The cost of war

The cost of war

Yesterday, I wrote about the brief life and presumed death of Rep. David Obey’s "war tax," also known as the "Share the Sacrifice Act of 2010." Obey and his cosponsors hoped to make the Afghan war pay-go from here on out, with an income tax surtax (one percent for most earners, and higher for high earners) linked to the cost of war. 

I liked the idea precisely because so much of this war (around 40 percent) thus far has been funded with deficit spending during very good economic times, from 2001 to 2006, when high-income Americans certainly could have afforded higher taxes (which were cut by George W. Bush).

Commenters here and elsewhere asked: Why raise taxes during a recession, when the government has been deficit-spending wildly to boost the economy? Tax dollars are tax dollars, not earmarked for one use or another. Raising taxes is raising taxes. Isn’t this precisely the time we’re supposed to deficit spending? 

Well, yes, but not all deficit dollars are created equal, I fear. If we spend an additional $60 billion on the Afghanistan war, it does do some good for the American economy. It goes to American companies to build things like planes and armor, to hiring new soldiers, to American contractors working in Afghanistan to build roads and schools. But, down the road, the United States doesn’t get those roads and schools. Soldiers stop fighting in Afghanistan, but continue to collect salaries and benefits. This means the deficit dollar spent in Afghanistan isn’t as effective as the deficit dollar spent in, say, Detroit.

For some data on this phenomenon, Dean Baker at the Center for Economic and Policy Research produced a paper showing that war spending (rather than domestic spending) ultimately costs jobs and GDP.

But all of this might be moot. It seems that Congress is considering extending the estate tax, which was due to expire for a year before coming back into force in 2011. The tax only hits estates worth more than $3.5 million. I say extend it, and expand it to include less, erm, ample estates as well. That seems even better than the Obey plan.