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Iraq: The war's price tag

Author: Paul Tagliabue
June 7, 2004

How much has the war in Iraq cost?

Congress has so far appropriated about $123 billion for the war in Iraq in addition to the military's standard operating expenses covered by the Defense Department budget. Lawmakers are in the final stages of approving another $25 billion—most of it for Iraq—to ensure the U.S. military has enough money for operations through the beginning of 2005. The price tag for the rest of 2005 and beyond hinges on the size of the U.S. military presence. Military operations in Iraq currently cost some $4 billion a month. Factoring in replacements for spent munitions, tanks, and other equipment increases the monthly costs to $4.4 billion, says Rose-Ann Lynch, a spokeswoman for the U.S. Department of Defense.

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How big is the defense budget?

In 2004, funding for defense programs, outside of additional appropriations for the wars in Iraq and Afghanistan, was $394 billion, according to the Congressional Budget Office, Congress's nonpartisan economic research arm. Next year, under President Bush's budget proposal, that total would rise to $421 billion, not counting war costs.

How much of the $123 billion was for reconstruction costs?

Approximately $21 billion. The new $25 billion request includes no new money for reconstruction. Instead, it is targeted for military operations.

Have analysts made projections for the total cost of the war?

Yes. Estimates range widely, depending on analysts' forecasts of the size and duration of the U.S. deployment in Iraq. Lawrence J. Korb, an adjunct senior fellow at the Council on Foreign Relations and a Reagan administration Pentagon official, foresees a multiyear cost of $500 billion. Stephen Kosiak, an analyst for the Center for Strategic and Budgetary Assessments, writes that costs could run up to $300 billion over the next decade. On the eve of the war in March 2003, an independent task force report from the Council on Foreign Relations estimated that stabilizing Iraq could cost some $20 billion a year for several years and warned that expenses could be higher. Brookings Institution senior fellows Michael O'Hanlon and Lael Brainard estimated in August 2003 that military and reconstruction costs could range from $150 billion to $300 billion. Now, O'Hanlon says he thinks he underestimated. "This has been tougher and more expensive than I ever thought," he says.

How do analysts make cost projections?

One way to roughly estimate future expenses, O'Hanlon says, is to calculate a per-soldier cost based on current operations, and then project forward. With 138,000 soldiers now in Iraq and spending at an average of $4.4 billion a month, the annual per-soldier cost works out to approximately $383,000. Based on that estimate, if the ranks are reduced on a schedule similar to that used for U.S. peacekeepers in Bosnia and Kosovo—about 20 percent to 25 percent a year—costs would total some $310 billion by the end of the decade. That figure assumes that the United States maintains its current troop levels in Iraq until the end of 2005, as top Pentagon officials have told Congress, before starting the troop-reduction process.

How do the war costs relate to the overall U.S. economy?

They are small compared with the total economy, budget experts say. The $123 billion price tag has been spread over two years, with approximately $52.2 billion spent in 2003 and $70.4 billion allocated for 2004. This means the annual cost of the war is less than 1 percent of the nation's $11 trillion economy, says Douglas Holtz-Eakin, the director of the Congressional Budget Office. "There has not been a big direct impact on the economy," he says. On the other hand, because the United States federal budget is running a deficit, the government is borrowing money to finance the war. Interest payments on the debt increase costs; according to CBO calculations, payments on interest and capital for the $87 billion approved by Congress in October 2003 for the Iraq and Afghanistan wars will total $1.1 trillion over 10 years. "In the scheme of things, the war is not super-expensive, but it also sure ain't cheap," O'Hanlon says.

How does the cost of the war compare with other federal government spending?

The $70 billion in 2004 equals less than 4 percent of President Bush's $2.3 trillion federal budget. By comparison, Medicare and Medicaid costs for 2004 were estimated at $449 billion—or nearly 20 percent of the budget—and Social Security costs totaled $492 billion. Regular defense spending in 2004—excluding the extra costs of the wars in Iraq and Afghanistan—was $394 billion, according to the White House Office of Management and Budget. When economists refer to the $123 billion cost of the Iraq war, they are talking about extra spending beyond the regular defense budget.

How do war costs affect the federal budget deficit?

According to CBO estimates, the deficit under the president's budgetary proposals will be $478 billion in fiscal year 2004 and $358 billion in fiscal year 2005. Some 10 percent to 15 percent of the 2004 deficit will be attributable to the cost of the war, Holtz-Eakin estimates. The larger contributors to the deficit, "in roughly equal measure," are the Bush administration's tax cuts, spending increases in other areas, and the economy performing below projections, he says.

Did the Bush administration include the cost of the war in its 2005 budget?

No. Instead, it plans to ask for funding in the form of supplemental appropriations from Congress in early 2005. This has led some critics to charge that the Bush administration is trying to hide the cost of the war from American voters. "We must give the troops what they need to be successful under increasingly risky conditions. And the president must tell the hard truth to the American people about how much longer our troops will remain in Iraq and how much more it will cost," House Democratic Leader Nancy Pelosi said May 5. The Bush administration says it can't estimate the costs because it does not know how many soldiers it will keep in Iraq and under what conditions they will serve. One solution: the Bush administration could have budgeted $30 billion to $50 billion— assuming the war would cost at least that much. "It was a policy decision" [not to], Holtz-Eakin says.

What is the $25 billion in new funding for?

The $25 billion set to pass Congress in June is being presented as a contingency fund that will pay for military operations in Iraq and Afghanistan between September 30, 2004—the end of the federal government's fiscal year—and February 2005. One reason the money is necessary, Pentagon officials say, is that 20,000 more soldiers than expected are in Iraq and are scheduled to remain there until the end of next year. The war is projected to be $4 billion over budget by September, Lieutenant General Norton Schwartz, director of operations for the U.S. Joint Chiefs of Staff, said May 4. In addition, increased military operations may push the price tag of Iraq operations to some $6 billion a month, said Representative John P. Murtha (Penn.), the ranking Democrat on the House Appropriations defense subcommittee. The president called on Congress to quickly approve the new funding. "We must make sure there is no disruption in funding and resources for our troops," he said.

How much more money will officials ask for in 2005?

It's unclear. Many experts say the cost will be at least $50 billion. Representative David R. Obey of Wisconsin, the ranking Democrat on the House Appropriations Committee, said the 2005 supplemental request could be as high as $75 billion. Testifying before the Senate Armed Services Committee May 13, Deputy Defense Secretary Paul Wolfowitz said, "There will be a request for a full year supplemental [spending bill] early next year. It will surely be much larger than $25 billion." Using the per-soldier cost projection outlined above, the cost of the war in 2005 would be about $52.8 billion.

Were White House prewar cost estimates accurate?

There were disagreements about the estimated cost. In September 2002, White House economic adviser Lawrence Lindsey told The Wall Street Journal that a U.S. intervention in Iraq could cost between $100 billion and $200 billion—a figure that approximates current spending. White House Budget Director Mitchell E. Daniels Jr. labeled that figure as "very, very high" and estimated total war costs at between $50 billion to $60 billion. Lindsey resigned in January 2003.

Historically, administration forecasts of war spending have often been wrong, according to Yale economist William D. Nordhaus. Abraham Lincoln's secretary of the Treasury estimated that the direct cost of the Civil War to the North would be $240 million; it turned out to be $3.2 billion. Because it wrongly assumed the war in Vietnam would end by June 1967, the Pentagon underestimated its total cost by around 90 percent, Nordhaus says. The total direct cost of that war was $111 billion, or $584 billion in today's dollars.