The Underestimated Costs, and Price Tag, of the Iraq War

U.S. News estimated the war's cost before it started, and missed badly.

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Smoke covers the presidential palace compound in Baghdad on March 21, 2003, during a massive U.S.-led air raid on the Iraqi capital.

The Iraq War, by most accounts, has not aged well. In the 10 years since the conflict began, public opinion on it has soured, and the country remains damaged and corrupt. The casualties total in the tens of thousands, and weapons of mass destruction were never found.

[RELATED: 6 Predictions From Before the Iraq War]

Aside from these facts, there are more dispassionate numbers that tell a story of Iraq: budget figures.

As U.S. News' James Pethokoukis and Matthew Benjamin document below, lawmakers vastly underestimated the conflict's price tag.

"[Congressional Budget Office] estimates a price tag of $14 billion for the war itself and $8 billion to $10 billion a month, for an unspecified period, after hostilities cease," Pethokoukis and Benjamin wrote in 2003.

The Bush administration estimated the war would cost $50 to $60 billion, including the costs of reconstruction and clean up. As of 2013, the Cost of War Project estimates the war has cost $1.7 trillion—nearly 30 times the pre-war estimate. That cost doesn't factor in future costs of veterans' care, which push the total to more than $2.1 trillion. The Veterans Administration spending related to Iraq—which totals $45 billion—is almost as much as the Bush administration's overall cost estimate.

Another number sticks out in the authors' budget-focused look at the upcoming war.

[READ: 10 Years Ago, the U.S. Invaded Iraq]

"(E)conomic conditions continue to deteriorate. The price of oil hit $37 a barrel earlier this month," they wrote.

Oil prices fluctuate and are attributable to many complex factors, but the current price of oil hovers around $92 a barrel, more than twice the 2003 price. For a war many have charged was at least partly about oil—something a former Bush speech writer even admitted Tuesday—the conflict has led to no lasting difference in U.S. oil imports from Iraq. In fact, if anything, it's a decrease now.

As Pethokoukis and Benjamin predicted, the Iraq War was indeed a "budget bog," muckier and more costly than even they feared.

This article originally appeared in the March 24, 2003 issue of U.S. News & World Report.

The Budget Bog

By Matthew Benjamin; James M. Pethokoukis

Bush faces a second frontover the deficit

While all eyes are on the United Nations debate over whether to forcibly disarm Saddam Hussein, less noticed negotiations are taking place in Washington on an issue that may have an even larger effect on Americans than a conflict in Iraq.

It's the federal budget. To be sure, it's not a topic that excites the senses, or even one that most Americans think about daily or, indeed, ever. But the White House says its budget, now under discussion on Capitol Hill, could lift the economy out of its current funk and put hundreds of thousands back to work. Or, critics contend, it could cause irreparable damage in future decades and break the back of entitlement programs like Social Security just as waves of retiring baby boomers begin to depend on them.

Budget committees in both houses of Congress last week put forth their own blueprints that aligned closely with the Bush plan. Centered on massive tax cuts, the Bush budget, even while excluding war costs and other likely large obligations, would create $1.8 trillion in deficits over the next 10 years, according to the nonpartisan Congressional Budget Office.

[READ: What Happened Last Time We Had a Budget Sequester?]

Downhill. Adding extra hype to the stimulus-vs.-deficit battle, the economy has taken a turn for the worse since the Bush budget was proposed in early February. Economists point to the looming war as the main culprit. "The economy is on the verge of stalling," says Richard Berner, chief U.S. economist at Morgan Stanley. He has reduced his 2003 forecast for U.S. economic growth twice in the past month, to 2.0 percent from 2.5 percent. Additional downward revisions remain a possibility, and the words "double-dip recession" are once again on economists' lips.

Employment figures for February were downright awful, as the economy shed 308,000 jobs, the largest monthly loss since the September 2001 terrorist attacks. Confidence among consumers, whose spending has propped up the economy for the past two years, hit a nine-year low; last Friday's figures point to a further drop.

War jitters have taken their toll across the country. In Oregon City, Ore., Blue Heron Paper laid off 85 mill employees in February because of dramatically rising energy costs. Chief Executive Mike Siebers blames overreaction to the war threat. "It's time to either get the war over with or not have it," he says.

Those thrown out of work find few opportunities. "We are not hiring until we see the whites of their eyes," says Alex Oak, a CEO whose Indianapolis construction and engineering firm, Paul I. Cripe Inc., is being hurt by project delays arising from clients' own war fears. "A lot of this uncertainty is caused by the war," says Oak, "but if the war hits next week, maybe that will change."

Maybe. Until then, economic conditions continue to deteriorate. The price of oil hit $37 a barrel earlier this month (though it fell at week's end on speculation that a war would not further disrupt supplies), nearly twice its price in January 2002, the date of the president's renowned "axis of evil" speech, which some point to as the beginning of the march to Baghdad. The spike in oil prices has as much to do with war anxiety as with ordinary supply and demand, oil analysts say. High oil prices and war worries have not only slowed consumer spending—retail sales stumbled in February—but have also altered spending habits. While auto sales slumped last month, sales of smaller, fuel-efficient cars rose.

[PHOTOS: The 10th Anniversary of the Iraq War]

Surprising no one, the White House sees the recent economic malaise as reason to dig in, not back down. "After the unemployment numbers that just came out, the president is even more convinced of the need for a stimulus package," White House communications chief Dan Bartlett said recently.

To convince others of that need, the president has dispatched a fresh economic team—the old one was sacked for its lack of enthusiasm about tax cuts—to Capitol Hill. Treasury Secretary John Snow, still finding his way around Washington, last week said that his main job is to make the dividend tax cut "come alive" in the hearts and minds of skeptical members of Congress. He also took his case to the public, hitting the Today show and Good Morning America earlier this month. It's an odd assignment, given that the new team's members have in the past spoken out against either deficit spending or supply-side economics, the ideology underlying Bush's plan. Greg Mankiw, Bush's top economist, called supply-siders "cranks and charlatans" in early editions of his widely used economics textbook.

But the frail economy has also stiffened the backs of fiscal conservatives, who see deficits mounting into the many trillions over the next 10 years and beyond. Cutting taxes in time of war is an unprecedented and, to many, undesirable policy. "There are a lot of Republicans unwilling to pass a huge tax cut with troops in the field," says Robert Bixby of the antideficit Concord Coalition.

[DEBATE: 10 Years Later, Was the Iraq War Worth It?]

The cost of supporting those troops and rebuilding Iraq is anyone's guess. CBO estimates a price tag of $14 billion for the war itself and $8 billion to $10 billion a month, for an unspecified period, after hostilities cease. Those costs are not reflected in the president's budget—Snow called war costs "a one-time thing." Other, related costs are also omitted, including the cost of continuing operations in Afghanistan and compensating allies like Turkey and Israel, who are lining up with their hands out.

Nor does the budget include the revenue loss of reforming the alternative minimum tax, as much as $700 million over the next decade. "Put it all together, and you easily have $400 billion deficits until the baby boomers begin to push it up more," says Robert Reischauer, former CBO director and now president of the Urban Institute. And it doesn't help the president's cause that the stimulus plan debate is coinciding with the fight over raising the government's debt limit, which could prove embarrassing to many lawmakers.

Buddy system. Bush is probably thinking that Alan Greenspan could have been a tad more helpful, too. Last month the Federal Reserve chairman told Congress he saw no need for a stimulus, though he may have since rethought that. "Greenspan had to be sobered and shocked by the February employment numbers," says David Jones, author of Unlocking the Secrets of the Fed. Wall Street agrees, and suddenly there's buzz in the financial community about an interest rate cut when the Fed meets this week. Jones thinks Greenspan will wait to see how the war affects oil and stock prices. The Fed cut interest rates a half point in the middle of the first Gulf War, "and that's exactly what I think they'll do this time," says Jones.

Meanwhile, budget maneuvering continues on Capitol Hill. The House committee plan, which will very likely be approved by the entire House, grants the president everything he has asked for and balances itself by 2010. It accomplishes that by underestimating the future costs of many federal programs, a familiar sleight-of-hand technique. "We have a rich 20-year history of such low-balling," says Robert Greenstein of the liberal Center on Budget and Policy Priorities.

The Senate will prove more difficult for Bush plan backers. There, a group of moderate Republicans may reject its budget committee's proposal and demand a smaller package of tax cuts. Two Republican senators, Olympia Snowe of Maine and George Voinovich of Ohio, signed a letter to Senate leaders saying they will vote against any tax cut larger than $350 billion, less than half the size of Bush's $726 billion plan. If the moderates prevail, that may be all that Bush gets. But even such a pared-down tax package could still result in massive future deficits and financial repercussions.

What's likely to happen? As with most other things these days, the war is the x factor. Bush's plan may prevail if an Iraq war goes well. "That would give the president a big boost in popularity and make it difficult for moderates to stand in his way," says Stan Collender, managing director of Fleishman-Hillard's federal budget consulting arm. A prolonged and messy conflict, however, "would embolden Senate moderates to kill the tax cuts altogether," Collender adds.

So it looks as if we'll have to wait until the shooting stops in Iraq to see who wins the budget battle.

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