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German Enlightenment philosopher Immanuel Kant argued in his 1795 essay Perpetual Peace: A Philosophical Sketch, that nations should conduct themselves in a particular way with wars and debt: \u201cNational debts shall not be contracted with a view to the external friction of states.\u201d<\/p>\n
In other words, to maintain peace, don\u2019t finance wars with debt.<\/p>\n
Nearly a quarter-millennium later, public finance expert Linda Bilmes warns the U.S. is making this exact mistake in how it\u2019s raising capital for the Iran war, encumbering the already weighty $39 trillion national debt.<\/p>\n
According to Bilmes, a policy lecturer at the Harvard Kennedy School, the cost of the ongoing war is likely to exceed $1 trillion, swamping early projections of U.S. spending on the war, with the Pentagon reportedly claiming the first week of the war cost about $11.3 billion alone. The American Enterprise Institute estimated the costs of the war would have exceeded $35 billion by April 1\u2014or about $1 billion per day. Bilmes said the daily costs are double those estimates, as the government does not take into account the long-term impacts of war, such as long-term veteran disability benefits and damage to key infrastructure that could take years to rebuild.<\/p>\n
Above all else, Bilmes noted, the U.S. is now relying more heavily on debt to finance the war that we have previously. During the wars in Iraq and Afghanistan in the early 2000s, the debt held by the public sat at around $4 trillion, and we were paying about 7% of the overall federal budget on interest, Bilmes said. Today, $31 trillion of debt is held by the public, with 15% of the national budget being spent on paying down interest.<\/p>\n
\u201cThe result is that the interest costs alone will add billions of dollars to the total cost of this war,\u201d Bilmes said in a recent interview with the Harvard Kennedy School. \u201cAnd unlike the upfront costs, these are costs we are explicitly passing on to the next generation.\u201d<\/p>\n
Bilmes told Fortune that the U.S. didn\u2019t always put so much burden on the national debt during wartime, although each previous conflict did rely on borrowing money. These 21st-century wartime funding strategies furthered by the Trump administration, she said, are bad news for the U.S.\u2019s mounting debt.<\/p>\n
U.S. history of financing wars<\/p>\n
An adolescent United States tried to follow Kant\u2019s peace principles when it entered the War of 1812, implementing a slew of duties, including direct land taxes, as well as taxes on everything from sugar, auction sales, carriages, liquor distilleries, and retail alcohol licenses. This was perhaps more by necessity than choice: The Bank of the United States\u2019 charter ran out in 1811, meaning there was no centralized entity able to manage loans and bonds.<\/p>\n
The wartime heavy taxes essentially laid the groundwork for how the U.S. would raise capital in times of war, from the Civil War through Vietnam, though the bunk of financing still came from borrowed money.\u00a0<\/p>\n
During World War I, for example, President Woodrow Wilson espoused a \u201cconscription of wealth,\u201d telling Americans that just as the U.S. drafted young men to fight the war, it would also draft the wealth of America\u2019s richest. By 1918, progressive income tax rates touched 77%. In the throes of the Korean War, President Harry Truman gave more than 200 speeches advocating for his \u201cpay-as-you-go policy\u201d of using tax revenue to pay for military expenditures over debt.<\/p>\n
But this ideology changed at the turn of the 21st century, when President George W. Bush implemented tax cuts in 2001 and 2003 at the same time as he launched attacks on Iraq and Afghanistan, becoming the first time a U.S. war was funded solely through borrowing rather than taxes or budget increases. Bilmes, along with economist Joseph Stiglitz, published a study in 2006 that found the true cost of the war in Iraq and Afghanistan topped $2 trillion, about four times greater than the Congressional Budget Office\u2019s projected $500 billion in direct spending. In 2013, Bilmes revised her estimations\u2014and concluded the cost was actually closer to $4 trillion to $6 trillion.<\/p>\n
The impact of broken traditions<\/p>\n
President Donald Trump has continued this pattern in Iran today. The administration\u2019s One Big Beautiful Bill Act extended Trump\u2019s 2017 tax cuts, lowering rates for individuals and businesses. The cuts will total $4.5 trillion in tax reductions over the next 10 years, according to the act.\u00a0<\/p>\n
Meanwhile, the White House is seeking up to $100 billion in additional funds for the conflict from Congress, the Washington Post reported, and Trump\u2019s fiscal 2027 budget request called for $1.5 trillion in defense spending, a 44% increase from the year before and also includes a 10% cut to nondefense spending. The proposed budget would mark the first time defense spending exceeds all other discretionary spend. About a quarter of the U.S. budget comes from borrowed money.<\/p>\n
\u201cThat is money that goes on indefinitely,\u201d she said. \u201cIt means that every year the base that you start from in the budget is higher.\u201d<\/p>\n
Bilmes argues there\u2019s nothing inherently wrong with borrowing money. Rather, she\u2019s concerned the administration\u2019s focus on military spending will come at the expense of investments in economic growth, tipping the debt-to-GDP ratio and leading to a drag on economic growth.\u00a0 The White House did not immediately respond to Fortune\u2019s request for comment.<\/p>\n
\u201cWhen you borrow for things that are productive investments, like infrastructure or education, you hope to get back more than what you borrow,\u201d she said. \u201cBut in this case, we\u2019re borrowing [at] high rates, largely for things that will end up in the sand.\u201d<\/p>\n
#Trumps #trillion #war #Iran #stress #national #debt #Harvard #Kennedy #scholar<\/p>\n","protected":false},"excerpt":{"rendered":"
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