Wednesday 9 April 2008

Counting the Cost of the War in Iraq

I'm sure this is another post which won't be so popular among readers, but I feel it's important to be accurate on the figures and their interpretation. There have been various articles in press and the blogosphere in recent days reporting on the Obama's campaign's estimate of the cost of the Iraq war at $ 100 per month per household. This is inaccurate, because it assumes that 100% of the Federal Budget comes from individual taxpayers. It does not. Of the 2007 (estimated) Federal Budget of $ 2.540 billion, some $ 1.169 billion is from individual income taxes, or about 46%.

The calculation is explained in Bill Adair's article in the St. Petersburg Times of 1 April 2008. The methodology behind the number is explained below:

"There was no footnote for the $100 estimate, so we called Bilmes to ask how they had calculated it. She said they took the Bush administration's 2008 request for war funding — $196-billion — and divided it by 12 to get a monthly cost. That works out to $16-billlion for both wars and about $12-billion just for the Iraq portion.

She and Stiglitz then divided those figures by the number of U.S. households and came up with $138 for both wars and slightly more than $100 for Iraq alone, she said."

I've re-created the Bilmes calculation as follows:

In 2006, the Census recorded 119 million married people with the spouse present in the US ( The Iraq budget in 2007 (according to Bilmer/CRS estimate) was $ 159 billion. The total cost to families (assuming families pay 100% of the budget) is $ 1,336 per year, or $ 111 per month. However, individual income taxes account for only 46% of the budget, so the family total is $ 51 per month, or $ 615 per year.

Whether the war costs $ 1,336 per year per family or $ 615, it's still a lot of money. But what are the underlying issues behind these numbers?

Total US GDP in 2007 is estimated by the US Treasury at $ 13.761 trillion. Assuming the Iraq war budget cost of $ 159 billion is correct, then the direct, recorded share of the Iraq war is 1.16% of GDP. This is a historic low amount for a war which has deployed, directly and indirectly, about 35-40% (my estimate) of America's total armed forces in any given year (counting all support staff). This essentially means that while it is expensive, it is not prohibitive to fight. Further conclusions are at the discretion of each reader.

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