What the War on Terror Has Cost Since 9/11

Plus, the political battle over tax cuts continues By Yuval Rosenberg and Michael Rainey The Cost of the War on Terror Since 9/11: $2.8 Trillion The U.S. has spent roughly $2.8 trillion fighting terrorism since 9/11, according to a [new analysis]( from the nonpartisan Stimson Center, a think tank focused on security issues. A study group at the center found that counterterrorism spending reached a peak of $260 billion in 2008, at the height of the wars in Afghanistan and Iraq. Spending had declined to $175 billion by 2017, though that’s still more than 10 times the amount spent in 2001. Counterterrorism accounted for 14 percent of discretionary spending in 2017, down from a peak of 22 percent in 2008. Of the $2.8 trillion total, Defense Department emergency and Overseas Contingency Operations (OCO) spending totaled $1.7 trillion, or 60 percent; homeland security spending accounted for $979 billion, or 35 percent; war-related spending at the State Department and USAID totaled $138 billion, or 5 percent; and other foreign aid totaled $11 billion, or less than half a percent. The estimates, which cover the years 2002 to 2017, come with lots of caveats, and there are good reasons to think real cost could be significantly higher or lower. In a report published late last year, the Watson Institute for International and Public Affairs at Brown University put the total cost of war-related spending, including future obligations to veterans, at [$5.6 trillion]( or double the Stimson estimate. The difficulty in tabulating the costs of the war on terror, the Stimson analysts write, is that the U.S. has no single, stable definition of counterterrorism. This makes a clear accounting of the cost of the various counterterrorism efforts a complex project, with significant room for error and interpretative disagreements. It also clouds any effort to judge the relative effectiveness of specific counterterror programs, and to evaluate the effort as a whole. The Stimson analysts settled on a definition of counterterrorism (CT) spending that includes “all war-related, OCO, and emergency supplemental spending; all homeland-security-related spending as defined by OMB’s [Office of Management and Budget] homeland security index; and all foreign aid through U.S. funding accounts and initiatives specifically created for CT.” One problem facing the analysts is that counterterrorism funding cuts across government agencies and includes programs in areas as diverse as defense, education and medical research. And even within a single agency, funds may be dispersed in ways that are hard to track. Within the Pentagon, the off-budget Overseas Contingency Operations account is particularly problematic, since it is used to pay for the wars in Iraq and Afghanistan but also for a variety of other programs that may be unrelated to counterterrorism. Classified programs are also hard to account for. The analysts said they expect spending levels to remain at around 15 percent of discretionary spending for the foreseeable future. [Share]( [Tweet]( [Forward]( Business Investment Picking Up Steam Companies in the S&P 500 are increasing their investments in their businesses at the fastest rate since 2011, The Wall Street Journal [reports](. Capex spending by those companies, which includes things like building factories and office buildings and buying new equipment, is expected to hit $166 billion in the first quarter, an increase of 24 percent over the year before. Spending is increasing as companies start spending some of the huge cash reserves that have been piling up in the wake of strong economic growth, with profits now boosted even more by the business tax cuts that became law earlier this year. The bump in capex investment has played a role in the current debate over the efficacy of the new tax law. The RATE collation, a tax reform group backed by major corporations, offered support for the new rules Wednesday, saying in a [statement]( “In the most important measures — from record high job openings to record low jobless claims, soaring small business confidence to a surge in capital spending — it is abundantly clear that tax reform is helping grow our economy and create new jobs.” But most experts say the long-term effects of the tax cuts will take years to evaluate. And not everyone agrees that the recent increase in capex spending represents a fundamental change in the economic environment. As Democratic financier Steven Rattner noted in his testimony before the House Ways and Means Committee Wednesday, “there is no sign that the promised investment boom has materialized. Indeed, real domestic private investment has risen at an annual rate of just 3.8% since the current administration took office compared to 6.3% from 2010 through 2016.” And the chart below from The Wall Street Journal suggests that the bump in capex spending could also be cyclical in nature. The GOP Tries Again to Sell Its Tax Cuts The House Ways and Means Committee held a three-hour [hearing]( Wednesday on the effects of the Republican tax overhaul. We tuned in so you wouldn’t have to. As you might have expected, the hearing was mostly an opportunity for Republicans and Democrats to exercise their messaging on the benefits or dangers of the new law, and for the experts testifying to disagree whether the gains from the law would outweigh the costs. But there was also some consensus that it’s still very early to try to gauge the effects of the law that was signed into effect by President Trump less than five months ago. “I would emphasize that, despite all the high-quality economic research that’s been done, never before has the best economy on the planet moved from a worldwide system of taxation to a territorial system of taxation. There is no precedent,” said Douglas Holtz-Eakin, president of the American Action Forum and former director of the Congressional Budget Office. “And in that way we do not really know the magnitude and the pace at which a lot of these [effects] will occur.” Some key quotes from the hearing: Rep. Richard Neal (D-MA), ranking Democrat on the committee: “This was not tax reform. This was a tax cut for people at the top. The problem that Republicans hope Americans overlook is the law’s devastating impact on your health care. In search of revenue to pay for corporate cuts, the GOP upended the health care system, causing 13 million Americans to lose their coverage. For others, health insurance premiums will spike by at least 10 percent, which translates to about $2,000 a year of extra costs per year for a family of four. … These new health expenses will dwarf any tax cuts promised to American families. … The fiscal irresponsibility of their law is stunning. Over the next 10 years they add $2.3 trillion to the nation’s debt to finance tax cuts for people at the top – all borrowed money. … When the bill comes due, Republicans intend to cut funding for programs like Medicare, Medicaid and Social Security.” David Farr, chairman and CEO of Emerson, and chairman of the National Association of Manufacturers: “We recently polled the NAM members, and the responses heard back from them on the tax reform are very significant and extremely positive: 86 percent report that they’ve already planned to increase investments, 77 percent report that they’ve already planned to increase hiring, 72 percent report that they’ve already planned to increase wages or benefits.” Holtz-Eakin: “No, tax cuts don’t pay for themselves. If they did there would be no additional debt from the Tax Cuts and Jobs Act, and there is. The question is, is it worth it? Will the growth and the incentives that come from it be worth the additional federal debt. My judgment on that was yes. Reasonable people can disagree. … When we went into this exercise, there was $10 trillion in debt in the federal baseline, before the Tax Cuts and Jobs Act. There was a dangerous rise in the debt-to-GDP ratio. It was my belief, and continues to be my belief, that those problems would not be addressed in a stagnant, slow-growth economy. Those are enormously important problems, and we needed to get growth going so we can also take them on.” “Quite frankly, it’s not going to be possible to hold onto this beneficial tax reform if you don’t get the spending side under control. Tax reform is hard. Keeping tax reform is harder, and the growth consequences of not fixing the debt outlook are entirely negative and will overwhelm what you’ve done so far.” Steven Rattner: "We would probably all agree that increases in our national debt of these kinds of orders of magnitude have a number of deleterious effects. First, they push interest rates up. … That not only increases the cost of borrowing for the federal government, it increases the cost of borrowing for private corporations whose debt is priced off of government paper. Secondly, it creates additional pressure on spending inside the budget to the extent anyone is actually trying to control the deficit. … And thirdly, and in my view perhaps most importantly, it’s a terrible intergenerational transfer. We are simply leaving for our children additional trillions of dollars of debt that at some point are going to have to be dealt with, or there are going to have to be very, very substantial cuts in benefits, including programs like Social Security and Medicare, in order to reckon with that.” Like this newsletter? Tell your friends they can [sign up here]( to get their own copy. We always welcome your feedback. Email yrosenberg@thefiscaltimes.com. Or connect with us on Twitter: [@yuvalrosenberg]( and [@TheFiscalTimes](. 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DeMaggio, The Hill - [The 9.9 Percent Is the New American Aristocracy]( – Matthew Stewart, The Atlantic - [America’s Dismal Turning Point]( – Paul Krugman, New York Times Copyright © 2018 The Fiscal Times, All rights reserved. You are receiving this newsletter because you subscribed at our website, thefiscaltimes.com. Our mailing address is: The Fiscal Times 712 Fifth AvenueNew York, NY 10019 [Add us to your address book](//thefiscaltimes.us1.list-manage.com/vcard?u=40d2c5373681f5cd830b6d823&id=714147a9cf) If someone has forwarded this email to you, consider signing up for The Fiscal Times emails on our [website](. Want to change how you receive these emails? You can [update your preferences]( or [unsubscribe from this list](