War Debt: America’s Cost of Going to War

Wars throughout history have racked up debts for the countries involved. In the United States, conflicts tend to lead to the rise of both debt and taxes as the government struggles to fund its armed forces. In fact, most dramatic rises in the debt level occur as a result of U.S. involvement in conflict. Some wars also lead to inflation, which diminishes the apparent cost of war and increases available funds.

Wars and wartimes in recent U.S. history have been funded in the following ways:

• World War II was funded by debt and tax increases.
• The Korean War was almost entirely paid for by higher taxes.
• The Vietnam War was financed by higher tax rates and inflation.
• The Cold War Period was paid for by increased national debt and taxes.

With the wars in Iraq and Afghanistan, the government took a new approach: Since the beginning of these wars, taxes have actually gone down instead of up. Because of this, the wars have led to historic and ever-rising debt levels.

his trend may soon change. With politicians increasingly pressured to reduce national debt and deficits, the country’s Department of Defense has already proposed budget cuts to reduce spending in every branch of the military and to cut reliance on loans.

Estimating the Cost of the Wars in Iraq and Afghanistan

Since 2001, experts estimate the United States has spent $1.4 trillion through fiscal year 2012 on the wars in Iraq and Afghanistan. However, this is only the direct cost of the wars. It does not account for homeland security changes, veteran benefits and other related costs.

The war in Iraq accounts for the majority of this direct price, costing $807 billion in the fiscal years 2003 to 2012. Adjusted for inflation to today’s U.S. dollars, the cost reaches $823 billion.

Only a single war in U.S. history was financially costlier: the direct cost of World War II, in current dollars, was $4.1 trillion. The next-costliest war, the Vietnam War, cost only $738 billion in current dollars.

When related costs of war are incorporated, a more complete cost is revealed. Many experts estimate that since 2001, the United States has spent as much as $5.1 trillion on war and war-related costs such as veteran care, ally assistance and stronger homeland security. By this figure, the war is responsible for nearly a third of the total national debt.

National funds simply cannot keep up with the growing price tags, so the U.S. government continues to finance these costly wars via debt.

And these debts will continue to climb, even after the wars end. For decades to come, the United States will be spending on veteran benefits and paying interest on money borrowed today. Over the next 40 years, health care and disability compensation for veterans is expected to reach nearly $1 trillion.

The Expanding Defense Budget

Up until now, the Pentagon’s budget has had room for such high price tags, but this may soon change.

The United States has the highest defense budget in the world. We spent $711 billion on defense in 2011, accounting for 4.7 percent of our gross domestic product (GDP). What’s more startling is that the world as a whole spent only $1.73 trillion on defense; spending in the United States accounted for 41 percent of military spending around the globe. The second largest budget came from China and accounted for just 8.2 percent of the world’s spending.

Our 2011 defense spending was $690 billion, according to the Stockholm International Peace Research Institute (SIPRI). This was up from $432 billion in 2002, representing a 60 percent inflation-adjusted increase within a decade.

A large portion of the spending goes toward equipment expenses, according to MilitaryEducation.org, a nongovernment organization that collects military information. The organization states that it costs $17,500 to equip a single U.S. soldier. Prices of vehicles and attack vehicles are even more astonishing, as planes and submarines can cost more than $1 billion each. The budget also includes a hefty amount earmarked for the nuclear weapons program, which costs about $52 billion per year.

Political parties are now at odds as to whether to keep up the Pentagon’s defense budget. Still, it appears likely that the budget will decline over the next few years in order to cut the government deficit.

The proposed budget for Fiscal Year (FY) 2013 is $525.4 billion, a reduction of 1 percent from FY 2012’s budget. This is meant to cover all expenses relating to the armed forces, including long-term costs like retirement funds and health care for veterans. The budget proposes specific cuts to use funds more efficiently, such as streamlining management issues and reducing inventories.