Iraq-related costs expected to hurt domestic programs

? During the buildup to the invasion of Iraq, the Bush administration sidestepped questions about how much postwar operations would cost.

But now that the president has asked for an additional $87 billion, some economists and other policy analysts suggest that the costs of the war, the deficit and the tax cuts could make it difficult to pay for other government services in the years ahead.

“It is the one straw that could break the camel’s back,” said Robert Reischauer, former director of the Congressional Budget Office. “At some point, policy-makers are going to say, ‘Our priorities have shifted. We need to spend money on Iraq and the war on terror. Therefore, we have to give up something else — be that low taxes or social spending or the environment.”‘

With the deficit nearing half a trillion dollars — and that’s excluding the costs for Iraq — Reischauer and other analysts say the government’s need to borrow could begin to crowd out corporate borrowers. That could dampen economic growth.

Meanwhile, the president’s tax cuts, which expire in 2010 — although they could become permanent — will continue to deny the Treasury revenue unless the economy booms. The Center on Budget and Policy Priorities estimates a loss this year and next of $500 billion.

Another financial pressure point will be the swelling ranks of Social Security recipients in a few years when the leading edge of the baby boom generation begins to retire.

Eugene Steuerle, a former deputy assistant treasury secretary for tax analysis, said that if you added everything, including interest on the debt, there would be nothing left over by the time you reach 2010.

“Education, the environment, community development, energy, human resources, transportation — these are just facing extraordinary pressure,” Steuerle said. “That’s because they don’t have automatic growth, they don’t have the popularity of the tax cuts, and they don’t have the unavoidable demand of the international responsibilities we are meeting through defense. They very much are getting squeezed.”

No new taxes

Administration officials said that despite the increased spending on the war, they had no plans to raise taxes. A senior official who spoke only on condition of anonymity said the administration expected that its economic policies would cut the deficit by half in five years.

But he said it would require restraint on “nondefense, nonhomeland-security” spending.

As recently as March, the Bush administration predicted that at least the beginnings of withdrawal from Iraq would occur within six months. But the postwar occupation is shaping up as dangerous, lengthy and expensive.

Back then, Bush asked for $2.5 billion to rebuild Iraq’s infrastructure. Now, as part of the $87 billion request, he is asking for $21 billion for reconstruction.

Defending the more modest estimates, senior administration officials, speaking on condition of anonymity, said those estimates were made before anyone had a good grasp on the actual conditions inside Iraq.

Relative comparisons

Several economists said that although the $87 billion the president had requested for military and reconstruction costs in Iraq might seem high, in an $11 trillion economy it represented less than 1 percent of the country’s gross domestic product.

“This is relatively cheaper, or in some cases far, far cheaper” than some previous wars, said Richard Kogan, a public policy analyst at the Center on Budget and Policy Priorities.

The $87 billion, however, is just the latest installment for the cost of the war. When what has already been spent is taken into account, the cost soars to $166 billion. In inflation-adjusted dollars, that surpasses the cost of every war but World Wars I and II, Korea and Vietnam.

It’s also more than Washington is spending this year on education, law enforcement, agriculture, veterans programs or highways and public transit.