Monday, December 07, 2009

Paying for the war in Afghanistan

Walter Pincus recently wrote about a bill introduced by Rep. David Obey to pay for the war in Afghanistan through a tax surcharge. The bill is unlikely to pass; in any case, Ezra Klein notes that the bill would cover only 6% of the estimated cost of the war. The previous administration ignored usual pay-as-you-go rules in funding the war, meaning that spending increased the national debt. The present administration seems to be doing the same, which is highly unfortunate.

Who is going to pay for the $30 billion or more to be added to the cost of the Afghan war based on what President Obama discusses tonight?

Chairman David Obey (D-Wis.) of the House Appropriations Committee has an answer: "If we have to pay for the health-care bill, we should pay for the war, as well," he told ABC News last week.

Obey did more than talk. On Nov. 19, with little fanfare and 10 Democratic co-sponsors, he introduced a bill, the Share the Sacrifice Act of 2010, which adds a chapter to the Internal Revenue Code titled "Temporary Afghanistan War Surtax." On the day he introduced the measure, Obey stated, "Regardless of whether one favors the war or not, if it is to be fought, it ought to be paid for."

The measure would not affect those earning $30,000 or less. For those earning up to $150,000, there would be a surtax of 1 percent, which would be applied not on income but on the amount of taxes owed for a year. For those earning above $150,000, President Obama would set the surcharge tax percentage. It would not come into effect until 2011. For example, the automatic 1 percent surcharge on people earning $150,000 in 2011 whose federal income tax works out to about $22,600 would add $226. The percentage would be graduated for higher incomes so that overall it fully pays for the previous year's war cost. For the average family, which earns about $50,000, the added cost would be $50.

The bill allows for a one-year delay, to 2012, in the implementation of the tax if Obama determines that the economy remains too weak, and it relieves from payment service members who fought in combat after Sept. 11, 2001, as well as those who received death payments for people killed in combat after the attack.

"The problem in this country," Obey told ABC News, "is that the only people who have been asked to sacrifice are military families, and they have had to go to the well again and again and again, and everybody else is blithely unaffected by the war."

The surcharge would be related to the amount of income tax paid, and would therefore be progressive. This seems reasonable. On average, the burden of the wars has been borne disproportionately by the poor.

There's another angle to imposing a tax to pay for the war. Most Americans do not feel any direct effect, economic or otherwise, when troops are sent into danger. As Uwe Reinhardt argues, that creates a situation that economists call moral hazard: because our society effectively insulates the people making the decisions to go to war, who are mainly rich and born rich, from the direct consequences of war, they are more likely to declare war than if they and their own children had to fight. It's as if we've insured the rich against the consequences of war; moral hazard is a term that applies to insurance contracts.

Make no mistake, there is a policy-making elite in the US that is mostly insulated from the consequences of their actions. Making Americans pay for the war would be good for the budget and good for national decisionmaking.

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