Алистер Смит - The Spoils of War - Greed, Power, and the Conflicts That Made Our Greatest Presidents

Like LBJ, the Bush administration also sought to hide the costs of their wars in Afghanistan and then Iraq. In September 2002, White House economic adviser Lawrence Lindsey estimated the cost of the Iraq War would be $100–$200 billion.45 For his pains he was pushed out of his job. Secretary of Defense Rumsfeld estimated the cost at $50–$60 billion.46 In an evaluation of the Bush administration’s assessment of war costs, an article in The Guardian newspaper contended that:

George Bush sold the war as quick and cheap. . . . The most striking fact about the cost of the war in Iraq has been the extent to which it has been kept “off the books” of the government’s ledgers and hidden from the American people. This was done by design. A fundamental assumption of the Bush administration’s approach to the war was that it was only politically sustainable if it was portrayed as near-costless to the American public and to key constituencies in Washington. The dirty little secret of the Iraq war—one that both Bush and the war hawks in the Democratic Party knew, but would never admit—was that the American people would only support a war to get rid of Saddam Hussein if they could be assured that they would pay almost nothing for it.47

Who Paid the Price of War?

LYNDON JOHNSON’S APPROACH TO FINANCING WAR ON A PAY-AS-YOU-GO, debit card basis was eminently sensible economically, though certainly not politically. So was his approach to taxing the populace for the war effort and distributing the burden of fighting equitably. These were probably good for the nation, but politically ruinous. Bush had a less normatively laudable but vastly more successful strategy: foist the cost of fighting onto political opponents and declare victory.

At the end of the day, LBJ wanted his social programs and he could not have them without putting the defense budget on a sound financial footing. That meant raising taxes to pay for both. While increasing taxes is almost always thought to be a poison pill for politicians, Johnson’s 1968 State of the Union Address was frank and urged Congress to pass a tax surcharge:

I warn the Congress and the Nation tonight that this failure to act on the tax bill will sweep us into an accelerating spiral of price increases, a slump in homebuilding, and a continuing erosion of the American dollar.

This would be a tragedy for every American family. And I predict that if this happens, they will all let us know about it.

Under the new budget, the expenditures for 1969 will increase by $10.4 billion. Receipts will increase by $22.3 billion including the added tax revenues. Virtually all of this expenditure increase represents the mandatory cost of our defense efforts, $3 billion; increased interest, almost $1 billion; or mandatory payments under laws. . . .

The fiscal 1969 budget has expenditures of approximately $186 billion, with total estimated revenues, including the tax bill, of about $178 billion.

If the Congress enacts the tax increase, we will reduce the budget deficit by some $12 billion. The war in Vietnam is costing us about $25 billion and we are asking for about $12 billion in taxes—and if we get that $12 billion tax bill we will reduce the deficit from about $20 billion in 1968 to about $8 billion in 1969.48

In fact, Johnson’s tax surcharge created a budget surplus of about $3 billion in 1969. His overriding desire, his Great Society program, could not be fulfilled without tax revenue, especially at a time when the costs of war imposed a heavy financial burden on the government and the society. Of course, the political anathema associated with tax increases might be escaped if the increased tax burden was targeted primarily against the president’s political foes rather than his constituents. That, however, was not the path followed by Johnson; it was Bush’s approach.

In his 2002 State of the Union Address, Bush examined the cost of fighting and the need to pay it. Speaking about Afghanistan at this point, he declared,

It costs a lot to fight this war. We have spent more than a billion dollars a month—over $30 million a day—and we must be prepared for future operations. Afghanistan proved that expensive precision weapons defeat the enemy and spare innocent lives, and we need more of them. . . .

My budget includes the largest increase in defense spending in two decades—because while the price of freedom and security is high, it is never too high. Whatever it costs to defend our country, we will pay [emphasis added].49

However, in the same speech Bush negated the “we will pay” declaration as he announced plans to reduce taxation:

Congress listened to the people and responded by reducing tax rates, doubling the child credit, and ending the death tax. For the sake of long-term growth and to help Americans plan for the future, let’s make these tax cuts permanent. . . . [S]peeding up tax relief so people have more money to spend. For the sake of American workers, let’s pass a stimulus package. . . .

As we reauthorize these important reforms, we must always remember the goal is to reduce dependency on government and offer every American the dignity of a job.

War has to be paid for at some point, but Bush ensured that his war in Iraq—and shortly after this speech, his other war in Afghanistan—would not be paid for until later, and he also ensured that the wars would not be paid for by the relatively well-off, many of whom were his supporters. Figure 5.4 shows that Johnson did not make the politically expedient choice to postpone paying for war, but Bush did.

In the two panels of Figure 5.4, we see the change in the average federal income tax rates paid by families at different income levels over the years of Lyndon Johnson’s presidency and also during George W. Bush’s presidency. The graph divides the taxpayers into five equally sized groups (quintiles). The solid black line shows the shifting average level of tax paid by families in the lowest 20 percent of the income distribution. The dashed lines show the average change in tax rate for families 40 percent from the bottom of the income distribution, and so on.

Figure 5.4. Debit Card vs. Credit Card War Payment Schemes

The data reported in the figure are calculated from marginal tax rates and the income of the first four quintiles of the income distribution and the fifth percentile of the income distribution.

Sources: Tax rate data: http://taxfoundation.org/article/us-federal-individual-income-tax-rates-history-1913–2013-nominal-and-inflation-adjusted-brackets. Income distribution data: https://www.census.gov/hhes/www/income/data/historical/families/

The side-by-side panels tell a powerful story of two radically different approaches to paying for war. The left panel shows that between late 1963, when Johnson first assumed the presidency, and 1965, when he took office following the 1964 election, taxes were cut for everyone. As we have noted, after the Gulf of Tonkin Resolution, the United States greatly increased its war effort in Vietnam. Starting in 1965, the base year—his first as the elected president—against which we have measured changes in tax rates (noting, of course, that shifts in income would have moved people into or out of higher/lower tax brackets), Johnson raised rates on everyone. He was paying for the war and for the Great Society. The rich, likely to be Republican supporters, paid more taxes but so, too, did people with lower incomes, those likely to be Democratic supporters. Johnson’s tax hikes affected friend and foe alike.

In comparison, as we can see in the right-hand panel, tax rates by quintile fell for everyone during Bush’s presidency. They fell the least for the poorest quintile, those least likely to have been Bush voters. The taxes of the two wealthiest income quintiles fell slightly faster than everyone else’s most of the time during Bush’s eight years in office. Their advantage is small but notable: the evidence shows that in a progressive tax system, we should expect tax reductions to benefit the poorest quintile the most and the wealthiest the least, the opposite of what we observed during Bush’s term.50 The tax changes further exacerbated the growing disparity between rich and poor. Between 2001 and 2007—before the financial crash—the richest quintile saw their average post-tax income rise from $165,000 to $214,000 (30 percent). In contrast, the comparable changes for the poorest and medium income quintile groups were $26,000 to $30,000 (15 percent) and $55,000 to $60,000 (9 percent), respectively.51 Since the wealthy tended to be disproportionately Republican during W’s 2004 election, those most likely to be Bush voters probably enjoyed greater tax abatement and saw their income soar.52 Those likely to have voted Democrat fared less well.