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The trillion-dollar war: the war on terror is now more expensive than Vietnam or World War I--but the dishonest way Washington is paying for it may prove costliest of all.

AT THE END OF December, Congress approved $70 billion in bridge funding--a down payment to cover the gap between the beginning of the fiscal year and the passage of the actual appropriation bill--to keep financing the wars in Afghanistan and Iraq. Legislators at the time were still chewing on the rest of President George W. Bush's request for a fiscal year 2008 war budget of $196 billion. Should that funding be appropriated--and if recent history is any guide, it certainly will--then the total price tag for America's present wars will rise to at least $822 billion, approximately 80 percent of which will be spent on Iraq. That surpasses the cost of the Vietnam War ($670 billion in inflation-adjusted dollars). And the Iraq portion dwarfs the $50 billion to $60 billion cost predicted at the outset of the war by Mitch Daniels, then director of the Office of Management and Budget.

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These runaway costs do not include a single dollar from the Pentagon's annual operating budget, which in 2008 reached a whopping $481 billion. If the war were being accounted for based on a rational, transparent budget process instead of an opaque and politicized shell game, Americans would be painfully aware that we are now in the seventh year of what the nonpartisan Congressional Budget Office has called a $1 trillion war.

How much money is $1 trillion? Enough to pay for the entire 1976 federal budget, adjusted for inflation. Enough to write a check for $ 37,500 to every Iraqi man, woman, and child. Enough to buy 169,492 Black Hawk helicopters, or 455 stealth bombers. Enough, in nominal terms, to pay for the entire federal government from 1789 to 1957. And it's 10 times more than what specialists predict it would take to eradicate malaria once and for all.

To distract people from the real price tag of a two-front war, the president and Congress have used an unprecedented and fiscally irresponsible budgetary trick: a series of "emergency" supplemental spending bills totaling hundreds of billions of dollars. This scheme has allowed them not only to hide the costs of the conflicts but also to avoid painful budget choices while funneling billions of dollars in unvetted goodies to favored interest groups.

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Once a small blip among federal outlays, emergency supplementals have exploded since 2002,when the Republican Congress let a key legislative restriction on their use expire. In May 2007, President Bush signed into law the biggest supplemental bill in history, $120 billion, to fund military operations in Iraq and Afghanistan ($100 billion) and pay for hurricane recovery and agricultural disaster relief at home. This came just five months after Congress approved another $70 billion emergency request for the wars. By contrast, the average annual amount of emergency supplemental spending in the 1990s-a decade that saw interventions in Iraq, Somalia, Haiti, Bosnia, and Kosovo-was just $23.8 billion (See Figure 1).

Supplemental spending does more harm than merely obfuscating the costs of military conflict. It effectively removes the upper limit on the White House's war budget. It allows the Pentagon to seek and receive much more funding for mundane operations than it could receive via the normal budget process. And its comparative lack of oversight encourages Congress to shovel out pork to Gulf Coast shrimp harvesters, Hawaiian highway builders, Florida orange growers, and other recipients who have nothing to do with fighting terrorism. As Bush prepares to exit office, this out-of-control spending stands to become one of his most lasting and nefarious legacies.

President Bush has never included a comprehensive war spending request in his annual February budget. Instead, he has submitted emergency war requests to Capitol Hill, usually sometime in the spring, weeks after the defense appropriation subcommittees begin picking through the Pentagon budget.

Last year, for instance, the president submitted a defense budget request of $481 billion for fiscal year 2008. Operations in Iraq and Afghanistan were covered in an entirely separate $142 billion emergency supplemental request. In October the administration increased that request to $196 billion, leaving Congress to face a dilemma that has become all too familiar since 2001: quickly approve billions of dollars in supplemental war funding without knowing where the money is going or face browbeating accusations of not supporting the troops. In the end, after little discussion, Congress passed its $70 billion down payment.

Although there are no official limits on the amount or type of spending that can be designated as an emergency appropriation, historically there has been an understanding that emergencies are sudden, unforeseen, temporary conditions posing a threat to life, property, or national security. In September 2005, for instance, after Hurricane Katrina smashed the Gulf Coast, the president quickly requested and Congress readily approved a $52 billion emergency bill.

The costs of the war may be necessary and temporary, but they are by no means sudden or unforeseen. The war in Afghanistan started in October 2001, and the war in Iraq commenced in March 2003. Furthermore, the easy-to-predict salaries and benefits of Army National Guard personnel and reservists called to active duty amount to some of the largest expenditures in the supplemental bills.

"The Bush administration's use of so-called 'emergency' supplemental funding to pay for Afghanistan and Iraq is truly unprecedented," says Travis Sharp, a military policy analyst at the Center for Arms Control and Non-Proliferation, a nonpartisan research organization specializing in international security and arms control issues. Historically, while emergency supplementals were the most frequent means of financing the initial stages of World War II, Korea, Vietnam, and the first Gulf War, past administrations and Congresses funded subsequent military operations in regular appropriation bills as soon as even the crudest of cost projections could be made, according to a June 2006 Congressional Research Service study.

In 1951, for instance, 72 percent of the kickoff cost for the Korean War--$33 billion in today's dollars--went through supplemental appropriations, while $13 billion came from regular appropriations. But by year two, Congress appropriated 98 percent of the war's funding through the regular defense budget. By 1953 the president no longer requested any funding outside of the regular defense budget.

The decade-long Vietnam War followed a similar pattern. In the first year of the war, Congress provided all of the funding in emergency supplemental bills. The second year, the administration requested a little less than 50 percent of the war funding within regular defense appropriations. By the fourth year, all of the war funding went through the regular defense budget were in flux, military strategies were changing regularly, and the duration of the conflict could not be foreseen. In the 1990S, the Republican led Congress showed a kind of discipline it would completely forget during the Bush presidency, directing President Bill Clinton in fiscal year 1996 to fund all ongoing military operations, including the enforcement of no-fly zones over Iraq, from the regular defense budget rather than supplementals. From then on, Clinton sought funding for Bosnia and other conflicts entirely through the regular appropriations process.

In the 1980S, throughout President Ronald Reagan's military buildup, no Cold War spending was allocated through supplementals (see Figure 2). And once you account for the offsetting contributions from American allies during and after the first Gulf War ($35 billion out of the total $42 billion price tag), it is clear that until recently very little U.S. military spending was treated as an emergency.

What a difference with today's wars. Five years into the Iraq conflict and seven years into Afghanistan, the administration and Congress have buried all of the explicit funding--totaling more than the spending on either the Korea or Vietnam wars when adjusted for inflation--in emergency supplementals.

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What changed? Aside from internal fiscal discipline, the single biggest procedural shift came in 2002, when the Congress let lapse a law that had required budget cuts to "offset" emergency expenditures. Who benefited? The Pentagon, the political party that ran Washington in the early 2000s, and their friends. "The Bush administration is clearly capable of projecting in Iraq," says Travis Sharp, "and has simply ignored historical precedent."

This year the Department of Defense once again failed to include the cost of war in its record-breaking $515 billion defense budget for fiscal year 2009. Instead, it included a placeholder for yet another $70 billion emergency war supplemental--which, conveniently for the administration, does not get counted in deficit projections.

Pressed by Democrats during the annual defense budget hearings in February, Defense Secretary Robert M. Gates confirmed that the $70 billion was only a small fraction of the total expected war cost for the year. Pressed further, Gates estimated that military operations in Iraq and Afghanistan would cost at least $170 billion in 2009.

He immediately added, "I have no confidence in that figure." From the beginning, the administration has argued that supplemental bills have the advantage of being prepared closer to the time when the funds will be used, allowing for a more accurate assessment of needs and quicker access to money. It also notes that making the spending separate prevents it from becoming a permanent feature of the defense budget. In other words, the administration argues, using supplemental bills is the fiscally responsible thing to do.

A more likely explanation has little to do with military strategy or budgetary concerns, and everything to do with the fact that "emergency" spending has very beneficial features for big spenders in Washington.

In the 1990, under bipartisan congressional pressure to reduce the size of the deficit, President George H.W. Bush signed the Budget Enforcement Act (BEA), which exempted emergency bills from other rules of the era designed to restrain spending. The BEA allowed the government to exclude emergency spending from the deficit projections required in the annual budget. To prevent lawmakers from abusing that loophole, the law required that Congress offset supplemental spending with rescissions--that is, by permanently withholding already appropriated funds.

For a while, this plan worked well, at least by today's standards. According to a 2005 Congressional Research Service report, between 1981 and 2002 Congress offset an average of 40 percent of supplemental appropriations with rescissions. And those emergencies weren't for war; during the recession- and inflation-plagued early 1980s, supplementals were used to fund mandatory outlays for unemployment compensation. In the early 1990s, the purpose shifted to natural disaster relief.

But Congress let the BEA expire in 2002. Since then, supplemental appropriations exceeding budget caps have no longer triggered automatic cuts elsewhere. Today the only legislative limit on emergency spending is a congressional prerogative to raise a point of order to protest the "emergency" designation. This happens rarely if ever.

The floodgates are now open. According to data compiled by the Congressional Research Service, inflation-adjusted supplemental spending has increased nearly fivefold in less than three decades, from $36 billion in fiscal year 1980 to $160 billion in 2007, boosting its share of the overall budget authority from 3 percent to 7 percent. And these numbers don't even catch all of the federal government's "emergency" spending measures, because some are attached to regular appropriations, such as the December 2007 omnibus bill containing the $70 billion bridge fund.

But for a true measure of the increase, we ought to look at supplemental spending as a share of total new discretionary spending. And there, the trend lines are striking (see Figure 3). Except for a sharp spike in 1991 to fund the first Gulf War (which was largely offset later), emergency appropriations remained a very small share of new discretionary spending through most of the 1990S, staying below 3 percent. Compare that to 2007, when Congress appropriated over 18.3 percent of all discretionary spending through the supplemental process.

This profligacy is par for the course with President Bush. Since fiscal year 2001, the Bush White House has expanded federal spending by 66 percent, in nominal terms, enacting extremely expensive and pork-swollen bills covering agriculture, highway, energy, and prescription drugs while doubling the same federal education budget that Republicans once sought to eliminate.

[FIGURE 2 OMITTED]

Regularly military appropriations, too, have more than doubled under Bush. According to the Office of Management and Budget, the $481 billion defense request for fiscal year 2008 is 66 percent higher than the budget Bush inherited from Clinton in 200l. If you add to that amount the $196 billion of requested emergency war funding, the Pentagon's budget is, in inflation-adjusted dollars, larger today than at any point since the end of World War II.

Even that staggering amount strikes Winslow Wheeler, director of the Strauss Military Reform Project at the nonpartisan Center for Defense Information, as incomplete. Wheeler argues that an inclusive definition of the defense budget should also include the $18 billion requested for nuclear weapon costs by the Department of Energy and another $6 billion for miscellaneous defense costs borne by other agencies, such as the General Service Administration, plus funding for the National Defense Stockpile, the Selective Service, some Coast Guard, and the International FBI. Together, that would make a grand total of $700 billion for 2008.

The real number may be higher still, when factoring in the billions of dollars in other federal programs that are spent as a direct result of maintaining the military. According to Christopher Hellman, a defense analyst at the Center for Arms Control and Non-Proliferation, you could include $43 billion spent on homeland security activities outside of the Pentagon (mainly through the Departments of Homeland Security, Health and Human Services, and Justice), $88 billion for the Department of Veterans Affairs, a portion of the estimated $40 billion intelligence budget, and some of the $9 billion spent annually on foreign military aid, plus expenditures on international peacekeeping, nonproliferation, antiterrorism, demining, military space programs, employees' and retirees' compensation and benefits at the Pentagon, veterans' benefits, military pensions, and, finally, a conservative $100 billion estimate for the share of the country's annual interest payment on the national debt that is directly attributable to past military spending. That gives us a grand total of nearly $1 trillion--that's 12 zeros--in national security spending for 2008 alone.

Even when using only direct outlays by the Defense Department, 2008 funding was more than 100 percent above 2001. It is unlikely that the president would have been able to achieve such an increase if he had to include the costs of war in his budget requests. Sen.Jon Kyl (R-Ariz.), the chairman of the Republican Policy Committee, spelled out the utility of shell-game finance in an April 12, 2005, report: "Congress should fund operations in Iraq through emergency supplemental appropriations (because funding it through the regular appropriations process would unnecessarily inflate the defense budget)."

Well, yes, exactly. As a Defense News editorial put it in 2005, the White House is "using the supplemental as a thinly veiled political attempt to keep the public from lapsing into sticker shock, and so, losing support for the war."

At a requested $892 billion and counting--including a new $70 billion emergency war request for fiscal 2009the Global War on Terror is now the second priciest conflict in U.S. history in inflation-adjusted terms (see Table I). Only World War II cost more: $3.2 trillion in adjusted 2007 dollars.

And that's only for the direct cost of the war. As my colleague Tyler Cowen at George Mason University's Mercatus Center wrote in The Washington Post last November, "these figures don't quite get at Iraq's real cost," because they focus on what we paid for rather than recognizing what we have lost. Among other things, Cowen lists more than 3,800 U.S. soldiers dead and more than 28,000 wounded (many of them severely), more than 1,000 private contractors killed and many more injured, and hundreds of thousands of Iraqi deaths--plus the contributions that all of these people would have made to their families and to humanity at large. A newly released study by the Harvard economist Linda Bilmes puts the combined war costs as high as $3 trillion.

Christmastime for the Pentagon

War supplementals have become the Pentagon's tool of choice to obtain more funding than it would otherwise receive. Helped by its friends in Congress, the Defense Department keeps finding pretexts to move nonemergency programs, including some wholly unrelated to the war, into emergency supplementals. This frees space under the baseline to stuff in additional spending.

Winslow Wheeler has traced where these "transfer" stunts are readily apparent in the department's procurement accounts. For example, in the account for "Aircraft Procurement, Army" on page 249 of the regular 2006 Pentagon budget, there is the notation "Transfer to Title IX," indicating $11.2 million deducted from the president's regular annual request that was originally intended to purchase "aircraft surviv ability equipment." The money is then reinserted on page 477 in Title IX, under the designation of "emergency" spending.

In this one procurement account alone, Wheeler counted 17 such transfers from peacetime budgeting to "emergency" war spending, totaling $654 million, plus another $107 million more in the small print. The best part of the maneuver from the Pentagon's point of view, Wheeler says, is that the transferred money freed space to buy one F-15E fighter-bomber ($65 million), two Littoral Combat Ships ($440 million), and hundreds of other smaller items. Because similar gimmicks are used in most of the regular budget's procurement accounts, Pentagon watchers say that the emergency transfers add up to tens of billions of dollars, allowing the Defense Department to boost other parts of its budget by an equal amount.

The practice is so routine and uncontroversial that the military openly admits it. Army Chief of Staff Gen. Peter Schoomaker testified before the Senate in 2005 that the Army preferred to fund 30,000 additional troops through supplementals because if it included the necessary funds in its annual budget request, it "would have to displace other things that are too important to us as we transform--equipment and other readiness issues. So the department has elected to do it with emergency and supplemental funding since we have the options to do so."

The president's latest emergency war request included many nonemergency items, some not even related to war. According to a document released by the Senate Budget Committee, $4 billion of the $196 billion officially allocated for the wars has nothing to do with Iraq or Afghanistan, including $500 million for six electronic warfare planes (neither the insurgents in Iraq nor Al Qaeda has an air force or radar) and $400 million for two developmental aircraft that won't see service until 2013.

This practice is about to get much worse. After years of war, U.S. military equipment is wearing out five times faster than normal. In the next few years, says the Center for Arms Control and Non-Proliferation's Travis Sharp, we can expect many more high-priced "emergency" Pentagon wish lists for equipment that may or may not be used in the emergencies being funded. "The problem," Sharp says, "is that the line between war-related spending and normal Department of Defense 'base' budget spending is increasingly becoming blurred." The price tag for equipment replacement is impossible to predict.

The Pentagon recently made such budgetary bait-and-switches even easier by greatly expanding the definition of "war costs" while putting the finishing touches on its fiscal 2007 war supplemental. Now reconstituting or replacing military equipment for the "longer war on terror" is reason enough to designate a military line item as an "emergency." So any new toy the Pentagon wants can be stuffed in a supplemental bill. No congressional review need be done, and no compensatory sacrifices need be made in the regular budget. Nor are any real explanations needed. Emergency supplementals are not required to contain the "budget justifications" that are attached to all items in non-emergency defense bills.

Adding final insult to injury, the Department of Defense deliberately obscures what exactly is being spent on war. During past conflicts, the Pentagon usually established a separate account to keep track of operation funds. However, no such account exists for the war in Iraq. It's impossible to tell in 2008 how much the U.S. is spending on defense and where the money is going.

On Capitol Hill, Everybody Win!

The Pentagon is not the only shill in the supplemental shell game. Everyone in Washington is addicted to the fiction of the "emergency" loophole. These bills have become a magnet for pork and other projects that would have a much tougher time getting funded on their own merits. Because no member wants to vote against emergency aid money to support the troops, and because most supplemental spending does not count against House and Senate budget limits, Congress has used the legislation to get around the Bush administration's recent rhetoric about limiting the growth of spending unrelated to defense or homeland security. An increasing number of nonemergency, nondefense programs have found their way into emergency war bills, increasing overall government spending without the usual consequences.

Brian Riedl, a budget analyst at the conservative Heritage Foundation, explains: "The common usage of defense supplemental bills has increased non-defense spending as well. Lawmakers now try to shift budget-resolution funds from defense to domestic programs, knowing that these defense funds can be replenished by adding to the next supplemental bill." For instance, in May 2006, House Appropriations Chairman Jerry Lewis (R-Calif.) asked that $6 billion from proposed defense increases be shifted to erase almost $4 billion worth of cuts in domestic programs.

The best example of Congress's propensity to stuff supplemental bills with pork items can be found in the most recent supplemental, signed by the president in June 2007, which contained $24 billion in nonemergency spending. That included $120 million for the shrimp and menhaden fishing industries, $283 million for the Milk Income Loss Contract program, $60 million for salmon fisheries, $100 million for California citrus growers, $50 million for asbestos mitigation at the U.S. Capitol Plant, $1 billion for avian flu, and $1 billion for the National Aeronautics and Space Administration.

The Real Emergency

These earmarks obviously should not fall under the rubric of emergency spending, but then neither should have most of the $120 billion bill. More than two years after Hurricanes Katrina and Rita devastated the Gulf Coast, Congress should be able to fund federal relief through the regular appropriations process. In fact, Congress should be able to fund most hurricane relief through the regular appropriations process, given that the hurricane season is a predictable annual event.

Defense spending may be important, but it does not defy the laws of economics or the rules of good governance. It is ludicrous to believe that every increase in the military budget is a good increase. Yet despite spending more than ever, and more sloppily than ever, on defense, the White House, the Pentagon, and some big military spenders among Washington's think tank intelligentsia would like us to believe that the bloated Pentagon budget is frail and in desperate need of more cash. They are more capable of saying this with a straight face because for years now so many costs of war have been hidden in supplemental bills.

The best way to allocate defense resources most effectively is to force a tradeoff between priority items and wasteful boondoggles in the regular defense budgeting process. Yet the exact opposite is happening. Instead of having to justify dumping more billions into controversial old weapons programs such as the Air Force's F-22 stealth fighter, the Marine Corps' tilt-wing V-22 Osprey, the Navy's DDG-1000 stealth destroyer and its Virginia-class attack submarine, the Pentagon can simply move those over into the "emergency" file and put off hard choices.

The Democratic Congress could use the immense cost of the Iraq and Afghanistan wars as leverage for some long-overdue waste cutting at the Pentagon. Alternatively, Congress could decide that $1 trillion for defense is worth every penny and instead make some long-overdue compensatory reductions on the domestic side of the budget.

But if the U.S. is to ever make progress toward budgetary sanity, the federal government must stop pretending that war-related costs are somehow separate from the budget of a department whose mission is to fight and win the nation's wars. That won't happen until Washington stops pretending that predictable costs are an "emergency." The emergency at the Pentagon is the way it is deliberately squandering hundreds of billions of dollars a year.

Veronique de Rugy (vderugy@gmu.edu) is a senior-research fellow at the Mercatus Center at George Mason University.
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Date:May 1, 2008
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