reporters. Experts also say that even without the conflicts in Iraq and Afghanistan, the military budget was on the rise, as a result of “transformation” plans (i.e. Future Combat Systems), higher salaries for soldiers, and procurements of the latest versions of existing equipment.

Some say the supplemental military spending has come at the expense of other government programs. The opportunity costs of these supplemental appropriations over the past three years, Holtz-Eakin writes, has resulted in “squeezing transportation, environmental protection, low-income programs, and myriad other things Americans equate with government.”