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Published on Sunday, March 16, 2008 by The Boston Globe

Another Year, Another $300 Billion

by Linda Bilmes

The sixth year of the Iraq war begins this week. The war is now the second-longest in US history - longer than any except Vietnam. So far, 1.6 million US troops have served, more than a third of them for two or more tours of duty. Almost 4,000 US service personnel have been killed, and 60,000 wounded, injured or contracted a serious disease. Many survive with severe multiple injuries ("polytraumas") that in previous wars would have almost certainly ended in death.

One-third of the 780,000 troops discharged so far have been treated at veterans' hospitals and clinics, including 120,000 treated for mental health conditions and 68,000 diagnosed with post-traumatic stress disorder. This year alone the Department of Veterans Affairs expects to treat 333,000 returning veterans. The majority of these veterans will be eligible to receive lifetime disability compensation - 228,000 have already filed applications.

These statistics lay the foundation for the enormous financial cost of the war. Iraq is already the second-most expensive conflict, after World War II - a war that mobilized 16 million Americans and a massive nationwide war effort.

So far the federal government has spent $600 billion on wars in Iraq and Afghanistan (government accounts make it hard to separate the two). However this figure is just the "burn rate" spent on combat operations, such as transportation, equipment, supplementary combat stipends, and paying the 100,000 contractors employed to support the war effort.

That $600 billion figure ignores four major costs. First, there are additional war-related costs buried in places such as the non-Iraq defense budget. That budget has grown by $500 billion cumulatively since the beginning of the war. An estimated one-quarter of that growth is indirectly related to Iraq, including the increased costs of dealing with manpower shortages - recruiting and retaining soldiers and Marines.

The Department of Labor reimburses contractors for insurance, and even pays out benefits if they are injured in a war zone. Every week more "hidden" costs come to light: for example, the Globe reported recently that the largest private contractor in Iraq, KBR, has dodged paying hundreds of millions of dollars in taxes by employing its workers through a shell company in the Cayman Islands.

Second, the $600 billion excludes the cost of providing medical care and disability compensation for veterans. Advances in battlefield medication mean the survival rate in Iraq is much higher than in previous wars: a ratio of seven troops wounded in combat for every death compared to 2.5 in Vietnam and Korea.

We will be paying out disability benefits for decades to come - the peak year for paying WWII benefits was 1993. We pay out $4.3 billion a year in disability to veterans of the first Gulf War, even though that conflict only lasted one month. Given the intensity of combat and the high injury rates, close to half the current service members in Iraq and Afghanistan are expected to qualify for long-term disability compensation.

Third, the $600 billion does not take into account the cost to "reset" the military - to replace equipment and restore personnel to prewar levels of readiness. In a recent survey, over 60 percent of senior military officers said US forces are weaker than five years ago. Partly this is due to deteriorating equipment; vehicles and weaponry are being used up at six to 10 times the peacetime rate, but not being replaced nearly as fast. Tactical aircraft are now 24 years old on average - the oldest since World War II. Congress is outraged that the Air Force awarded a $35 billion contract for refueling tankers to Northrop Grumman instead of Boeing - but no one seems to blink at the huge sum itself.

On the personnel side, it may take decades for the military to recover from the influx of low-quality recruits. In order to meet basic recruiting targets, the military has been forced to lower standards for physical fitness and education, and to turn a blind eye to criminal records.

On top of all this, the cost of the war will be multiplied because we are borrowing all the money needed to pay for it. Instead of belt-tightening and sacrifice, this war has been accompanied by tax cuts for the rich and rising deficits. So we must add to the war cost all the interest we will be paying (much of it to foreign governments) to finance the borrowing binge.

Taken together, the budgetary costs to the federal government are likely to mount to nearly $3 trillion in today's money, (assuming the United States remains in Iraq in reduced capacity through 2017). Of course this still doesn't count costs the government doesn't pay - like the value of a spouse or parent who gives up her job to become a full-time caregiver to a wounded veteran, the money veterans pay to seek private medical care or the loss to our economy from the death and disability of so many young people.

Beyond that, the war has weakened our economy, increased oil prices, and made it more difficult for us to fund road projects, schools, medical research, and other vital needs. Apart from the oil companies and a handful of defense contractors, the war has not stimulated the economy. This is because so much of what we spend in Iraq every month ends up in the pockets of Filipino and Nepali subcontractors in Iraq, and on fuel, laundry, and local housing costs - which have almost no benefit to the US economy.

Perhaps most painful to consider is the opportunity cost: the money spent on the war could have fixed Social Security for the next 75 years or provided health insurance to all American children. As we enter the sixth year of combat, the public is entitled to know what the war is costing. The cash cost of each month we continue in Iraq is $12 billion - but the full cost is easily double that at around $25 billion. For $300 billion a year the question is whether the best use of that money is to keep our troops stationed in Iraq for years to come.

Linda Bilmes, a former assistant secretary of commerce, teaches public finance at the Harvard Kennedy School. She is coauthor of "The Three Trillion Dollar War: The True Cost of the Iraq Conflict."
© Copyright 2008 Globe Newspaper Company

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