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Let's Make a Sequester Deal!

February 17, 2013

Barring a last minute miracle compromise, on March 1 the first year of the $1.2 trillion, decade-long budget sequester will begin. With few exceptions, that's a development neither party wants to come to pass. For Democrats, the sequester doesn't just mean the potential loss of 750,000 jobs in 2013 alone, but slashing non-defense discretionary spending and economic investment by the federal government to historic lows. For Republicans, the prospect of defense cuts which would return the Pentagon to its 2007 budget level is anathema. All the while, the continued brinksmanship over the national debt saps consumer and business confidence, thereby putting the fragile U.S economic recovery at risk.
All of which is why it's time to make a deal that will take the dangerous and counterproductive sequester off the table once and for all. That solution should adhere to three principles: drive economic growth now, reduce the debt later and require everyone to sacrifice. Make that four: achieving peace and prosperity over the next decade means finally paying for the wars of the last one. That's why both parties should agree to the War Tax of 2015.

The idea is straightforward. By 2020 (as we'll see below), the estimated costs of America's post-9/11 wars in Iraq and Afghanistan will total roughly $3 trillion. But not only were most Americans not asked to fight our wars, none was ever required to pay for it. Far from it. In fact, George W. Bush became the first modern president to cut taxes during war time. (After September 11, you may recall, Bush urged Americans to go shopping and "get down to Disney World.") With his 2009 stimulus package, 2010 tax compromise and 2013 fiscal cliff deal, Barack Obama became the second. Beginning in 2015--that is, when the economic recovery is producing faster growth and lower unemployment--all working Americans should pay war tax large enough to generate at least $1 trillion over the ensuing decade.
As the New York Times op-ed page highlighted last week, the idea of a temporary war tax is not a new one. But as the Washington Post explained in an August 2011 article on Congressman Jim McGovern's efforts to encourage the debt "Super Committee" to institute one, a war tax could take a variety of forms:

For the Vietnam War, even though President Lyndon B. Johnson had said the country could have "guns and butter" for a time, in 1968 Congress passed a 10 percent surcharge, which meant 10 percent of owed income tax was added to the bill to pay for the war...
A 10 percent tax surcharge, similar to the one during the Vietnam War, would bring in roughly $112 billion if applied in 2012, according to Alan D. Viard, a scholar at the American Enterprise Institute and former senior economist at the Federal Reserve Bank of Dallas. That would just about cover the expected $116 billion for war costs in 2012.
Although Viard said he was not endorsing such a step, he said the surtax would not affect the 40 percent of American households that pay no income tax at all and would add just one-tenth to rates of those who do pay income tax.
When McGovern and Reps. David R. Obey (D-Wis.) and John P. Murtha (D-Pa.) suggested a 2 percent surcharge for middle-income taxpayers and up to 15 percent for the wealthiest four years ago, even the House Democratic leadership did not support them. Some Republicans accused them of using the taxes to generate opposition to the wars.

Whether a flat or progressive, rate hike or income tax surcharge, or a national sales tax, affording our future defense bills requires means paying off our old ones.
And to be sure, we've run up a big tab.
By 2020, the direct cost to U.S. taxpayers could reach $3 trillion. In March 201, the Congressional Research Service put the total cost of the wars at $1.28 trillion, including $806 billion for Iraq and $444 billion for Afghanistan. But that does not include the dramatic expansion in the Pentagon's baseline defense budget. Even without war spending, the Defense Department's actual core budget nearly doubled from $297 billion in fiscal year 2001 to $528 billion in FY 2011 ten years later:

(Note that the McClatchy chart above reflects defense spending in 2013 dollars.)
But in addition to the roughly $1.5 trillion tally for both conflicts through the theoretical 2014 American draw down date in Afghanistan, the U.S. faces staggering bills for veterans' health care and disability benefits. An analysis by the Center for American Progress estimated the total projected total cost of Iraq and Afghanistan veterans' health care and disability could reach between $422 billion to $717 billion. Reconstruction aid and other development assistance represent tens of billions more, as does the additional interest on the national debt. And none of the above counts the expanded funding for the new Department of Homeland Security.

Now, a 10 year war tax beginning in 2015 and ending in 2025--even one only paying off a third of America's so-called global war on terror--will not please many on either side of the aisle. President Obama, after all, promised not to increase income taxes on American families earning under $250,000 a year. Despite the total federal tax bite as a percentage of the economy being at the lowest levels since the 1950's, Republicans have refused to countenance a dime of new tax revenue. (Instead, GOP leaders like John McCain have called for reducing the already historically small federal workforce by 10 percent, while Lindsey Graham amazingly wants to repeal the deficit-reducing Obama program.)
But at the end of the day, the best alternative to a sequester no one wants may be a deal no one likes. But if Al Qaeda and Saddam Hussein posed the existential threat then even greater than the national debt Republicans only decry now, surely a temporary war tax is reasonable way to help pay for both.


Jon Perr
Jon Perr is a technology marketing consultant and product strategist who writes about American politics and public policy.

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