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Doesn't taxing the Afghanistan war work against stimulus?

Responding to my support for a surtax to fund the war in Afghanistan, Ostap asks, "aren't you one of those people who regularly proclaim that opponents of the so-called stimulus package are nuts, and that in fact we should have more stimulus, deficits be damned, because otherwise we'll all soon die painful deaths? Please reconcile those posts with this one, where you praise higher taxes in the name of deficit reduction."

Fair question. First, there's no doubt that war spending is a form of stimulus. It's not the best form of stimulus (think how much leaks out to, well, Afghanistan), but it is undoubtedly a form of stimulus. And we should, in general, have more stimulus right now.

But that's not the context in which this argument is taking place. Direct spending on the Iraq and Afghanistan wars is at about $950 billion, and counting. Indirect spending (medical care for wounded veterans, lost productivity, etc.) brings the total substantially higher. And none of this has been paid for. The surtax Obey is proposing would pay for a mere 6 percent of the total. And the political system is rejecting even that.

What began as fiscal irresponsibility is slowly transforming into hard precedent. The original deployment to Afghanistan was a rapid reply to a devastating attack that took place amidst an economy shaken by terrorism and the stock market collapse. I get why no one stopped to levy a new tax. It was arguably the right decision.

But then the war in Iraq, which was a war of choice begun amidst a stronger economy, wasn't paid for either. The surge in Iraq, and the escalation in Afghanistan, both will be strategies of choice, and they won't be paid for.

We've had wars of necessity, wars of choice, and the escalations of those wars stretching across both good and bad economies, and both Democratic and Republican presidents. And none of them have been paid for. The political system is learning to think of war as an off-budget expense, which is bad both from the perspective of the deficit, but also from the perspective of forcing us to confront the costs and tradeoffs of war.

Which is why, given the choice between $60 billion or so of war stimulus and using the inflection point of the Obama administration to reestablish the principle that wars cost money, I'd choose the latter. It is bad from the question of stimulus, though it's hardly the dumbest thing we're doing (it's much more important to get more aid to the states than to avoid an Afghanistan surtax). But some things are more important than stimulus.

By Ezra Klein  |  December 2, 2009; 10:41 AM ET
Categories:  Afghanistan , Taxes  
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Comments

"The political system is learning to think of war as an off-budget expense..."

I doubt ever in America's history that was not the case. WWII - same story until you go back all the way to wars at the time of founding of this republic.

I think 'wars' are by definition kind of necessity and generally do not confirm to budgetary norms in all countries all the time.

Posted by: umesh409 | December 2, 2009 10:57 AM | Report abuse

Ezra: OT, I've been trying to track down the info behind your claim, and Dylan Matthews', that HCR will reduce premiums for people who don't have employer-provided plans. Other than subsidies, I haven't heard anything about how this would happen. Can you point us to a source?

Posted by: AlanSF | December 2, 2009 10:58 AM | Report abuse

Try the CBO report I've been posting on all week. It's at CBO.gov. The relevant tables are on pages five and six, if I recall.

Posted by: Ezra Klein | December 2, 2009 11:02 AM | Report abuse

As a matter of fact, it's not at all clear that taxes aimed primarily at the rich run counter to the stimulus. Ignoring the laughably small minority who might claim to be going galt, it's unlikely that a surtax will change the earning or spending habits of the top few percent (if anything, it will spur them to work harder so that they can keep after-tax income constant). Meanwhile, insofar as the money gets transferred to less-rich people (say, workers in industries that support military action) there will be a stimulative effect, because additional money will have a direct impact on their spending and support for local businesses.

(Of course, that's a big "insofar as")

Posted by: paul314 | December 2, 2009 11:04 AM | Report abuse

umesh409, i'm no expert, but i can tell you that yes, taxes were raised during world war ii and i can tell you that yes, LBJ, after initially trying to hide the costs of the war in vietnam, accepted that the war had to be paid for and proposed (and saw passed) a surtax.

i can't speak to korea.

and, of course, i can speak to official republican party policy regarding iraq, which is that it absolutely, positively did not have to be paid for (that's what the whole "i was for it before i was against it" was about).

Posted by: howard16 | December 2, 2009 11:05 AM | Report abuse

The bottom line is that in a 60 vote Senate, it is impossible to impose new taxes. Nearly all the Republicans have signed no tax pledges and you aren't going to get much help from the Nelsons, Bayhs and Lincolns of the world.

We are heading the way of California, no doubt about it.

Posted by: mikehoffman82 | December 2, 2009 11:10 AM | Report abuse

You're arguing that economics trumps symbolism, and the other side is arguing the opposite. Out here on the ultra-left we make many such arguments and we rarely get anywhere. Single payer anyone?

Posted by: bmull | December 2, 2009 11:13 AM | Report abuse

Ezra -- Forgive my OTness -- if there's another live thread for this discussion I'd be glad to go there -- but the CBO report seems to say that, for people not receiving subsidies, a policy on the individual market will cost 10-13 percent more than it would have cost under current law (for better coverage, presumably, but still). This is on top of the 10-20 percent annual premium increases we individual market folks get every year, which I don't see changing under the bills now on the table. Am I missing something?

Posted by: AlanSF | December 2, 2009 11:18 AM | Report abuse

Hear Hear Ezra.

@umesh
Wars have had a significant affect on our tax policy in the past. The effects of which we still feel today.

The Civil War caused the introduction of the income tax.

The Spanish American War brought taxing recreational facilities used by workers, beer and tobacco.

WWI: The lowest tax rate was doubled and estate and excess business profit taxes were increased.

WWII: An income taxpayer increase from 4 to 43 million.

http://www.treas.gov/education/fact-sheets/taxes/ustax.shtml

Posted by: Bulldeazy | December 2, 2009 11:21 AM | Report abuse

AlanSF, the short answer is that premiums go up because people will choose to buy better insurance. Here's Ezra's explanation:
http://voices.washingtonpost.com/ezra-klein/2009/12/to_repeat_the_cbo_found_that_p.html

Posted by: etdean1 | December 2, 2009 11:33 AM | Report abuse

A "war surtax" doesn't make sense. Why have a recurring tax pay for a non-recurring event?

We should increase the top marginal tax rate to the 39.6% of the Clinton years (thereby ending the Bush tax cuts for the top marginal tax rate only) but it should be done for the purposes of deficit reduction (which is a recurring, year after year effort) not for a war effort that will come to an end.

Posted by: lancediverson | December 2, 2009 11:39 AM | Report abuse

So, assuming this is just a structural part of our system now, doesn't this create a new opportunity?

Like, couldn't you make war funding conditional on passing healthcare reform or something?

Posted by: NS12345 | December 2, 2009 12:29 PM | Report abuse

A surtax on the rich (particularly during an economic downturn) is possibly the least contractionary fiscal policy imaginable. paul 314's point - that the redistribution would be stimulative - is probably negated by the leakage Ezra mentions.

Posted by: frankiannuzzi | December 2, 2009 12:41 PM | Report abuse

Obey's proposal wouldn't take effect until the year starting in January 2011, 13 months from now. For many people, they wouldn't really notice until April 2012, 28 months from now. So the "we need stimulus" argument doesn't really work as an argument against the tax.

Also, there's a provision to sunset this tax once the war is over. It's already in the proposed bill. But you wouldn't know any of that by reading the commentary from the right or the left. Basically the amount taxed is supposed to roughly match up with the amount spent on Afghanistan the prior year. Since it's how the tax is calculated, it will naturally sunset the year after we spend zero dollars on Afghanistan.

Seriously, read the bill. It's 6 pages with huge text and generous spacing. It took me less than 90 seconds:
http://appropriations.house.gov/pdf/Share_the_Sacrifice_Act_of_2010.pdf

Posted by: shanehuang | December 3, 2009 12:02 AM | Report abuse

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