The mounting costs of war
The costs of U.S. wars -- from homeland security to Iraq -- are adding up, with no end in sight.
September 16, 2002: 12:07 PM EDT
By Mark Gongloff, CNN/Money Staff Writer

NEW YORK (CNN/Money) - After just about a year, the U.S. war on terror has cost relatively little -- but the tab is starting to add up, especially with the possibility of a war in Iraq growing ever more likely.

The U.S. government has spent an additional $70 billion on homeland security and defense, including the cost of ousting the Taliban regime in Afghanistan and helping that nation rebuild, in the past year, according to Michael O'Hanlon, senior fellow in foreign policy studies at the Brookings Institution.

President Bush is seeking a $48 billion increase in defense spending in 2003.  
President Bush is seeking a $48 billion increase in defense spending in 2003.

This is not exactly small potatoes, but it's only about 0.75 percent of the entire U.S. gross domestic product (GDP) -- in comparison, World War II costs were about 40 percent of GDP -- and is only slightly higher than the cost of the 1991 Gulf War, which has been estimated at between $50 billion and $70 billion.

But the spending will not end any time soon.

White House economic advisor Lawrence Lindsey was quoted by the Wall Street Journal Monday as saying a war in Iraq would cost about one percent of U.S. gross domestic product (GDP), or between $100 billion and $200 billion; but it was not clear if he meant that would be the one-time cost or the total cost of the war and post-war rebuilding activities. Lindsey could not be reached immediately for comment.

President Bush urged the United Nations last week to force Iraq to comply with its resolutions against Iraq developing weapons of mass destruction, saying the United States would act alone if necessary to contain what it sees as a real threat.

The Pentagon has estimated a one-time cost for an Iraq war of about $50 billion -- about 0.5 percent of GDP -- and O'Hanlon of the Brookings Institution has estimated the war could carry a one-time price tag of between $30 billion and $50 billion. But occupying a post-war Iraq and helping it rebuild could cost between $5 billion and $20 billion per year, O'Hanlon said, with the costs shrinking with time.

James Phillips, a research fellow at the Heritage Foundation, said he thought this annual post-war cost estimate sounded a little high.

"Once the [initial] conflict is over, Iraq is such an oil-rich nation, it can finance its own reconstruction," he said. "We would have to pay the costs of deploying forces, fuel, ammunition, etc.; but some of those would have to be paid regardless of where the troops were based."

On the other hand, the United States is still spending money in Afghanistan, a nation that lacks Iraq's natural resources. O'Hanlon of the Brookings Institution estimated the cost of U.S. activity in Afghanistan at between $1.5 billion and $2 billion per month, and the government does not yet have a timetable for U.S. withdrawal.

"The Afghan campaign has required a lot of base construction, aircraft refueling and several thousand American [personnel]," O'Hanlon said. "The costs have been in the general vicinity of $20 billion -- about one-quarter the cost of Desert Storm already -- and it will keep going."

Down payment against terror

In any event, the Center on Budget and Policy Priorities has estimated that government spending on defense, homeland security and "international issues" between 2002 and 2011 will be about $900 billion higher than initially estimated in January 2001.

This figure includes the $48 billion in extra defense spending President Bush has asked Congress to approve this year, but can't possibly account for other future increases.

About half of the $900 billion likely would have been spent even without the terror attacks, according to Richard Kogan, co-author of the CBPP budget study.

"There was a consensus for more spending for the military; it was just a question of how much," Kogan said. "You could say the President got more [extra spending] in part because of the political climate after Sept. 11, but [that's] speculative..."

The extra spending has helped the projected 10-year budget surplus to shrink from $5.7 trillion -- the estimate in January 2001 -- to about $336 billion.

But the approximately $450 billion expected to be spent on the war on terror is only a small part -- about 8.5 percent -- of the total shortfall, while the $1.6 trillion tax cut enacted at President Bush's urging last year makes up about 31 percent.

"The tax cut is bigger than anything, by a fairly long shot," Kogan said.

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One positive side effect of the increased spending is that it increases GDP, the broadest measure of economic strength. A surge of government spending in the fourth quarter of 2001 added 1.85 percentage points to the total 2.7 percent GDP growth in the quarter -- and might have helped pull the economy out of recession.

And the cost of not spending this money could be higher than the cost of spending it, at least in terms of public confidence.

"The risks of not following through on the war on terror are so huge that we must make this down payment," said Phillips of the Heritage Foundation.  Top of page

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