Tuesday, May 13, 2008

The Cost of McCain's 100-Years Policy

I've previously blogged on McCain's tax plan and also on his economist supporters' factually challenged claims concerning spending.

In this post, I want to address the economic cost of McCain's suggestion that it would be "fine with me" if U.S. forces stayed in Iraq for 100 years (shortcut for those who don't read the whole post: $10-25 billion a year, which is a LOT). The DNC's ad on this issue has caused quite a fuss concerning whether the ad quotes McCain out of context (that's not the point of this post, and I'm not going to address it here). The key basis of McCain partisans' complaint with the ad is that hthe ad doesn't show him qualifying the fine-with-him part with the phrase "[A]s long as Americans are not being injured or harmed or wounded or killed".

For the purposes of this post, let's aside (1) the question of what McCain's policy will be if Americans are "being injured or harmed or wounded or killed", and (2) how long it will take to get to the pleasant, i.e., harmless-to-Americans part of the 100-year policy.

Instead, let's focus on what a very long-term U.S. presence in Iraq would cost. It turns out that, last fall, Sen. Kent Conrad (D-ND) asked the Congressional Budget Office to estimate this cost. According to the CBO response, the annual costs of a Korea-style presence would be between $10 billion and $25 billion, depending on the extent of combat operations in which U.S. forces would take part (there'd be an addional $4-8 billion in one-time start-up costs, but let's comp McCain that for the sake of discussion).

Lots of shouting has gone on concerning what McCain's 100-years comment actually means, given his reticence on what to do if Americans do keep getting shot at. But there has been virtually no discussion of the dollar costs of the Korea-style presence that McCain has said is fine with him. Here are just a few facts that can serve as a basis of comparison to the $10-25 billion in annual spending for such a fine-with-McCain presence:

  • The McCain campaign's most recent claim (made by McCain chief economic adviser Doug Holtz-Eakin) is that McCain would manage to cut between $16-18 billion annually via his vaunted, constitutionally valid line-item veto-powered attack on earmarks. So, the attack on earmarks lies right in the middle of the annual cost estimates for a 100-year presence.

  • Annual federal spending on the state-federal child health insurance program, S-CHIP, is currently in the $5 billion range; President Bush vetoed legislation to raise it to roughly $12 billion annually over the next 5 years (I think that's nominal dollars, but I haven't found a good source with exact numbers) on the grounds that that was too much money to spend. McCain called the Bush veto the "Right call by the president" and said that the S-CHIP expansion was an "unfunded liability". The $7 billion annual difference (in nominal dollars) is less than the CBO's low-end estimate of the 100-years plan that McCain has said is fine with him but, to my knowledge, not discussed how he would fund.

  • According to Table 2 of this GAO document, estimated 2008 federal Highway Trust Fund receipts, which come partly from the gas tax McCain wants to cut this summer and are used to maintain U.S. highways, will total around $36 billion. So, the CBO estimates work out to roughly one-third to two-thirds of the annual revenues currently received by the HTF.

  • Table 5 of this staff report by the Joint Committee on Taxation provides the total cost in nominal dollars of eliminating the Alternative Minimum Tax for each year between 2008 and 2017. If we assume a 3% rate of inflation over this period, the average annual cost, measured in real 2008 dollars, works out to $77 billion. This is a lot more than either number the CBO provided, but the combat version of the CBO estimate, $25 billion, does amount to 1/3 of arguably the largest fiscal challenge that basically everyone thinks Congress will choose to address.
For more on the CBO estimate and the 100-years policy that's fine with McCain, see this post by Travis Sharp of the Center for Arms Control and Non-Proliferation.

1 comment:

rothmanp said...

The lower bound Jonah presents from the CBO's estimate, i.e., $10 billion, is not, IMHO, accurate. At the top of p. 6 on the report, they write: "UP TO $10 billion on an annual basis" (emphasis not in the original). On the same page the report states: "the current incremental cost of stationing U.S. forces in South Korea—a highly developed modern economy—is less than $1 billion annually." I readily recognize that: (a) Iraq is far from a "highly developed modern economy; and (b) the probability that the report's "Noncombat Scenario" would be relevant in the near future is quite low. That said, I think a reasonable case can be made that McCain's "fine with me" comment applies more so to this case.