When we think about tax policy, we often talk about it in a vacuum. Optimal tax theory applies economic ideas about efficiency to cast aside or reduce economic distortions caused by taxation. I've argued in this blog that efficiency is important, but not the sole concern that should drive tax policy. We should place extraordinary emphasis on the overall distributive justice of the system. It is good if fairness and efficiency work hand in hand, since that will likely promote sustainabe economic policies and predictable government revenues. But exogenous concerns about the sustainability of our democratic institutions need to enter into the decision-making process as well. How does the current tax policy impact the various constitutencies that need to take part in the democratic process? Is the revenue stream adequate to this century's enormous demands of government? Can tax policies promote more deliberative and participatory democracy? The amount of revenue we need to generate is of course also dependent on other decisions that we make. Sometimes those discussions are obvious, but often we either lack information about the costs or lose track of the connection between spending, on the one hand, and taxation (or borrowing) on the other. The Three Trillion Dollar War, by Joseph Stiglitz and Linda Bilmes (W.W. Norton & Co., 2008) (information, and links to interviews and media coverage, available on Stiglitz's home page), is a book that brings those connections home to us about arguably the most important endeavor that this country has undertaken in the last 20 years--the invasion and occupation of Iraq and related Afghanistani, Pakistani, and anti-terrorism activities.
One of the primary aims of the authors is to urge changes in the way we make decisions that have extraordinary fiscal and human consequences. They make eighteen recommendations for changes to prevent recurrences of the same shortsighted failures that we have engaged in in our relationship to Iraq (and, in prior decades, in Vietnam). Here's a key paragraph.
The failures in Iraq, like the earlir failures in Vietnam, will have a chastening effect. Almost surely, America will be more loath to get involved in another venture of this kind; it will, or should, proceed more cautiously in getting involved inanother war that could turn into a quagmire. But with all the precautions and caveats, the United States will, someday, go to war again, and so we need to start thinking now about how to avoid the problems that have contributed to the failures of this war. We can, and must, put in place reforms that will help us the next time around. We can already identify some of the reforms that, if implemented, can help us avoid future mistakes. Id. at 185.
One of the issues they address is the presentation and justification of the U.S. budget. They suggest better presentations, including accrual accounting that will give a more accurate picture of spending and future needs. They note the deep problems caused by the budget's ability to ignore the costs of medical care and disability benefits for the injured (one of the many components of the $3 trillion price tag on the Iraq war), most of which will occur in future years. The budget also disregards costs of war imposed on other branches of government, such as insurance costs of contract employees. They deplore the excessive use of emergency budgets long after the time that we can predict the need for additional funds to implement an ongoing occupation. Perhaps the most noteworthy--and, in my view, salutary suggestions--is "Reform 9": the proposal to create "a presumption that the costs of any conflict lasting more than one year should be borne by current taxpayers, through the levying of a war surtax." Id. at 197.
The authors provide two estimates for the cost of the wars in Iraq and Afghanistan. One is a "best case scenario" where they assume that the troops stationed in the war zone will decrease through 2008, falling to 75,000 by 2010 and to 55,000 by 2012, when the troops essentially become a non-combat force that remains on the ground through 2017. The other is a "realistic-moderate scenario", in which the number of trooops declines to 75,000 by 2012 and remains at that level, still in a military role, through 2017.
The operating costs for the war through 2007 is about $646 billion. Under their best case scenario, the operating costs through 2017 would be about $521 billion, and the costs under the realistic-moderate scenario almost double that, at $913 billion. They add in the following additional costs for the best case scenario: $422 billion for medical, disability, and social security; $132 billion for other military costs (recruiting, etc.), bringing the total to about $1,721 billion. Interest on the related U.S. debt (assuming we continue borrowing to fund the war rather than raising taxes as we always have historically in wartime) would be an additional $613 billion, leaving the total for the best case scenario at about $2,334 billion. That total, however, does not count the costs that are borne by the familes of those injured or killed, which Stiglitz and Bilmes conclude would be around $295 billion. It also doesn't count the macroeconomic costs associated with reduced investment and labor productivity caused by the military action, which they estimate at $187 billion. Grand total, without interest charges, for the best case scenario is $2,203 billion (and with interest charges, about $2,816 billion--nearly $3 trillion dollars).
For the realistic-moderate scenario, the cost is, of course, even heavier: $913 billion in future operating costs; $717 billion in future medical, disability and Social Security costs; $404 billion in other military costs; $816 billion in interest; $415 billion in cost to families; and $190 billion in macroeconomic costs. Total costs, excluding interest charges, would be $4995 billion (and with interest, about $5811 billion--almost six trillion dollars).
The authors warn throughout that these are conservative estimates.
Stiglitz and Bilmes make clear that we have bitten off quite a mouthful. And we have so far treated the men and women who have done the government's bidding and gone to war fairly shoddily, as the authors empathically describe the way veterans who have risked their lives on the battlefield have come home and faced long lines in hospitals and refusals of disability allowances. Is the government pinching pennies here to help pay for the mushrooming cost of the war there?
So I find myself wondering about this whole thing--the huge cost of these wars, the lack of discussion about the costs, the way we go about our daily lives exhorted to "consume more" so that we can make the economy grow, the way Congress continues to deal with war funding in "supplemental" budgets that lets it play the game of "out of sight, out of mind" about these military conflagrations that we began so recklessly half a globe away. Is it that this way of putting the war costs under the rug frees Congress to pretend that it is reasonable to carry out the agenda of the Wal-Mart heirs and their cohorts to "reform" the estate tax and all those other reckless fiscal policies that the Congress has countenanced over the last half a decade that we have been at war? As to the estate tax, Congress appears to think that those multimilionaire families should not have to fret about losing some of their vast inheritance "entitlements" when the head of the family dies. (And the market cheers when the Fed bails out the big broker-dealer investment banks, run by their multimillion dollar chieftains, which are now apparently "too big to fail" because the entire financial system might implode. Yet those very same banks were allowed to get too big, and profit wonderfully from it over the last decade, as a result of their own intense lobbying for repeal of the Glass-Steagal laws.) Meantime, ordinary Americans are losing homes, and Congress cannot even bring itself to extend unemployment protection for a few weeks, as it has in almost every other economic downturn, apparently because Congress wants to be sure that "entitlements" (at least those for ordinary Americans) don't grow. And Congress isn't doing much for the veterans, either, as they fret over whether they and their families will have disability pay. They have no "entitlement" to disability pay but have to go through submission of arduous paper work from multiple agencies within the federal government to prove that they deserve help (rather than being presumptively "entitled" to such help as veterans who have returned wounded from war).
Am I missing something here? Isn't the "reform" of the estate tax an "entitlement" that wealthy families are demanding--they claim an "entitlement" to do with their wealth at death as they please, rather than paying (finally) some share of that appreciation that has occured over their lifetimes over to the federal fisc. How come their "entitlements" are more important than the ones of ordinary Americans and soldiers who serve their country? And why aren't we thinking about the total costs that we have taken on as a country (the $3 trillion war being just one of them) and setting tax policy appropriately to deal with those costs rather than thinking that we can continue to borrow to fund these major expenditures?
Stiglitz and Bilmes appropriately tell us to start taxing ourselves to cover our costs for something so major as a war. We would then all understand the nature of the beast better, and we might even bring ourselves to make diplomacy work rather than heading so quickly to war.