[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
              THE GROWING BUDGETARY COSTS OF THE IRAQ WAR

=======================================================================

                                HEARING

                               before the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

            HEARING HELD IN WASHINGTON, DC, OCTOBER 24, 2007

                               __________

                           Serial No. 110-22

                               __________

           Printed for the use of the Committee on the Budget


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                        COMMITTEE ON THE BUDGET

             JOHN M. SPRATT, Jr., South Carolina, Chairman
ROSA L. DeLAURO, Connecticut,        PAUL RYAN, Wisconsin,
CHET EDWARDS, Texas                    Ranking Minority Member
JIM COOPER, Tennessee                J. GRESHAM BARRETT, South Carolina
THOMAS H. ALLEN, Maine               JO BONNER, Alabama
ALLYSON Y. SCHWARTZ, Pennsylvania    SCOTT GARRETT, New Jersey
MARCY KAPTUR, Ohio                   MARIO DIAZ-BALART, Florida
XAVIER BECERRA, California           JEB HENSARLING, Texas
LLOYD DOGGETT, Texas                 DANIEL E. LUNGREN, California
EARL BLUMENAUER, Oregon              MICHAEL K. SIMPSON, Idaho
MARION BERRY, Arkansas               PATRICK T. McHENRY, North Carolina
ALLEN BOYD, Florida                  CONNIE MACK, Florida
JAMES P. McGOVERN, Massachusetts     K. MICHAEL CONAWAY, Texas
ROBERT E. ANDREWS, New Jersey        JOHN CAMPBELL, California
ROBERT C. ``BOBBY'' SCOTT, Virginia  PATRICK J. TIBERI, Ohio
BOB ETHERIDGE, North Carolina        JON C. PORTER, Nevada
DARLENE HOOLEY, Oregon               RODNEY ALEXANDER, Louisiana
BRIAN BAIRD, Washington              ADRIAN SMITH, Nebraska
DENNIS MOORE, Kansas                 [Vacancy]
TIMOTHY H. BISHOP, New York
GWEN MOORE, Wisconsin
[Vacancy]

                           Professional Staff

            Thomas S. Kahn, Staff Director and Chief Counsel
           Patrick L. Knudsen, Acting Minority Chief of Staff


                            C O N T E N T S

                                                                   Page
Hearing held in Washington, DC, October 24, 2007.................     1

Statement of:
    Hon. John M. Spratt, Jr., Chairman, House Committee on the 
      Budget.....................................................     1
    Hon. Paul Ryan, ranking minority member, House Committee on 
      the Budget.................................................     4
    Hon. Adrian Smith, a Representative in Congress from the 
      State of Nebraska, prepared statement of...................     7
    Peter R. Orszag, Director, Congressional Budget Office (CBO).     7
        Prepared statement of....................................     9
    Prof. Linda J. Bilmes, Kennedy School of Government, Harvard 
      University.................................................    51
        Prepared statement of....................................    52
    Amy Belasco, Specialist in U.S., Defense Policy and Budget, 
      Congressional Research Service.............................    58
        Prepared statement of....................................    60

Addendum:
    Majority slides presented during the hearing.................    83
    Minority slides presented during the hearing.................    87


                      THE GROWING BUDGETARY COSTS
                            OF THE IRAQ WAR

                              ----------                              


                      WEDNESDAY, OCTOBER 24, 2007

                          House of Representatives,
                                   Committee on the Budget,
                                                    Washington, DC.
    The committee met, pursuant to call, at 10:05 a.m. in room 
210, Cannon House Office Building, Hon. John Spratt [chairman 
of the committee] presiding.
    Present: Representatives Spratt, DeLauro, Edwards, Allen, 
Becerra, Doggett, Berry, Boyd, McGovern, Etheridge, Hooley, 
Baird, Moore, Bishop, Moore, Ryan, Conaway, Alexander, and 
Smith.
    Chairman Spratt. Call the hearing to order.
    The hearing today concerns the cost of wars in Iraq and 
Afghanistan. On the first panel, Dr. Peter Orszag will discuss 
the cost of these conflicts, past and present, and will project 
the costs to come based on two troop level scenarios, 
illustrative scenarios.
    Customarily, CBO does not calculate interest into war-
related debt, but in this study, which we have requested, CBO 
has accrued interest, and the effects on total cost are 
significant.
    On the second panel we have two witnesses, Amy Belasco, of 
the Congressional Research Service, who has tracked war costs 
and prepared numerous excellent reports on the subject. Plus 
Professor Linda Bilmes of the Kennedy School of Government at 
Harvard has researched and published at length articles on the 
economic and social costs of the war in Iraq. Professor Bilmes 
is writing a book to be published early next year with updated 
cost estimates.
    This hearing builds on what we have started in previous 
hearings all aimed at a better understanding of the cost of 
these ongoing conflicts and, of course, their impact on the 
budget.
    While we will be discussing monetary costs, measured in 
billions of dollars, the dearest price has been paid in lost 
lives and wounded bodies by those serving and serving bravely 
in Iraq and Afghanistan. So far in Iraq there have been more 
than 3,800 military personnel and DOD civilians killed and more 
than 28,000 wounded. In Afghanistan, more than 400 of our Armed 
Forces have been killed, nearly 1,700 wounded.
    Our troops have performed with valor and honor, and they 
and their families, too, have sacrificed. As long as they are 
in harm's way, we owe them our unstinting support and whatever 
resources are needed to get the job done.
    In deciding what to do in Iraq and Afghanistan, cost is not 
the determinant, but the cost to date is substantial: $450 
billion in Iraq alone and rising rapidly, and $10- to $12 
billion a month. With the administration's budget request for 
this year included, the overall costs will top $800 billion.
    Now, by any yardstick, that is a staggering sum. In 
constant dollars the cost is running above the peak spending 
during Korea or Vietnam, as this next chart shows.



    When the first war supplemental for 2008 is combined with 
the base defense budget, the budget for 2008 totaled $647 
billion. And when the next supplemental due to arrive shortly 
comes, the total will go to $700 billion. Much of this 
incremental cost will be borrowed, much of it, from foreigners, 
which is why we have asked CBO to calculate the interest cost 
into the subsidy.
    As this next slide shows, we have provided more than $600 
billion for the wars in Iraq and Afghanistan; 450- for Iraq 
alone, according to the Congressional Research Service.



    Two days ago the President submitted another war funding 
request totaling $46 billion. This increases his 2008 request 
to $196 billion and makes it the largest supplemental yet.
    I will note the fact that strikes me about this particular 
chart is that as the war has gone on, instead of diminishing as 
we score successes, the cost has actually gone up and up and up 
relentlessly each year to the point where, in the current 
fiscal year, the cost is likely to be almost $200 billion. And 
that is Iraq and Afghanistan.
    These increases, however, are attributed mostly to our 
commitments in Iraq. Of $800 billion provided through 2008, 600 
billion has gone to Iraq. Of the $196 billion requested for 
2008, 160 billion will be used in Iraq. Beyond 2008, the cost 
remains significant, but the administration has declined to 
give us a projection of those costs.
    The administration's budget in 2009 includes $50 billion as 
a placeholder, but it provides nothing, no projection, for 2010 
and beyond.
    I wish that was likely, but I think it is unrealistic, 
particularly if we maintain forces in Afghanistan for some 
years to come, which we are likely to do, and even if combat 
operations ended tomorrow in Iraq, significant reconstitution 
costs or reset costs would continue for several years to come. 
The Army and the Marine Corps, for example, stated more than a 
year ago that together they required 18 billion for reset each 
year. Reset is refurbishment, repair, and replacement of worn 
out and damaged equipment. Each of the services together said 
that they required at least $18 billion a year for each year 
they remain engaged in a substantial way in Iraq and for at 
least 2 to 3 years after operations in Iraq cease.
    The administration's latest supplemental indicate these 
estimates are low. In the latest supplemental, the 
administration is asking $46 billion for reconstitution. Now, 
that is a broader, more inclusive term than reset, but that is 
reconstitution, resupplying ourselves with equipment that has 
been worn out, destroyed or badly damaged. That is $10 billion 
more that was requested in 2007.
    While the administration has declined to supply estimates 
of future operations, the Congressional Budget Office, to its 
credit, has agreed to try. CBO's estimates rest on illustrative 
troop scenarios. In one, troop levels draw down to 75,000 in 
the Iraq and Afghanistan theaters by 2013, and they remain at 
that level, 75,000 troops, in theater, not necessarily in 
country, through 2017. Under these assumptions, CBO projects 
the cost of military operations at $966 billion over the 10-
year period, 2008 through 2017, and the cost of all operations 
and all economic aid training indigenous forces is just over $1 
trillion; 1 trillion, 55 billion to be exact. Add this to the 
$604 billion already provided or appropriated for 2007, and 
cumulative costs by 2017 could be a staggering $1.7 trillion.
    While these costs are enormous, they haven't made any 
calculation of interest on the funding borrowed for war 
operations. And since the government has run substantial 
deficits from 2003 through 2007, and since future borrowing to 
some extent could be expected, interest needs to be imputed to 
the total cost of the war.
    This expense, as I said, has been previously omitted, but, 
if included, according to CBO, interest cumulatively could be 
as much as $705 billion by 2017. Added to direct costs to 
military operation, to aid, to training of indigenous forces to 
reconstruction, and total costs could reach $2.4 trillion by 
2017. This estimate, once again, assumes a scenario, the 
illustrative scenario, in which deployed forces in Iraq and 
Afghanistan theaters draw down by 2017.
    Now, one can quibble with these assumptions and with the 
methodology, but no one can contest the enormous costs incurred 
so far in Iraq or the likelihood that these costs will keep 
being incurred into the immediate future.
    The task of the Budget Committee is to balance priorities, 
provide for the common defense, but also provide for health 
care of our people, education of our young, transportation, 
Social Security, all within the context of a balanced budget. 
Understanding the costs of our deployments around the world is 
one step towards balancing choices while planning the budget, 
which is why we asked for this study from CBO and why we are 
having the hearing today.
    Dr. Orszag, we appreciate you coming. Before turning to you 
for your statement, let me turn to Mr. Ryan for any statement 
he would like to make.
    Mr. Ryan, our Ranking Member.
    Mr. Ryan. I thank the Chairman for yielding and for having 
this hearing. This is an important hearing.
    Since the beginning of the 110th Congress, we have had 
repeated and vigorous debates about the war in Iraq and its 
costs, as we should. We have heard comparisons about how much 
we are spending on the war as opposed to children's health 
insurance or education programs, or what have you, but nothing 
has really changed. The President continues to send his war 
funding requests to the Hill, and, in the end, he continues to 
get what he asked for. And when asked in a recent debate, none 
of the top Democratic Presidential candidates was willing to 
commit to having troops out of Iraq as far in the future as 
2013.
    So the bottom line seems to be this: As long as we have 
troops in Iraq, Congress will provide funding for them. That 
being the case, we should continue to finance the war 
responsibly, and the committee has led the effort in this 
regard.
    During the 108th Congress, this committee was the first to 
include an estimated amount for war costs in the bottom line in 
our budget. In the 109th Congress, at the urging of this 
committee, the President followed suit, including his war 
funding recommendations in the administration's annual budget 
submissions.
    The 2008 supplemental request was included in the 
administration's proposal in February, and the Democratic 
budget resolution did accommodate this amount, but it was not 
included in the defense appropriations bill passed either by 
the House or the Senate this year, and the Democrat Majority 
has put off deliberation on the supplemental until after the 
new year.
    In addition, and quite inexplicably to me, the Majority has 
failed to pass the regular defense appropriations and military 
construction bills even though both House and Senate have 
passed this overwhelmingly. At a time when people are so jaded 
about partisanship, here is something we all have consensus on. 
This should have been passed already.
    The fiscal year began 24 days ago, and I distinctly 
remember the Deputy Secretary of Defense testifying before this 
committee in July that delays in funding are disruptive to our 
men and women in combat on the ground and in harm's way. So it 
seems we really should get on with it, and that is why we are 
here.
    We all know that the war entails many costs that cannot be 
measured in dollars, but it is the area of funding where 
Congress has its greatest impact, and as long as the funding is 
going to continue, we have an obligation to do it responsibly.
    I am proud of this committee's work, both from the current 
Majority and the old Majority, in getting these numbers put 
into the budget, and if I could just put one thing into 
perspective, if you could pull up chart number 4, please, I 
think this puts this debate into perspective. And I don't mean 
to pull this chart up to try and offset what the Chairman just 
said. I don't disagree with any of the numbers he cited. But 
let us look at where we are today in our Nation's history and 
what we are confronting.



    This is a new ``ism.'' This is a world war like different 
past world wars in size and scope. We are facing a moral 
threat. Radical Islamic totalitarianism is a mortal threat to 
this country. It is a mortal threat to our civilization and our 
way of life, and we have to be prepared for this.
    And so when you take a look at the sacrifice we have made 
in our Federal budget, when you take a look at what the 
American people have paid for in past conflicts that rise to 
the level of this conflict, it is really quite low.
    This is the chart that shows the percentage of our economy. 
The spending on defense as a percentage of GDP. We are down 
close to 4 percent right now in the post-9/11 era. The 50-year 
average is 6.2 percent of GDP we have dedicated towards 
national defense. In Vietnam, we were above 8 percent. In 
Korea, we were about 11 percent. And in the Cold War build-up, 
we were at about 6 percent of the GDP. So as a percentage of 
our economy, as a proportion of our Federal budget, we are well 
below the 50-year average even though we are now in the midst 
of confronting one of the greatest mortal threats to our 
country and our civilization, which is a threat to democracy 
and freedom worldwide.
    So it is important to put this in perspective. Equally 
important, it is the job of this committee to make sure that we 
are not doing this in fits and starts; equally to make sure 
that we do this within our budget so that we can have rational 
debate so that we can prepare for the future and we can save 
efficiencies in the process, and to that end, I think CBO is 
doing a good job. I think they ought to be commended for 
putting these estimates together, I think, at the request of 
the Chairman, on what will this look like in the outyears, what 
will this look like if we have 75,000 troops in 2013, 30,000 
troops thereafter. That is the kind of debate we ought to be 
having. We should be putting these in the base budget.
    But let us remember the fact that we do have a real 
conflict on our hands that is not going away anytime soon. We 
have to acknowledge that, put it in our budget, and let us look 
at the fact that we are doing this so much more efficiently 
with so fewer dollars than we ever did before when we had other 
kinds of conflicts of this nature.
    With that, I yield the balance of my time, and I thank the 
Chairman for his indulgence.
    Chairman Spratt. I thank you very much for an excellent 
opening statement, Mr. Ryan.
    Now, before turning to Dr. Orszag, let me tend to a couple 
of housekeeping details.
    First of all, I ask unanimous consent that all Members be 
allowed to submit an opening statement at this point in the 
record.
    Without objection so ordered.
    [The prepared statement of Mr. Smith follows:]

 Prepared Statement of Hon. Adrian Smith, a Representative in Congress 
                       From the State of Nebraska

    Good Morning. I would like to thank Chairman Spratt for holding 
today's hearing on this issue of concern to almost every American.
    As Congress provides funds for troops in both the Fiscal Year 2008 
Defense Appropriations Bill and the War Supplemental, it is important 
for us to set the politics aside. Congress should finance Iraq 
operations in a fiscally responsible manner without jeopardizing the 
needs of our troops.
    After visiting our troops stationed in Iraq and Afghanistan and 
seeing real progress from strategies now in place, I am even more 
convinced the Global War on Terror can be won by supporting our troops 
and providing them the appropriate tools needed for success. By 
properly funding the Iraq mission today, the United States is helping 
Iraq to operate independently in the future; and an independent Iraq is 
a goal I know we all share.
    I look forward to hearing the testimony of the witnesses today.
    Mr. Chairman, I thank you for your leadership in holding this 
hearing.

    Chairman Spratt. Now, Dr. Orszag, we will go directly to 
you. First, let me thank you for the diligent good work as 
usual you have done in preparing the report that you bring to 
us today. We look forward to your explanation of it.
    Secondly, you will constitute a panel of one. When your 
testimony is concluded, we will have questions, and then we 
will have the second panel follow you, if that is agreeable.

   STATEMENT OF PETER ORSZAG, DIRECTOR, CONGRESSIONAL BUDGET 
                             OFFICE

    Mr. Orszag. Thank you very much, Mr. Chairman, Congressman 
Ryan, Members of the Committee.
    U.S. operations in Iraq, Afghanistan and the global war on 
terrorism have important effects for the Nation and for the 
individuals directly involved that go well beyond their effect 
on the Federal budget. My job and my testimony this morning, 
though, focuses on the narrower issues surrounding those budget 
costs. The testimony delineates three types of budget costs: 
past spending, potential future spending and borrowing costs.
    First, the past. As the first chart shows, from September 
of 2001 through the end of fiscal year 2007, the Congress 
appropriated $602 billion for military operations in Iraq, 
Afghanistan and other activities associated with the war on 
terrorism. This funding has been rising rapidly, roughly 
doubling in between 2003 and 2007, as you see on the chart, 
from the 88 billion to $170 billion.
    A disproportionate amount of that growth has been 
experienced in the area of procurement, which rose from about a 
billion dollars in 2003 to more than $50 billion in 2007.
    Much of that growth in turn is related to the so-called 
reconstitution and related reset programs, which are intended 
to repair or replace the damaged equipment. CBO's analysis of 
those programs, however, suggest that a significant share of 
the funding has been devoted to substantial upgrades or new 
purchases to expand capacity above prewar levels rather than 
simply to replace or repair damaged equipment.
    In addition to the $602 billion in funds that were 
explicitly appropriated for the war, CBO estimates that the 
Veterans Administration has spent an additional $2 billion for 
war-related benefits. Including this VA-related spending, 
funding for the war through 2007 has amounted to $604 billion, 
as shown in the second table.
    As that table also shows, the vast bulk of this $604 
billion that is the first column provided to date through the 
end of 2007 has been for the Department of Defense. That is the 
$533 billion you see in the upper left corner of the first 
column.
    DOD is currently obligating an average of almost $11 
billion a month for expenses associated with the war. Most of 
that is related, about $9 billion per month, for operations in 
Iraq.
    I would also note that war-related appropriations now 
account for about a quarter of the Department's overall budget.
    The remainder of the $604 billion provided to date is--in 
addition to the VA spending that I already mentioned, comes in 
two different categories. First, approximately $30 billion has 
been provided to establish training and equip indigenous 
security forces in Iraq and Afghanistan. And roughly $39 
billion has been provided for reconstruction and relief 
efforts, diplomatic operations, embassy construction, foreign 
aid and support.
    Okay. That is the past. In terms of the future, CBO has 
projected the cost of activities associated with operations in 
Iraq, Afghanistan and the war on terrorism under two possible 
scenarios. The productions for both scenarios are based on the 
assumption that the increased troop levels currently in theater 
in Iraq will be sustained for nearly 12 months and then 
reduced. I would also note that the scenarios are meant to 
serve as an illustration of the budgetary impact of two 
possible courses in the war on terrorism, but they are not 
intended to be a precise prediction of what will occur.
    In the first scenario, the number of personnel deployed on 
the ground for the war on terrorism would be reduced from an 
average of 200,000 in fiscal year 2008 to 30,000 by the end 
of--sorry, by the beginning of fiscal year 2010 and remain at 
that level through 2017. CBO estimates that future cost to the 
government under this scenario would total $570 billion over 
the next decade, as you can see at the bottom of the second 
column in this chart.
    In the second scenario, the number of personnel deployed to 
Iraq and other locations with the war on terrorism would 
decline more gradually, falling from 200,000 this year to 
75,000 by the end of fiscal year 2013, and then remain at that 
level through 2017. Under that scenario, CBO estimates that 
future costs would total more than $1 trillion over the next 
decade. Again, you see that at the bottom of the final column 
in the chart.
    Included in both past funding and projected funding under 
these two illustrative scenarios, total spending for U.S. 
operations in Iraq, Afghanistan and the rest of the war on 
terrorism would thus amount to between $1.2 trillion and $1.7 
trillion through 2017.
    In addition, CBO does not traditionally include the cost of 
borrowing in our analysis of specific programs. However, in 
this case, the Budget Committee requested that we compute the 
additional debt service costs that would accrue if past and 
future spending on the war were financed entirely by borrowing.
    If such funding were entirely financed by borrowing, the 
additional debt that the government would accumulate would 
entail higher interest payments. Under the assumption that past 
spending has been deficit-financed, CBO estimates that 
additional interest payments would total $415 billion through 
2017. In addition, if the future spending paths that are shown 
on this chart were also deficit-financed, interest payments 
would go up by another 175 billion to $290 billion.
    In other words, the bottom line is that to the extent the 
spending is not offset by higher taxes or reduced spending 
elsewhere in the budget and therefore simply adds to the 
deficit, the total budgetary impact of the war, including 
spending to date, possible future spending, and higher interest 
costs would amount to between $1.7 trillion and $2.4 trillion 
through 2017.
    A final part of my written testimony addresses some 
differences between CBO estimates and other estimates of the 
costs of the war that have been produced by private 
researchers, and I would be happy to answer any of your 
questions about those.
    Chairman Spratt. Thank you.
    [The prepared statement of Peter Orszag follows:]

             Prepared Statement of Peter Orszag, Director,
                      Congressional Budget Office

    Mr. Chairman, Congressman Ryan, and Members of the Committee, I 
appreciate the invitation to appear before you today to discuss the 
costs of U.S. operations in Iraq and Afghanistan and the government's 
activities related to the broader war on terrorism. Those operations 
and activities have important effects beyond their implications for the 
federal budget, but my testimony this morning will focus on the 
narrower issues of the appropriations and obligations to date and the 
projected costs of the war on terrorism under two different deployment 
scenarios.

                                SUMMARY

    At the request of Chairman Spratt, the Congressional Budget Office 
(CBO) has totaled the funding provided through fiscal year 2007 for 
military and diplomatic operations in Iraq and Afghanistan and other 
activities associated with the war on terrorism, as well as for related 
costs incurred by the Department of Veterans Affairs (VA) for medical 
care, disability compensation, and survivors' benefits. In addition to 
totaling the funding provided to date, CBO has projected the total cost 
over the next 10 years of funding operations in support of the war on 
terrorism under two scenarios specified by the Chairman. Those 
scenarios are meant to serve as an illustration of the budgetary impact 
of two different courses in the war on terrorism but are not intended 
to be a prediction of what will occur.
    Including both funding provided through 2007 and projected funding 
under the two illustrative scenarios, total spending for U.S. 
operations in Iraq and Afghanistan and other activities related to the 
war on terrorism would amount to between $1.2 trillion and $1.7 
trillion for fiscal years 2001 through 2017 (see Table 1).\1\ A final 
section of this testimony briefly compares parts of CBO's estimate to a 
frequently cited estimate prepared by two academic researchers, Linda 
Bilmes and Joseph Stiglitz.\2\

                    FUNDING THROUGH FISCAL YEAR 2007

    From September 2001 through the end of fiscal year 2007, the 
Congress appropriated $602 billion for military operations in Iraq and 
Afghanistan and other activities associated with the war on terrorism. 
In addition, although not explicitly appropriated for that purpose, an 
estimated $2 billion has been spent by VA for war-related benefits. 
Including VA's spending, funding for the war has amounted to $604 
billion. Those sums do not include any funding for fiscal year 2008; 
activities currently are being funded by a continuing resolution (which 
is in effect through November 16, 2007).

                                TABLE 1



Source: Congressional Budget Office.
Note: Details may not add to totals because of rounding.

a. Funding in 2007 for military operations and other defense activities 
    includes almost $7 billion to maintain an additional 45,000 
    personnel on active duty to support ongoing deployments and as part 
    of the Administration's initiative to permanently increase the size 
    of the Army and Marine Corps.
b. These amounts do not include the cost of the Administration's 
    initiative to increase the size of the Army and Marine Corps, which 
    CBO estimates will cost $162 billion over the 2008--2017 period.
c. Includes $1.6 billion for medical care, disability compensation, and 
    survivors' benefits that CBO estimates has been spent over the 
    2001--2007 period from regular appropriations for the Department of 
    Veterans Affairs.

    According to CBO's estimates, the majority of the $604 billion 
appropriated to date--about $533 billion--has been provided to the 
Department of Defense (DoD) for U.S. military operations and other 
defense activities. Such war-related appropriations accounted for more 
than 20 percent of the department's budget in 2006 and more than a 
quarter of its budget in 2007. DoD currently is obligating an average 
of almost $11 billion a month for expenses associated with its 
operations in Iraq and Afghanistan and for other activities related to 
the war on terrorism. Most of that amount (more than $9 billion per 
month) is related to operations in Iraq.
    The remainder of the $604 billion has been provided for three 
categories of spending: Approximately $30 billion has been provided to 
establish, train, and equip indigenous security forces in Iraq and 
Afghanistan. About $39 billion has been appropriated for reconstruction 
and relief efforts, diplomatic and consular operations, embassy 
construction, economic support, and foreign aid. And a total of almost 
$3 billion, including both specific appropriations and funds for other 
costs incurred by VA, has been provided for medical care and other VA 
programs to assist former service members affected by their 
participation in operations related to the war on terrorism.

                     PROJECTED COSTS OVER 10 YEARS

    On the basis of the two scenarios specified by Chairman Spratt, CBO 
projected the costs of activities associated with operations in Iraq 
and Afghanistan and the war on terrorism through 2017. Because DoD does 
not report detailed operational statistics, those projections--which 
CBO derived by calculating the ratio between current force levels and 
funding requested by the Administration for 2008--are rough 
approximations.\3\
    In the first scenario, the number of personnel deployed on the 
ground for the war on terrorism would be reduced from an average of 
about 200,000 in fiscal year 2008 to 30,000 by the beginning of fiscal 
year 2010 and then remain at that level through 2017. CBO estimates 
that costs to the U.S. government under this scenario would total $570 
billion over the 2008--2017 period (see Table 1).
    In the second scenario, the number of personnel deployed to Iraq 
and other locations associated with the war on terrorism would decline 
more gradually, from an average of about 200,000 in fiscal year 2008 to 
75,000 by the start of fiscal year 2013 and then remain at that level 
through 2017. CBO estimates that costs to the government under this 
scenario would total $1,055 billion over the 2008--2017 period.
    In addition to estimating the costs of the two scenarios over the 
next decade, CBO recently estimated the potential costs of maintaining 
a longer-term U.S. military presence in Iraq. The budgetary 
implications of maintaining such a presence are discussed in Box 1.

          ESTIMATED FUNDING PROVIDED THROUGH FISCAL YEAR 2007

    Since September 2001, lawmakers have provided $602 billion in 
budget authority specifically for military and diplomatic operations in 
Iraq, Afghanistan, and other regions in support of the war on 
terrorism, as well as for attendant costs related to veterans' benefits 
and services (see Table 2). Of that amount, about 70 percent has been 
allocated for the war in Iraq, CBO estimates.

                                TABLE 2



Source: Congressional Budget Office.
Notes: Details may not add to totals because of rounding.
 = between zero and $500 million.

a. CBO estimated funding provided for Operation Iraqi Freedom by 
    allocating funds on the basis of information in budget 
    justification materials and on obligations reported by the 
    Department of Defense. For more information about funding for 
    Operation Iraqi Freedom, see Congressional Budget Office, Estimated 
    Costs of U.S. Operations in Iraq Under Two Specified Scenarios 
    (July 13, 2006).
b. Includes Operation Enduring Freedom (in and around Afghanistan), 
    Operation Noble Eagle (homeland security missions, such as combat 
    air patrols, in the United States), the restructuring of Army and 
    Marine Corps units, classified activities other than those funded 
    by appropriations for the Iraq Freedom Fund, efforts to permanently 
    increase the size of the Army and Marine Corps, and other 
    operations. (For fiscal years 2005 through 2007, funding for 
    Operation Noble Eagle has been intermingled with regular 
    appropriations for the Department of Defense; that funding is not 
    included in this table because it cannot be identified separately.)
c. Funding for indigenous security forces, which was appropriated in 
    accounts for diplomatic operations and foreign aid (budget function 
    150) in 2004, and in accounts for defense (budget function 050) 
    since 2005, is used to train and equip local military and police 
    units in Iraq and Afghanistan.
d. Excludes an estimated $1.6 billion in spending for medical care, 
    disability compensation, and survivors' benefits for veterans of 
    the war on terrorism. Those amounts are based on CBO's estimates of 
    spending from the regular budget of the Department of Veterans 
    Affairs and were not explicitly appropriated for war-related 
    expenses.

    Funding to date for military operations and other defense 
activities totals $533 billion, most of which has gone to the 
Department of Defense. Lawmakers also provided $30 billion during the 
2004--2007 period to train and equip indigenous security forces in Iraq 
and Afghanistan.\4\ Including the $30 billion allocated for indigenous 
security forces, a total of $563 billion has been appropriated since 
September 2001 for defense-related activities in Iraq and Afghanistan 
and for the war on terrorism.
    In addition to funding provided for defense activities since 2001, 
lawmakers have appropriated just over $39 billion for diplomatic 
operations and foreign aid to Iraq, Afghanistan, and other countries 
that are assisting the United States in the war on terrorism. Of that 
amount, $16 billion was appropriated for the Iraq Relief and 
Reconstruction Fund.
    Because most appropriations for operations in Iraq and Afghanistan 
and for other activities related to the war on terrorism appear in the 
same budget accounts that record appropriations for other DoD 
activities, determining how much has actually been spent is difficult. 
However, CBO estimates that appropriations for defense-related 
activities in Iraq and Afghanistan and for the war on terrorism 
resulted in outlays of about $430 billion through fiscal year 2007. Of 
that amount, about $115 billion was spent in fiscal year 2007--an 
average of between $9 billion and $10 billion a month. Of the funds 
appropriated for war-related international affairs activities, close to 
$30 billion was spent through 2007, CBO estimates.
    In addition to the amounts specifically appropriated for war-
related activities, including almost $1 billion in budget authority 
provided to the Department of Veterans Affairs in 2007, CBO estimates 
that over the 2001--2007 period, VA has spent almost $2 billion on 
assistance to and treatment of service members, veterans, and their 
families as a result of operations in Iraq and Afghanistan. Those costs 
cover medical care provided to ill or wounded service members at VA 
facilities, disability compensation paid to veterans with service-
connected disabilities, and dependency and indemnity compensation 
benefits paid to survivors of service members.\5\

                      FUNDING FOR FISCAL YEAR 2008

    The President's budget proposal for 2008, which was submitted in 
February, included a request for $137 billion for military operations 
in Iraq and Afghanistan and for the war on terrorism; $5 billion for 
establishing, training, and equipping indigenous security forces in 
Iraq and Afghanistan; and $3 billion for related diplomatic operations 
and foreign aid. In an amended request submitted in July, DoD requested 
an additional $5 billion for mine-resistant and ambush-protected (MRAP) 
vehicles. On October 22, the Administration submitted a request for 
another $46 billion for 2008. If the requested amount is appropriated, 
the total amount of funding specifically appropriated since 2001 for 
all operations in the war on terrorism would reach $798 billion. 
(Including the estimated $2 billion that VA has spent from its regular 
appropriations and the nearly $1 billion that CBO estimates will be 
spent in 2008 would bring total funding for the war over the 2001--2008 
period to $801 billion.)
    On September 29, 2007, lawmakers enacted Public Law 110-92, a joint 
resolution making continuing appropriations for fiscal year 2008. That 
act provided $5 billion in budget authority for MRAP vehicles. It also 
extended the $70 billion in war-related appropriations that was 
included in the Department of Defense Appropriations Act, 2007 (P.L. 
109-289). However, that $70 billion in funding remains available only 
until enactment of appropriations for the war for fiscal year 2008, 
enactment of appropriations for the Department of Defense for fiscal 
year 2008, or November 16, 2007, whichever comes first.
    CBO cannot estimate how much of the funding contained in the 
continuing resolution will be used before those funds expire or before 
regular appropriations are enacted. Since the temporary funding 
provided under the continuing resolution will most likely be subsumed 
in subsequent appropriations for the war for 2008, CBO has not included 
any amounts for fiscal year 2008 in its tally of funding enacted to 
date. Estimates of funding for fiscal year 2008, however, are included 
in the projections of future funding needs, which are described in more 
detail below.

                 ESTIMATED FUTURE FUNDING REQUIREMENTS

    CBO has previously estimated future funding requirements for 
operations in Iraq and Afghanistan and for other activities related to 
the war on terrorism under two broad, illustrative scenarios specified 
by Chairman Spratt. 6 At the request of the Chairman, CBO has updated 
its previous projections to account in an approximate manner for the 
Administration's amended request for increased funding for the war in 
fiscal year 2008.\7\
    Under the first scenario, the number of deployed troops would 
decline from an average of approximately 200,000 active-duty, Reserve, 
and National Guard personnel on the ground in fiscal year 2008 to 
30,000 in 2010 and would remain at that level over the 2010--2017 
period, although not necessarily in Iraq and Afghanistan. In the second 
scenario, the number of troops deployed overseas would decline more 
gradually over a five-year period, reaching 75,000 in 2013 and 
remaining at that level each year thereafter.
    On the basis of testimony that General David Petraeus presented to 
Members of Congress on September 10 and 11, it now appears that the 
United States will begin reducing current force levels in December. By 
July 2008, the withdrawal of the additional Army brigades and Marine 
battalions that were deployed earlier this year as part of the 
President's strategy to increase the size of forces in Iraq is 
scheduled to be complete. Thus, the projections for both scenarios in 
this analysis are based on the assumption that the increased force 
levels will be sustained for nearly 12 months.

                     COSTS FOR MILITARY OPERATIONS

    In the first scenario, the number of personnel deployed in Iraq, 
Afghanistan, and elsewhere in the war on terrorism would average about 
200,000 in fiscal year 2008, decline to approximately 100,000 
personnel, on average, in 2009, and then reach 30,000 at the beginning 
of fiscal year 2010. CBO previously estimated that this case would 
require $440 billion in funding over the 2008--2017 period. On the 
basis of the Administration's funding request for 2008, that projection 
could total $485 billion over the same period.
    In the second scenario, deployed forces would average about 200,000 
in fiscal year 2008 and then decline to an average of 175,000 troops in 
2009. Troop levels would decline steadily each year thereafter until 
the beginning of 2013 when the number of deployed troops would reach 
75,000. In July, CBO estimated that such a case would require $879 
billion in funding over the 2008--2017 period. A projection formulated 
on the basis of the Administration's budget request for 2008 could 
total $966 billion.\8\
    Over the 2005--2007 period, funding for operations in Iraq 
accounted for 75 percent of all the funding provided for the war on 
terrorism. A similar distribution of funding seems probable over the 
next two years. Beyond 2009, however, the allocation of troop 
deployments and funding to specific operations is highly uncertain.

                  COSTS FOR INDIGENOUS SECURITY FORCES

    In developing its estimates, CBO assumed that the cost to train and 
equip indigenous security forces in Iraq and Afghanistan would be 
approximately the same under either scenario. To fund that effort, the 
Administration requested and the Congress provided $13 billion in 
2007--a significant increase over the $5 billion appropriated in 2006. 
The Administration stated that the additional funding would enable 
those countries to field capable police and military forces sooner and 
that it anticipates less funding will be needed in 2008. On the basis 
of funding requested for 2008, CBO estimates that DoD would require 
about $50 billion over the 2008--2017 period to continue training and 
equipping indigenous security forces in Iraq and Afghanistan.

            COSTS FOR DIPLOMATIC OPERATIONS AND FOREIGN AID

    CBO projected the future costs of diplomatic operations and foreign 
aid in Iraq and Afghanistan on the basis of the amounts provided for 
those activities in 2007. For that year, the Congress appropriated 
almost $5 billion to fund diplomatic operations, assist local 
governments, and promote economic development. CBO estimates that, 
under the two specified scenarios, costs for diplomatic operations and 
foreign aid would total about $4 billion for fiscal year 2008--slightly 
more than the $3.3 billion requested by the President in February--and 
$26 billion over the 2008--2017 period.

   SPENDING BY THE DEPARTMENT OF VETERANS AFFAIRS FOR MEDICAL CARE, 
            DISABILITY COMPENSATION, AND SURVIVORS' BENEFITS

    CBO estimated spending for medical care, disability compensation, 
and survivors' benefits on the basis of casualty rates for veterans of 
operations in Iraq and Afghanistan over the 2003--2006 period. Almost 
$1 billion in supplemental appropriations was provided to VA in 2007 
for medical administration costs, medical and prosthetics research, 
medical services for veterans of those operations, and other related 
purposes. In addition, CBO estimates that VA spent another $0.7 billion 
in 2007 for medical care and disability compensation for veterans of 
operations in Iraq and Afghanistan, as well as for compensation for 
survivors of service members who died in those operations.

                              DEBT SERVICE

    CBO does not typically include debt service in its cost analyses. 
However, as requested, CBO calculated the debt-service costs associated 
with spending for operations in Iraq and Afghanistan and elsewhere in 
the war on terrorism under the assumption that all spending for those 
operations, both past and present, was financed with federal borrowing.
    Under that specified assumption, CBO estimates that interest 
payments on spending thus far for operations in Iraq and Afghanistan 
and elsewhere in the war on terrorism would total $415 billion over the 
2001--2017 period. The path of spending generated by the first scenario 
would add an additional $175 billion in interest payments from 2008 
through 2017. Under the second scenario, interest outlays would 
increase by a total of $290 billion over that 10-year period.

                BOX 1.--PROJECTED COSTS OF SUSTAINING A
                LONG-TERM U.S. MILITARY PRESENCE IN IRAQ

          In September 2007, the Congressional Budget Office (CBO) 
        estimated the possible costs to the United States of 
        maintaining a long-term military presence in Iraq similar to 
        that maintained by the U.S. government in the Republic of Korea 
        and the Northeast Asia region. Because the nature and scope of 
        such a presence is highly uncertain, CBO projected costs under 
        two possible scenarios. Unlike the projections of future 
        funding requirements discussed earlier in this testimony--which 
        included funding for military operations, indigenous security 
        forces, and diplomatic operations and foreign aid in Iraq, 
        Afghanistan, and elsewhere in the war on terrorism--the 
        scenarios described here include costs only for military 
        operations in Iraq.
          To estimate the costs of those scenarios, CBO adjusted 
        current spending levels to account for the scenarios' smaller 
        number of personnel and a lower intensity of operations. CBO 
        did not project current funding levels for procurement because 
        current funding for that purpose includes a number of one-time 
        expenses as well as items not tied specifically to the current 
        pace of operations, which CBO anticipates will not be required 
        indefinitely.
          In the first scenario, CBO assumed that the United States 
        would maintain a long-term presence of approximately 55,000 
        military personnel in Iraq conducting combat operations similar 
        in type to the operations currently carried out in that 
        country. Military units would deploy with their personnel and 
        equipment for specific periods and then return to permanent 
        bases either in the United States or overseas. Such a scenario 
        could have one-time costs of $4 billion to $8 billion and 
        annual costs of approximately $25 billion (in 2008 dollars), 
        CBO estimates. In the second scenario, the United States would 
        maintain a long-term presence of approximately 55,000 military 
        personnel in Iraq by stationing specific units at established 
        bases for an indefinite period in a manner similar to the 
        current practice of assigning personnel to units based in Korea 
        or Germany. Under this scenario, units stationed in Iraq would 
        rarely, if ever, be engaged in combat operations. Up-front 
        costs would be approximately $8 billion, with annual costs of 
        $10 billion or less (in 2008 dollars), CBO estimates.
          If U.S. military operations in Iraq were to develop into a 
        long-term presence, the numbers of deployed forces could differ 
        substantially from those assumed in either of the two 
        scenarios. Moreover, the scenarios are not mutually exclusive. 
        Over time, the more intensive pace of combat operations could 
        give way to the slower pace of noncombat operations. The first 
        scenario could also be viewed as a transitional phase between 
        the current operations and the more benign environment 
        considered in the second scenario.

                 A COMPARISON OF COST-OF-WAR ESTIMATES

    A number of estimates of the costs of operations in Iraq and 
Afghanistan have been performed by analysts working outside the 
government; those estimates are often higher than CBO's. For example, 
in 2006, two academic researchers--Linda Bilmes and Joseph Stiglitz--
estimated that the war in Iraq could cost several trillion dollars in 
present-value terms, including costs to the federal government as well 
as other economic costs outside the federal budget.\9\ CBO restricts 
its estimates of war costs to federal budgetary effects and has not 
attempted to estimate the macroeconomic effects of the war. However, 
even within the confines of federal budgetary costs, CBO's estimates 
differ from those of Bilmes and Stiglitz. Several important differences 
between CBO's estimates and the Bilmes-Stiglitz estimates are explored 
below.

                INCREASES IN THE REGULAR DEFENSE BUDGET

    Bilmes and Stiglitz estimated that, because of the war, the regular 
defense budget--the portion not funded through emergency 
appropriations--increased by a total of $104 billion to $139 billion 
between 2002 and 2006. However, CBO's analysis suggests that most of 
the budget increases that occurred during that period reflect factors 
not related to the war, such as inflation, real (inflation-adjusted) 
pay increases for military and civilian personnel, enhanced personnel 
benefits that were either enacted before the war or not requested by 
the Administration as part of its war-funding request, and DoD's 
efforts to modernize and reconfigure military forces (efforts that were 
initiated before the onset of the war in Iraq).

                       COSTS TO REPLACE EQUIPMENT

    Bilmes and Stiglitz estimated that repairing or replacing equipment 
that had been worn out, damaged, or destroyed in Iraq would total 
between $89 billion and $149 billion in present-value terms over the 
2006--2010 period. Those figures, though, do not reflect the cost of 
replacing and repairing equipment used in Iraq and Afghanistan. 
Instead, they are based on estimates of the difference between DoD's 
peacetime procurement budget and the long-term funding required to 
maintain DoD's inventories of major weapon systems at acceptable 
levels. Any such funding gap would have nothing to do with operations 
in Iraq and Afghanistan, which use existing weapon systems and are 
funded by supplemental appropriations.\10\

             COSTS FOR RECRUITING AND RETENTION INCENTIVES

    Bilmes and Stiglitz argued that some of the wartime incentive 
payments will become permanent, adding between $1 billion and $2 
billion a year to all future defense budgets, or between $5 billion and 
$17 billion in present-value terms. By contrast, CBO estimates that 
incentive payments will not permanently increase the defense budget. 
Furthermore, the cash incentives that Bilmes and Stiglitz quote 
represent the legislated maximum amounts for active-duty personnel, but 
those amounts are not paid to every service member. Only personnel who 
are recruited into a limited number of critical military occupational 
specialties and who commit to a six-year obligation are eligible for 
the maximum enlistment bonus. Although the maximum authorized 
reenlistment bonus is $200,000 for the active component and $100,000 
for the reserve components, reenlistment bonuses averaged about $10,500 
in fiscal year 2005 and $15,000 in fiscal year 2006. The military has 
long shown considerable flexibility in setting bonus levels, routinely 
reducing bonuses for occupations in which manning exceeds authorized 
levels. Personnel costs are likely to remain higher for the duration of 
the war, but the military has the authority to reduce incentives in the 
future if the recruiting climate improves when the war concludes.

                     COSTS TO TREAT BRAIN INJURIES

    Bilmes and Stiglitz estimated that the treatment and care of 
personnel who suffered serious brain damage in Iraq would cost $14 
billion if the war continued until 2010 and costs accrued over a 20-
year life expectancy, or $35 billion if the war continued through 2015 
and costs accrued over a 40-year life expectancy. CBO's analysis 
suggests that those figures overstate both the number of injured 
service members who will likely need expensive care for brain injuries 
and the cost of treating those who do.
    Bilmes and Stiglitz estimate that of the 16,000 service members who 
had suffered nonfatal injuries as of the publication date of their 
study, 20 percent had incurred serious brain damage. Bilmes and 
Stiglitz derived this estimate of the incidence rate of brain injuries 
from a study conducted by Scott Wallsten and Katrina Kosec.\11\ That 
estimate, in turn, was based on a research paper by Lt. Colonel 
Xydakis, an Air Force otolaryngologist (ear-nose-and-throat specialist) 
and head-and-neck surgeon stationed at Landstuhl Regional Medical 
Center in Germany.\12\ He and his colleagues found that among 2,483 
battle-injured patients evacuated from Iraq or Afghanistan and treated 
at Landstuhl through March 19, 2004, some 21 percent had head or neck 
trauma. Head or neck trauma, though, differs greatly from traumatic 
brain injury: neck injuries affect the area below the helmet line and 
are distinct from brain injuries; and traumatic brain injuries would be 
treated by neurologists rather than by otolaryngologists. Moreover, the 
21 percent incidence rate would at most apply only to those patients 
evacuated to Landstuhl and classified as ``battle-injured,'' not to the 
much larger pool of all wounded troops, over half of whom are treated 
in-country and return to duty within 72 hours. On the basis of a DoD 
medical census, 1,950 traumatic brain injuries (TBIs) had been 
diagnosed through December 2006 and 2,669 through July 2007 but still 
not the 3,213 that Bilmes and Stiglitz assert had occurred as early as 
January 2006.
    Perhaps more important, Bilmes and Stiglitz appear to overstate the 
cost of treating brain injuries among military personnel. Again, they 
adopted their cost estimates from Wallsten and Kosec, who assumed that 
all brain injuries, regardless of the degree of severity, would cost as 
much as ``severe head injuries'' sustained in automobile crashes, as 
defined by the National Highway Transportation Safety Administration. 
On that basis, Wallsten and Kosec estimated costs of between $600,000 
and $4 million for the lifetime care of a brain-injured victim. 
Applying those estimates to military personnel with brain injuries, 
though, is problematic because the two types of brain injuries are 
quite different: U.S. soldiers wear Kevlar helmets that are capable of 
deflecting some bullets and shrapnel, or at least of significantly 
reducing their velocity upon penetration, whereas motorists generally 
do not wear helmets. Through 2006, about two-thirds of the diagnoses 
among military personnel were for mild (as opposed to moderate or 
severe) traumatic brain injuries; more recent tabulations indicate that 
mild TBIs may represent as much as 80 percent of the total. Most 
patients should recover naturally from mild TBIs, especially if given 
prompt treatment. CBO estimates that a few hundred service members--
rather than several thousand--have sustained brain injuries serious 
enough to require a lifetime of around-the-clock care.

                                ENDNOTES

    \1\ To the extent that those sums are not offset by reductions in 
other spending or increases in revenue--and therefore are financed by 
higher budget deficits--additional budget costs would occur through 
higher debt-service costs.
    \2\ Linda Bilmes and Joseph Stiglitz, The Economic Costs of the 
Iraq War: An Appraisal Three Years After the Beginning of the Conflict, 
Working Paper No. 12054 (Cambridge, Mass.: National Bureau of Economic 
Research, February 2006).
    \3\ The Administration requested $145 billion for the war in 
February and another $5 billion in July. On October 22, the Office of 
Management and Budget submitted another request for $46 billion, 
bringing the total requested for 2008 to $196 billion.
    \4\ The $30 billion includes $5 billion provided for Iraqi security 
forces in 2004 in an appropriation for the Department of State's Iraq 
Relief and Reconstruction Fund.
    \5\ That estimate does not include the costs of disability 
retirement pay, disability severance pay, or Survivor Benefit Plan 
payments provided by DoD, most of which would be offset by VA benefits. 
Nor does it include payments from the Servicemembers' Group Life 
Insurance or Traumatic Servicemembers' Group Life Insurance programs. 
The additional costs incurred by those insurance programs for claims 
related to operations in Iraq and Afghanistan are paid by DoD and have 
been included in the estimate of funding for defense activities. For 
further discussion, see the statement of Matthew S. Goldberg, Deputy 
Assistant Director for National Security, Congressional Budget Office, 
Projecting the Costs to Care for Veterans of U.S. Military Operations 
in Iraq and Afghanistan, before the House Committee on Veterans' 
Affairs, October 17, 2007.
    \6\ See the statement of Robert A. Sunshine, Assistant Director for 
Budget Analysis, Congressional Budget Office, Estimated Costs of U.S. 
Operations in Iraq and Afghanistan and of Other Activities Related to 
the War on Terrorism, before the House Budget Committee, July 31, 2007.
    \7\ CBO has not had time to analyze the amended budget request; 
however, in testimony before the Senate Armed Services Committee on 
September 26, Secretary of Defense Robert M. Gates indicated that the 
requested amount would exceed funding provided for that purpose in 2007 
by approximately 10 percent. On the basis of that statement, CBO made a 
corresponding adjustment to its previous projection. The amended 
request submitted to the Congress on October 22 was slightly higher 
than the amount suggested in the Secretary's testimony.
    \8\ The Administration plans to increase the size of the active-
duty Army to 547,400 personnel, the Marine Corps to 202,000 personnel, 
and the Army Reserve and National Guard to 564,200 personnel over the 
next five years. The request for war funding submitted in February 
included approximately $5 billion for that purpose in 2008. Another $12 
billion was included in the regular budget request for 2008. CBO 
estimated that $15 billion would be required in 2008 and another $147 
billion would be required over the 2009--2017 period to increase the 
number of Army and Marine Corps personnel as DoD plans. The 
Administration has stated that the planned increase is not strictly 
linked to the deployment of personnel to Iraq and Afghanistan but is 
needed to improve military capabilities in general. Thus, CBO excludes 
funding for that purpose from the cost of the scenarios described in 
this statement. For additional information, see Congressional Budget 
Office, Estimated Cost of the Administration's Proposal to Increase the 
Army's and the Marine Corps's Personnel Levels (April 16, 2007).
    \9\ See Bilmes and Stiglitz, The Economic Costs of the Iraq War, p. 
9. In addition to estimating costs incurred by the Departments of 
Defense and Veterans Affairs, Bilmes and Stiglitz assigned a monetary 
value to the reduction in wounded veterans' quality of life. They also 
considered the macroeconomic effects of diverting to the war effort 
federal expenditures from civil projects (for example, the building or 
maintaining of roads and bridges), as well as additional effects on the 
U.S. economy resulting from rising oil prices, which the authors 
largely attribute to the war's disruption of Iraqi oil exports. Bilmes 
and Stiglitz estimated costs for a projected duration of the war under 
two scenarios and for as many as 40 years beyond the cessation of 
hostilities.
    \10\ The Army estimates that the cost to replace, repair, and 
upgrade its equipment will total $12 billion to $13 billion annually 
for as long as current force levels in Iraq and Afghanistan are 
sustained and for up to two years after forces are withdrawn. Army 
equipment in Iraq and Afghanistan accounts for 80 percent of the total 
equipment deployed to the two countries by both the Army and Marine 
Corps; thus, the total cost to DoD to repair and replace damaged and 
destroyed equipment deployed for operations in Iraq and Afghanistan 
could total about $75 billion over the 2006--2010 period. Those 
figures, as well as the even larger totals for ``reconstitution'' 
contained in the Defense Department's supplemental requests, include 
funding to upgrade equipment, purchase new equipment for the Army 
National Guard, and buy new equipment for reorganized Army units; such 
expenses are not directly related to operations in Iraq and 
Afghanistan.
    \11\ Scott Wallsten and Katrina Kosec, The Economic Costs of the 
War in Iraq, Working Paper No. 05-19 (Washington, D.C.: AEI-Brookings 
Joint Center for Regulatory Studies, September 2005).
    \12\ Lt. Colonel Michael S. Xydakis and others, ``Analysis of 
Battlefield Head and Neck Injuries in Iraq and Afghanistan,'' 
Otolaryngology--Head and Neck Surgery, vol. 133, no. 4 (October 2005), 
pp. 497--504; originally presented at the American Academy of 
Otolaryngology Head and Neck Surgery Annual Meeting, New York, 
September 2004.

    Chairman Spratt. Let me make clear that the interest rate 
you have assumed is 4.8 percent. Is there a Treasury rate that 
is assumed for the full forecast period?
    Mr. Orszag. The debt service calculations used are baseline 
interest rate assumptions, and so when you have an extra dollar 
of debt outstanding, you pay the interest rate that is embodied 
in our baseline, and it is approximately the level that you 
suggest.
    Chairman Spratt. But the rate of interest you have assumed, 
is this a Treasury rate of interest?
    Mr. Orszag. Yes, as it is appropriate, since the additional 
borrowing is Federal Government borrowing.
    Chairman Spratt. So you aren't assuming any uptick in 
interest rates due to this fiscal situation; you are taking 
simply a constant interest rate number that is what is used by 
Treasury today.
    Mr. Orszag. That is correct. Incorporating any additional 
effect on borrowing on the interest cost itself would be a form 
of macroeconomic dynamic analysis. That is not traditionally 
done by CBO.
    Chairman Spratt. In addition, as you look at these costs, 
would you give us just a brief description of the difficulty 
there is to separate out the costs in the different accounts 
from the Department of Defense so that you can identify what--
Iraq or Afghanistan or the rest of the world or stateside 
expenditures? What sort of extrapolation do you have to do to 
arrive at these numbers?
    Mr. Orszag. We don't have full transparency into the 
systems that the Department of Defense uses to allocate funding 
into different categories, and I would note that there is a 
particular challenge in outlays, that is, the money that is 
actually spent as opposed to the budget authority that is 
provided by the Congress, because on the outlay side, things 
are mixed together in ways that are very hard to separate out.
    On the budget authority side, while there are still some 
shortcomings, and we would benefit from more access to the cost 
models that the Defense Department itself uses to project 
future costs, there have been some improvements over the past 
couple of years in terms of transparency and the ability to 
separate out the relevant information.
    Chairman Spratt. And basically you are not auditors, you 
are economists, and you have to do some extrapolation and some 
interpellation in order to arrive at these numbers and give us 
an estimate of that.
    Have you, in the past when you have done this, received any 
criticism from the Department of Defense, or have there been 
specific objections made to specific forecasts that you 
produced by DOD?
    Mr. Orszag. To my knowledge, there was one incident in 
which there was some criticism, but I believe that the facts 
have proven us to be correct, and that had to do with the size 
and, therefore, the costs of the so-called surge that has 
occurred this year. We put out an analysis earlier this year 
trying to delineate the potential size of that, given the 
number of brigades that the administration had identified as 
being involved in it, and there was some administration 
criticism of those figures. But as the facts have turned out, I 
believe our analysis has proven to be correct.
    Chairman Spratt. When you referred to transparency, do you 
approach the Department of Defense, the Pentagon, and the 
Comptroller for an opportunity to see into their books and to 
get more specificity in developing the numbers that you have 
used here?
    Mr. Orszag. Our staff is in regular contact with the 
Defense Department staff.
    Chairman Spratt. Once again, to go over what you have gone 
over today, you have got $2.4 trillion, but that is sort of the 
worst-case scenario, I suppose.
    Mr. Orszag. That is the highest number that is contained in 
our testimony because we don't know whether the two future 
scenarios that we have laid out are actually defining the space 
of what could be the worst-case scenario or not.
    Chairman Spratt. Well, the most extreme case that you 
presented is $2.4 trillion, everything included, interest 
specifically included as well. The least amount is--of your 
second case, the lesser amount is--the brackets is what I am 
trying to get at.
    Mr. Orszag. With additional debt service costs would be 
$1.7 trillion.
    Chairman Spratt. So the cost ranges you have got dependent 
on these two illustrative scenarios is $1.7 trillion to $2.4 
trillion.
    Mr. Orszag. That is correct, as long as all of the spending 
is financed by deficits; in other words, it is not offset by 
lower spending elsewhere or higher taxes.
    Chairman Spratt. Let me let others ask you questions that 
they may have, but thank you once again for the study and for 
your testimony.
    Mr. Ryan.
    Mr. Ryan. Thank you.
    Peter, let me ask you about your baseline assumptions. Do 
you include the war spending in your baseline, correct?
    Mr. Orszag. Our baseline is based on whatever has been 
enacted as of the----
    Mr. Ryan. The most recent.
    Mr. Orszag. The most recent. So it does have supplemental 
funding embodied in it.
    Mr. Ryan. So whatever the last supplemental is, you just 
carry that out into the baseline?
    Mr. Orszag. With inflation, correct.
    Mr. Ryan. So if you think war spending is going to decline 
based on these drawdown scenarios that you outline, or if it 
does, in fact, do you know, what--the 75,000 or 30,000, does 
the baseline decline consistently with that?
    Mr. Orszag. No.
    Mr. Ryan. Right. So are we not overstating the outlays in 
the future if we believe these scenarios will come to be true?
    Mr. Orszag. Now I get to be the two-handed economist.
    On the one hand, yes, because of the effect you noted. But 
on the other hand, there is lots of things both on the 
nondefense side, where people believe that it is possible that 
nondefense discretionary spending will keep pace not just with 
inflation, which is the baseline assumption, but with 
population growth and economic growth, and even with the 
defense. Our analysis of the Defense Department's future plans 
as embodied in the Future Year Defense Plan suggests that there 
may be significant additional costs beyond inflation that are 
embodied in the current thrust of defense policy.
    Mr. Ryan. So all that will be soaked up by new plans.
    Mr. Orszag. It could be.
    Mr. Ryan. Could you bring up chart number 3, please?
    This is constant fiscal year 2008 dollars, the Defense 
Department budget authority.
    If you take a look at this historically, in our history 
over these conflicts, spending shoots up. It goes up at a very 
high level and then comes back down and gravitates towards the 
average.
    Do you have reason to believe that this kind of a conflict, 
even though you look at the Cold War, which is a long-lasting 
conflict, this one is probably a long-lasting one like that--do 
you believe history will not repeat itself, that we will not go 
back down toward the average; or do you believe that we are 
going to have an ever-increasing, ever-in-perpetuity escalating 
increase in costs for DOD?
    Mr. Orszag. Again, all I can say is if you look at the 
Defense Department's future plans themselves, and we will be 
coming out with an updated analysis of those future plans over 
the next decade and beyond, they do entail increasing costs. 
Whether or not that will turn out to be the case, you know, 
history will tell.
    Mr. Ryan. If I can--okay. When you say that--what comes to 
my mind is the fact they want 20 new light brigades for the 
Army and perhaps 20 new light brigades for the Marines to have 
the kinds of soldiers that we need for this kind of a conflict 
so we are not stretching our Guards and Reserves too much.
    Mr. Orszag. And they want upgraded and new equipment, and 
you have ongoing health care cost inflation that is occurring 
in that system as well, and there are a variety of upward 
pressures on the Defense Department.
    Mr. Ryan. So that is assuming that that is all on top of, 
not in place of, what they are doing and what they have, 
correct?
    Mr. Orszag. I am sorry?
    Mr. Ryan. That is assuming new on top of--they are not 
going to cut anything to make room, physical space, for these 
new needs. They are just going to throw these new needs on top 
of the request.
    Mr. Orszag. There are some offsetting things, but, again, 
if you look at their plans themselves, the offsets are not as 
big.
    Mr. Ryan. Not nearly as big as what the plans may be.
    Mr. Orszag. Right.
    Mr. Ryan. Therein lies a role for the committee to play, 
which is we entered this conflict with the Cold War--military 
with a Cold War posture, with Cold War assets and equipment and 
mechanized divisions, and perhaps we now recognize in the 21st 
century there is a different kind of a military we need, and 
perhaps this committee can play a constructive role in making 
sacrifices and choices as to do we need to have it all, or do 
we need to have more 21st-century-based systems and therefore 
not as much 20th-century-based systems?
    People talk about bases in Germany and other places that no 
longer present an immediate threat to us. This is something 
this committee could probably play a constructive role in, I 
would argue. So I think it is important to note that our 
Nation's history; that is, we ramp it up during these 
conflicts, and then it comes back down towards the mean 
afterwards.
    So it is not something we can confidently predict we are 
going to have in perpetuity higher always spending on defense, 
but I also think it is important to note, given the earlier 
chart we brought up, that we are fighting this war with a lot 
less cost and a lot less sacrifice than we ever have fought 
wars before as a percentage of our ability to pay for it, and I 
think that is a noteworthy point.
    With that, I yield.
    Chairman Spratt. Before we turn to Ms. DeLauro, let me get 
a clarification.
    The Ranking Member Mr. Ryan asked about the carry forward 
of enacted supplementals, and typically your convention is to 
carry forward enacted appropriations in projecting a future 
including a supplemental. If it was enacted, you carry it 
forward for future years.
    Mr. Orszag. That is correct.
    Chairman Spratt. What we have asked you to do here is to 
not carry it forward, but to develop a different model for 
extrapolating or projecting into the future.
    So I want to make it clear, we didn't have a 10-year carry 
forward of the supplemental. We had a different set of carry-
forward numbers, projected numbers, based upon the two 
assumptions we gave you. One is to reduce to 30,000 troops, the 
other is to go to 75,000 troops.
    Mr. Orszag. That is correct, Mr. Chairman.
    Mr. Ryan. May I, just on that?
    So under some of these scenarios off of your current 
baseline, we could be saving money, correct?
    Mr. Orszag. It is--again, just looking at the component 
that has to do with the war on terrorism, that is possible 
especially under the lower cost scenario.
    Chairman Spratt. Ms. DeLauro.
    Ms. DeLauro. Thank you, Mr. Chairman, and welcome, Dr. 
Orszag. Let me ask you a couple of questions.
    Is it true, Dr. Orszag, that we are spending more on 
defense in this effort in constant dollars than we spent in 
World War II, since World War II? I am sorry, since World War 
II.
    Mr. Orszag. CBO has not done that analysis. I have seen 
some estimates from the Congressional Research Service, and I 
guess I will defer to the next panel for you to get the answers 
from them.
    The only thing I would note is when looking over a very 
long period of time, economists typically like to look at 
things from the share of the economy rather than just in 
constant dollars.
    Ms. DeLauro. But in terms of looking at it as a percentage 
of the economy, then, should we make that same application to 
nondefense discretionary spending if we are looking at----
    Mr. Orszag. Again, over long periods of time, the best 
perspective on something, something involving the budget, is 
typically is a share of economy if you are going out 10, 20, 
30-year kind of time span.
    Ms. DeLauro. Let me also--let me follow, because I want to 
get clarity on the carryover on unobligated 2007 funding.
    DOD received $170 billion of supplemental funding for 2007. 
How much of that amount will carry out and remain available for 
obligation in 2008?
    Mr. Orszag. My understanding is that something probably a 
little bit under $50 billion and maybe in the 30- to $50 
billion range of funds already provided in budget authority 
have not yet been obligated.
    Ms. DeLauro. You made the point about the--that we are 
dealing with procurement and not replacing equipment, et 
cetera. Do you have any way or is it under your jurisdiction in 
any way to take a look at that, what you said, the $39 
billion--I am trying to find your comments here--$39 billion 
that we are spending on reconstruction, et cetera?
    Do you do anything by way of looking at those numbers and 
can determine what is dealing with any kind of overspending and 
any kind of waste, fraud, abuse efforts; do you do those kinds 
of calculations?
    Mr. Orszag. I would say that is more of an activity for GAO 
rather than CBO.
    Ms. DeLauro. So that you are just dealing with the 
aggregate numbers and what the cost of that spending is with 
regards to cost of construction.
    Mr. Orszag. That is correct.
    Ms. DeLauro. Thank you very much, Mr. Chairman.
    Chairman Spratt. Mr. Edwards.
    Mr. Edwards. Thank you, Mr. Chairman.
    Dr. Orszag, I had the privilege of chairing the 
appropriations subcommittee on Veterans Administration and the 
military. So if I could focus my questions on the long-term 
monetary costs of treating veterans injured or those suffering 
from mental illnesses as a result of their service in Iraq and 
Afghanistan, respecting the fact there is no way to put a 
dollar value on the sacrifice of these great Americans?
    As I understand it, you have estimated the 10-year cost of 
medical costs for the VA for the Iraq and Afghan veterans is 
between $7- to $9 billion; is that correct?
    Mr. Orszag. That is correct. And then there are some 
additional disabilities to get you up to the 9- to $13 billion 
range that I showed on the chart.
    Mr. Edwards. So 7- to $9 billion for medical care, and if 
you add disability compensation, which is VA compensation of 
those injured in combat, it would possibly go up to $13 
billion; is that correct?
    Mr. Orszag. Yeah. That is right.
    Mr. Edwards. Now let me ask, have you projected the cost, 
because they will be real, as well as painful, financially and 
physically and mentally, but have you projected the lifetime 
financial costs for medical care for the veterans or just a 10-
year period?
    Mr. Orszag. We at this point have just done a 10-year 
period.
    Mr. Edwards. Would it be difficult to try to take the 
analysis you have done and project that to get the real cost of 
the war projected over lifetime, because obviously while for 
economic purposes and budget purposes it makes sense to use a 
10-year time line, when we are talking about real Americans who 
sacrifice greatly, the end of 10 years is not going to be a 
magic solution to their health care problems. Would it be 
possible for you to do it, and if so, how long would that take?
    Mr. Orszag. It would be possible.
    There is an additional complexity which is that veterans 
often use the VA for some time, and then they will use part of 
the rest of the health care system for part and come back, and 
those transitions we have somewhat more confidence about for a 
10-year period, and over a lifetime they become a lot harder to 
model. But we potentially could take a stab at doing so.
    Mr. Edwards. And projecting future health care costs, what 
inflation factor did you use? Did you use Consumer Price Index, 
or did you use the health care inflation index, which I believe 
is significantly higher than the Consumer Price Index?
    Mr. Orszag. I would think that we use a health care 
inflation rate, yes.
    Mr. Edwards. You did use that. Can you make that number 
available to the committee, please?
    Mr. Orszag. Absolutely.
    [The information follows:]

    Question (Mr. Edwards): What rate of inflation did CBO assume in 
developing its VA health-care cost estimates?

    Answer: CBO used annual inflation rates averaging around 7 percent 
(the annual rates varied in a narrow range between 6.6 percent and 7.3 
percent over the period 2008 through 2017). Those rates are based on 
projections of per-capita growth in national health expenditures 
developed by the Centers for Medicare and Medicaid Services (CMS).

    Mr. Edwards. There have been--out of 1.5 million Americans 
who have served in Iraq and Afghanistan, 75,000 have been 
discharged. Of those, 250,000, a huge percentage, have already 
sought medical care in VA hospitals; 95,000 of those 250,000 
have been treated for mental health care, and of those, 45,000 
have apparently full-blown post-traumatic stress disorder.
    Can you tell me what estimates--how you determine the 
estimate of the number of veterans coming back from the war 
with mental health care problems including PTSD?
    Mr. Orszag. They are based on many of the same data that 
you just related, and one of the complexities in going forward 
is do you believe that the incident rate of PTSD will be higher 
or lower than what we observed so far.
    On the one hand, it may well be that there are folks who 
are undiagnosed that are suffering from PTSD, and therefore the 
incident rate would be higher. On the other hand, it may be 
that the people who are coming in and being diagnosed are 
disproportionately those who suffer from it, and so, therefore, 
as you roll out over time and have the rest of the population 
involved, the incident rate would not be as high as what you 
already observed.
    Mr. Edwards. You used actual numbers from this war. You 
didn't use, for example, the Persian Gulf war as a model for 
determining what percentage of injuries or mental health care 
cases would be?
    Mr. Orszag. One of the factors that went into our set of 
projections is the experience in the Persian Gulf war from 
people who used the VA relative to how much use----
    Mr. Edwards. But just because the time is short--I think I 
have 20 seconds left.
    In terms of mental health care issues, clearly there could 
be very little comparison between the Persian Gulf war, which 
lasted for several days, and this war which has now lasted 
longer than World War II. Could you submit to the committee the 
assumptions that you used in determining the number of veterans 
who would need mental health care and PTSD service?
    Mr. Orszag. Absolutely.
    Mr. Edwards. Thank you, Mr. Chairman.
    [More responses to Mr. Edwards' questions from CBO follow:]

    Question (Mr. Edwards): Does CBO have estimates of the lifetime 
costs (beyond 10 years) to treat OIF/OEF veterans in the VA health 
system?

    Answer: No, CBO restricted its estimates to the 10-year budget 
window described in its written statement. Estimates beyond that point 
become problematic because some veterans who initially receive VA 
health care later become reemployed in the civilian sector, gaining 
access to employer-sponsored health insurance and becoming less reliant 
on the VA. However, they may return to the VA later in life if their 
health insurance does not carry into retirement or if their general 
health begins to deteriorate. It is difficult to separate those life-
cycle changes from the effects of (perhaps worsening) disabilities 
directly related to service in combat.

    Question (Mr. Edwards): What assumptions did CBO make in projecting 
the number of veterans who would require VA health care, particularly 
those with PTSD? How much does it cost to treat veterans with PTSD?

    Answer: CBO projects future VA medical costs in a ``top-down'' 
rather than a ``bottom-up'' fashion. A ``bottom-up'' analysis would 
consider every medical condition that could possibly afflict an OIF/OEF 
veteran, project the number of veterans likely to develop that 
condition, and multiply that number of veterans by the year-to-year 
costs of treating a representative patient having that condition. The 
bottom-up approach is impractical because there are (depending on the 
specificity with which diseases are classified) thousands of 
conceivable medical conditions, some very rare and difficult to 
forecast, and others with widely-varying treatment paths (and 
corresponding costs) depending on the individual patient. Also, a 
bottom-up approach might not capture the fixed and overhead costs of 
running the VA medical system that are unrelated to the treatment of 
specific diseases.
    By contrast, CBO's ``top-down'' approach starts with VA's costs to 
treat OIF/OEF veterans in the base year of the analysis, 2007. CBO then 
grows that base-year cost to reflect two factors: medical inflation and 
the growing cumulative number of veterans who have returned wounded 
from OIF/OEF. Regarding inflation, CBO applies projections of per-
capita growth in national health expenditures developed by the Center 
for Medicare and Medicaid Services (CMS). CBO projects the number of 
wounded troops under the assumption that historical casualty rates (per 
deployed service member per year) for operations in Iraq and 
Afghanistan over the 2003-2006 period will continue into the future. 
Applying those casualty rates to CBO's two illustrative scenarios for 
the force levels in theater yields a projected stream of annual 
casualties. CBO recognizes that the wounded are not the only OIF/OEF 
veterans who use VA medical care, but CBO uses the number of wounded as 
an index of the overall number of medical problems attributable to the 
two combat operations.
    The top-down approach does not require projections of the numbers 
of veterans likely to develop specific conditions (like PTSD), nor the 
pattern of treatment costs for those specific conditions. However, the 
approach does implicitly assume that the mix of medical conditions 
remains roughly constant through time. For example, data from the VA 
indicate that among OIF/OEF veterans who have received VA medical care, 
about 37 percent have received at least a preliminary diagnosis of 
mental health issues, and about half of those (17 percent) have 
received a preliminary diagnosis of PTSD. CBO's estimates implicitly 
carry those percentages forward into the future, as well as assuming 
that the costs to treat those conditions will inflate at the same rate 
as other medical conditions (i.e., at the CMS rate). Those assumptions 
seem reasonable except, perhaps, in the event that veterans with 
specific conditions (like PTSD) experience delayed onset and will 
eventually present to the VA at rates exceeding the historical 
averages.

    Chairman Spratt. Thank you, Mr. Edwards.
    Now Mr. Allen.
    Mr. Allen. Thank you, Mr. Chairman.
    And thank you for being with us again, Dr. Orszag.
    I had several questions. First, I wanted to clarify in your 
testimony you indicate that DOD is currently obligating about 
$11 billion a month for activities in Iraq and Afghanistan and 
other aspects of the global war on terror. It is true, is it 
not, that $9 billion a month of that is currently related to 
the war in Iraq.
    Mr. Orszag. That is approximately correct.
    Mr. Allen. A little bit more than 9 billion.
    Mr. Orszag. It is in the range of 9 billion, yes.
    Mr. Allen. I would like to have chart 3 put up for a 
moment, if we can.
    The direct budgetary costs--I am not blaming you for this, 
but the direct budgetary costs of the war in Iraq are 
astonishing. If the President's request is met, the total 
direct budget costs will be $611 billion. That is a staggering 
amount of money way beyond any projection that was ever made at 
the beginning.
    And then if I could turn to chart number 5.
    Chart number 5 indicates that if you add in the funding 
through 2007, then the 2008 requests, do the projected future 
costs on the more gradual drawdown that you mentioned, which 
would leave us with 50- or 60,000 troops in Iraq after 2013--if 
you do all of that and then calculate interest on the war-
related debt, the overall number is 2.4 trillion; but it is 
true, is it not, Dr. Orszag, that approximately 1.9- of that 
2.4 trillion is related to the war in Iraq on that kind of 
calculation?
    Mr. Orszag. We didn't specifically parse out Iraq versus 
other components of the war on terrorism for the future 
scenarios, but if a historical pattern evolved the same way in 
the future, you would wind up with a number that is 
approximately the figure you gave.
    Mr. Allen. Approximately one----
    Mr. Ryan. Would the gentleman yield for a friendly 
question?
    Doesn't your budget resolution balance the budget by 2012?
    Mr. Allen. Thank you for the question.
    Let me go back. I am trying to understand this. You and I 
can talk about that later.
    Dr. Orszag, let me come back to this. You said earlier on 
that DOD doesn't break down Iraq costs separately from 
Afghanistan, particularly with respect to outlays, that with 
respect to budget authorities, they are getting a little better 
in terms of segregating the costs in Iraq and the costs in 
Afghanistan; is that right?
    Mr. Orszag. Yes.
    Mr. Allen. Is there any reason why DOD could not do that if 
they were directed by Congress to be more specific in 
segregating the costs both for budget authority and for outlays 
in terms of those two conflicts?
    Mr. Orszag. My understanding is on the outlay side, that 
would require a very significant change in the budget system 
used by the Department of Defense. I could get back to you in 
writing about the specific change that would be required, but 
it would not be a trivial undertaking.
    Mr. Allen. Then I guess so we are going to keep getting 
these costs lumped together? That is very difficult because the 
support for the conflict in Afghanistan, rebuilding in 
Afghanistan, is very different from the support for or the lack 
of public support for this ongoing conflict in Iraq.
    Mr. Orszag. But just to be clear, again, the biggest 
difficulties on the outlay side where things are for the war on 
terrorism mingled together with other spending.
    In terms of the budget authority that you are providing, it 
is--while it may not be perfect, there is a lot more 
transparency about what is going where.
    Mr. Allen. And could we enhance that transparency by action 
of this committee?
    Mr. Orszag. I am not sure that there are additional steps 
necessary. I think that in terms of projecting future costs, 
there is more transparency that could be provided to us 
through, for example, access to a cost model that the 
Department of Defense uses.
    Mr. Allen. Thank you very much.
    I yield back.
    [Response to Mr. Allen's question from CBO follows:]

    Question (Mr. Allen): What changes to DoD's financial accounting 
system would enable it to segregate war-related from normal peacetime 
outlays?

    Answer: Segregating war-related outlays would require changes at 
both DoD and the Department of Treasury, the cost of which could 
outweigh the benefits. Agency outlays are reported by appropriation 
account, year of appropriation, and period of availability. Thus, 
outlays of war-related budget authority provided in an appropriations 
account will be commingled with outlays for budget authority for 
peacetime purposes if the funding is provided in the same year and is 
available for the same period of time.
    CBO is currently studying the changes that would be required to 
facilitate reporting of outlays for war-related purposes. However, 
because budget authority will eventually lead to outlays over time, 
CBO's tally of funding provided to date is a good indicator for what 
will be spent on the war.

    Chairman Spratt. Thank you, Mr. Allen.
    Mr. Boyd.
    Mr. Boyd. Thank you Mr. Chairman, and thank you for holding 
this important hearing.
    We are obviously here today to talk about the costs of our 
operations in Iran and Afghanistan and other related costs, and 
not only the current costs, but the long-term costs and how we 
might pay for that.
    But, ladies and gentlemen, let us be clear on one thing, 
that that is a situation that we have created that has no good 
solution. I know many of us, as Members, have been to Iraq. I 
have been within the last 3 weeks. This is the situation, 
ladies and gentlemen, where we have assumed the job of policing 
the streets of Iraq and refereeing a civil war.
    The Iraqi security forces can be stood up, trained, but 
they can never be effective until the Iraqi Government stands 
up and creates the command-and-control system, logistical 
support system that will allow them to be effective.
    So, in my view, I think that we are in it for the long haul 
unless we understand that the war on terror, which Mr. Ryan's 
folks spoke so eloquently about, and the morale threat is one 
that exists all around the world, and the al Qaeda operatives 
are working in at least 100 countries, Mr. Ryan, not just in 
Iraq. There were none there until we toppled the government 
there.
    So we are in pretty much a quagmire that there is no good 
solution to that. Many people in the administration would not 
want you to understand what the long-term costs are.
    And as Mr. Edwards has spoken about the long-term veterans 
health care costs, which have not been spoken for in the 
future, the debt service which is one that those of us who are 
Blue Dogs are very interested in, we think that we ought to pay 
as we go. We don't think we ought to borrow money, Mr. Ryan, to 
fund the government, those things which protect our strategic 
interests.
    And also, Mr. Orszag. I want to ask you, Dr. Orszag, about 
the reset costs. You have spoken eloquently about the debt 
service and the $705 billion, which I see on your chart or 
someone's chart. That is about 30 percent or so of the total 
cost of the long-term cost to the war. But you have not spoken 
in defense about the reset costs, which obviously are very 
serious, and we are going to restore ourselves to a position 
that Mr. Ryan put up in his chart, chart number 4, where he 
so--where he very--he outlined the cost of this in terms of 
gross domestic product.
    I hope that we can see--my friend put up that kind of 
chart--when we deal with overall costs of the government, 
including domestic costs, which Ms. DeLauro has spoken to. That 
would be if we are going to play this game, we ought to play 
where we compare apples to apples in the long run. We ought not 
to talk about costs in one term when we talk about domestic 
costs and in a different term when we talked about national 
security interests.
    So, Dr. Orszag, can you talk to us a little bit about reset 
costs and what the long-term future holds for us in terms of 
preparing our military once this is over?
    Mr. Orszag. Yes. And actually coming back to a question Mr. 
Allen had asked, in the area of reset costs and the related 
area of reconditioning, there is not as much transparency as 
one would hope, and that is an area in which more transparency 
about exactly what is happening would be useful.
    We put out a study of the subset of reset, in other words, 
the reset program where you are trying to repair or replace 
damaged equipment, and what we found is that a substantial 
amount of the funding that has been provided, about 40 percent, 
has been not to repair or replace something that was damaged or 
destroyed, but rather to significantly upgrade it or to get 
something new.
    So, for example, in the funding that was provided under the 
reset program, there were 120 M-182 tanks that were enhanced to 
the System Enhancement Program, SEP, configuration, which costs 
about $5 million a tank, and it is substantially beyond what 
would be entailed in simply returning a damaged tank to its 
original state.
    So an issue for the Congress is how much of this money, 
which is supposed to be for repairing and replacing damaged or 
destroyed equipment, is actually being used to upgrade and to 
replenish the capital stock of trucks and tanks and what have 
you.
    Our analysis suggests that if you continued fully funding 
all of these requests, the military will wind up in a better 
position in terms of its equipment, tanks, et cetera, than 
before the war.
    Mr. Boyd. If I might, Mr. Chairman.
    This may be a question for the next panel, but in terms of 
what may be lost or left when we--when we leave--and let us 
make no mistake about it, we will draw down numbers 
significantly and equipment out of that country significantly 
in the near future--what will the cost of that be?
    Mr. Orszag. To remove the equipment?
    Mr. Boyd. No. What we may leave or may have been lost.
    Mr. Orszag. Again, that will depend on how much is left. So 
I can't give you a specific answer.
    Mr. Boyd. Thank you, Mr. Chairman.
    Chairman Spratt. Thank you.
    Let me turn for 2 minutes to Mr. Ryan, and then we will go 
to Mr. Doggett, if that is agreed.
    Mr. Doggett. Let me make an inquiry before he begins.
    I assume by Mr. Ryan being here that every member of this 
panel, including every Republican member on that side of the 
aisle where all of the seats are vacant, received notice of 
this hearing about the cost of the war in Iraq?
    Chairman Spratt. I am pretty sure they did.
    Mr. Doggett. And when was that notice of the hearing sent 
out?
    Chairman Spratt. Seven days ago as required.
    Mr. Doggett. Thank you very much.
    Chairman Spratt. Mr. Ryan.
    Mr. Ryan. I want to ask a couple of quick questions to 
follow up Mr. Boyd.
    I agree these things all ought to be done in context, 
percentage of GDP, and I think you will find that it has 
shifted from defense over to more domestic issues, and as we 
saw from the Comptroller General, we have a big problem on our 
hands going as the percentage of GDP in the future. The reason 
I stuck with defense is because that is what this hearing is 
about.
    Peter, I just have one quick question because I am the only 
Republican here, is taking these numbers--you have $1.7 
trillion cost with interest on the 30,000 level, and then $2.4 
trillion cost with interest in it at the 2013 level. If the 
Majority budget resolution occurs and is implemented and 
executed, and we do not have deficits after 2012 and therefore 
are not debt-financing it, what is the savings off of those 
figures that you would achieve if what they are saying they are 
going to do does, in fact, happen and we are not deficit-
financing these things afterwards?
    Mr. Orszag. Well, it still seems that even after you are 
running a surplus in the baseline, that if additional spending 
reduces the surplus, you are not buying down debt as much as 
you would otherwise, and therefore there are additional 
interest costs. They are the same logic.
    Mr. Ryan. It is not the same interest costs of additional 
debt financing versus canceling out, correct, versus foregone 
cancellation? You are imputing the same interest rate whichever 
way you go?
    Mr. Orszag. In other words, if you have a trillion dollars 
in debt outstanding, and you add $100 billion to it, there is 
some interest on that. If you would have reduced it by $100 
billion, we are on a surplus, but you don't--you have more 
interest than under the baseline.
    Mr. Ryan. So you are saying regardless of whether we are at 
a deficit or surplus, the costs are the same?
    Mr. Orszag. Under the assumption that the additional 
spending is not offset elsewhere in the budget, you are looking 
at the marginal impact on debt outstanding and then higher 
interest costs. Yes, sir.
    Mr. Ryan. Thank you.
    Chairman Spratt. Mr. Doggett.
    Mr. Doggett. Thank you very much for your testimony.
    With reference to the moneys that have already been 
expended, about what percentage of those figures are 
attributable to the war in Iraq?
    Mr. Orszag. Roughly 70 percent.
    Mr. Doggett. Hasn't this varied at times so sometimes much 
higher, but seldom lower?
    Mr. Orszag. Well, earlier on it was lower while we were 
concentrating on this portion in Afghanistan.
    Mr. Doggett. Earlier on everything was lower.
    I am sure you are recall that when the President's top 
economist Lawrence Lindsey suggested that perhaps the initial 
White House figure of $50 billion for the total cost over all 
time for the war in Iraq might be off a little bit, they found 
him another job outside the administration.
    If I understand the burn figures, as they are referred to 
presently, we currently spend in about 4 months in Iraq what 
the White House told the American people initially would be the 
cost of the total war. Is that about right?
    Mr. Orszag. We are spending roughly 11 trillion--I am 
sorry--$11 billion a month.
    Mr. Doggett. We actually got an estimate of 12 billion from 
witnesses this summer from the Pentagon. But perhaps 5 months, 
to spend the--or almost 5 months to spend the amount of money 
now, American taxpayers, American people are being asked to 
expend or borrow the money to finance this, that the total cost 
of the war was alleged to have cost.
    And then can you tell us--I know that since the President 
declared mission accomplished, we have had about 97 percent of 
all of the servicemembers that we have lost who have been 
killed in Iraq who have died since he declared mission 
accomplished. Do you know about how much money has been spent 
in Iraq since the President declared mission accomplished?
    Mr. Orszag. I think it would be pretty easy to get off of 
our--the table that we provided so we could add that up and 
provide that to you.
    [The information follows:]

    Question (Mr. Doggett): How much has the U.S. spent on operations 
in Iraq since President Bush's ``mission accomplished'' speech?

    Answer: The President declared an end to major combat operations on 
May 1, 2003 aboard the USS Lincoln. The Congress does not appropriate 
funding by operation, however, CBO estimates that about $340 billion 
has been appropriated for military operations in Iraq and for training 
and equipping Iraqi security forces since that date. Spending--that is 
outlays or disbursements from the Treasury--for the war is commingled 
with spending from regular appropriations for the Department of Defense 
so CBO cannot say precisely how much has been spent for the war in 
general, or for the war in Iraq in particular. However, CBO estimates 
that of the funding provided to the DoD after May 1, 2003, about $250 
billion had been spent by as of the end of fiscal year 2007.

    Mr. Doggett. And as far as whether the accuracy and the 
veracity of the story from the White House has changed any 
since these initial estimates of $50 billion in Iraq, you made 
reference to the analysis that CBO did, that your office did, 
of the cost of this tragic surge that the President has 
embarked on. And your analysis showed that the cost of the 
surge would be substantially greater this year than the White 
House tried to sell the American people on, didn't you?
    Mr. Orszag. Yes. And this was--maybe I can just explain for 
a moment.
    This was an area I had been asked earlier in which the 
administration explicitly criticized something CBO did.
    Mr. Doggett. Yes, sir. And it is that point that I wanted 
to focus on. Their reaction to a study that was done to try to 
analyze so we would have the facts here in Congress of what the 
costs in dollars--not in blood, we know that is very high--but 
the true costs in dollars would be this year. They said that 
your estimate was inflated; did they not?
    Mr. Orszag. They used some inflammatory language.
    Mr. Doggett. I think it was stronger than that.
    And, in fact, they had apparently omitted to include the 
support troops. They just put the people that were out on the 
front lines, but they didn't consider--I know they contract a 
lot of that out to Blackwater and the like, but they didn't 
consider any of the support costs or all of the support costs 
for those troops.
    Mr. Orszag. And in particular, I remember this quite well 
because it was very early in my tenure, so it sticks in my 
memory.
    The administration had announced an increase of five 
brigades in the theater and were assuming that or were counting 
only direct combat troops in terms to get their roughly 20,000 
troop increase. Our national security team, which is 
outstanding, pointed out that you never send combat troops in 
without police and the people who help feed them and all of the 
other support behind them, and there was no way that you could 
send in five brigades with only 20,000 troops.
    Mr. Doggett. Yes, sir.
    Well, looking, again, throughout this year to see if the 
veracity index or the mendacity index, perhaps, of the White 
House has changed any since that initial $50 billion for the 
total cost of the war, at the beginning of the year we were 
told that we would need next year 145-, $147 billion. On July 
the 31st, talking from your chair, we were told it might be in 
the 165- to $170 billion range.
    What is the current request total to this Congress to pay 
for the war in Iraq next year?
    Mr. Orszag. Slightly under $200 billion.
    Mr. Doggett. So it has already risen to slightly under; it 
is about 196 billion or something like that?
    Mr. Orszag. That is correct.
    Mr. Doggett. And in terms of the total cost, you were asked 
whether it was the worst-case scenario.
    It is not a scenario, in your estimates, the $8,000 for 
every person, it is not a scenario that you defined. It is one 
you were given. It does not consider what the cost would be if 
Vice President Cheney is successful in launching an attack on 
Iran. It doesn't consider what the cost would be if we kept the 
current troop levels there in Iraq.
    But if it is $2.4 trillion, can you just give us some 
comparison to say the budget today--or what $2.4 trillion would 
purchase that the ordinary American citizen could begin to 
understand what it means to pay out $8,000 per person?
    Mr. Orszag. Well, there is no question that $2.4 trillion 
is a lot of money. I understand that you and your colleagues 
have provided many such comparisons for the American public.
    Mr. Doggett. How does it compare to the size of the entire 
Federal budget today? What is that today? How does it compare?
    Mr. Orszag. It is more than that. That is over an extended 
period of time, and it is difficult to compare that to a 1-year 
figure.
    Mr. Doggett. But total amount over 10 years would be about 
what portion of the total Federal budget today?
    Mr. Orszag. You want me--again, the 2.4 trillion is 
actually more than 10 years, and then it would be the--it would 
be, I don't know, three-quarters or so of 10 years Federal 
budget, but I am not exactly sure. I wouldn't normally do that 
kind of comparison.
    Mr. Doggett. Thank you.
    Chairman Spratt. Thank you, Mr. Doggett.
    Mr. Smith.
    Mr. Smith. Excuse me. I apologize for arriving here late 
from a markup in another committee.
    When you talk about reset costs, what would you point to as 
something that might be neglected that we may need to address 5 
years down the road or 10 years down the road rather than 2 
years down the road?
    Mr. Orszag. I am not exactly sure what you mean, sir.
    Mr. Smith. With the reset costs, replacing equipment and 
various other items, long term, I mean, we are finding out now 
that some of the equipment is needing to be replaced that was 
not replaced 10 years ago that maybe should have been, so we 
are starting to see some increased costs now, and certainly the 
war on terror exacerbates the entire issue.
    Could you elaborate on that?
    Mr. Orszag. Sure. Again, the most dramatic increases in 
costs over the past several years have been in the area of 
procurement, and part of that is related to the reset program. 
I would just note, though, that the reset program now is being 
so aggressively funded that our analysis suggests that it is 
more than offsetting what it is supposedly designed to do, 
which is to replace or repair equipment that is damaged in 
theater. In other words, it is leading to a net improvement in 
the quality and number of tanks and trucks and what have you 
relative to prewar----
    Mr. Smith. So, I mean----
    Mr. Orszag [continuing]. Because of the money that you are 
providing to it, okay?
    Mr. Smith. Excuse me. I understand, I think, where you are 
going with this.
    Now, if a 1990--and my years are probably not accurate, but 
if a 1990 tank is needing to be replaced, what would you 
suggest replacing it with?
    Mr. Orszag. Well, again, I think the question is not 
whether or not a 1990 tank needs to be replaced, but, rather, 
if a 1995 or a 1998 tank is damaged in theater, whether the 
purpose of the emergency funding that is provided for the reset 
program is to restore it to operational--you know, to its 
original state, or whether the funds should be used to purchase 
a 2007 or a 2008 high-technology tank.
    A significant component of what is happening is the latter. 
Again, that is up to you. The way that the program is being 
described is that it is designed just to offset the impact of 
the war on that 1998 tank, and that is not all that is 
happening.
    Mr. Smith. Okay. Thank you.
    Chairman Spratt. With the consent of the Members on our 
side, I am going to allow Mr. Becerra to go ahead since he has 
got to leave for a markup and a vote imminently, so I recognize 
Mr. Becerra.
    Mr. Becerra. I thank the Chairman, and I thank my 
colleagues for that.
    Dr. Orszag, thank you very much for your testimony. I would 
like to--actually, I am, first, disheartened that no one from 
the administration and from the Department of Defense took the 
opportunity and the invitation of this committee to come and 
testify about what has to be one of the most important things 
that we are facing, which is how to pay for this ongoing 
military operation in Iraq.
    I am also saddened to learn that, even though the 
administration is not willing to be here, what we are finding 
today is not that we are seeing the tail end of the costs for 
this war begin to occur, but we are actually seeing costs on an 
annual basis rise to pay for the President's adventure in Iraq. 
My understanding is that every single cent of this war--and to 
date we are looking at over a half a trillion dollars--has been 
paid for with a government credit card, because not a single 
cent of it has been paid for, and neither has the President 
ever requested that we try to pay for any particular expense 
for the military campaign in Iraq, which, during times of 
record deficits and difficulties with other programs, makes it 
very difficult to understand.
    I want to pick up on something that my colleague Mr. 
Doggett had mentioned, that ordinary Americans are talking 
about billions and now, of course, trillions of dollars for the 
Iraq war, but rarely do we put it in terms that the average 
American understands. If we could turn to chart number 1--I 
would like to just go through a few of these charts with you, 
Dr. Orszag.
    My understanding is that if the war costs continue under 
these, in some cases, pretty rosy scenarios, we might expect to 
spend somewhere on the order of $2.4 trillion by the time we 
get to 2017. My understanding is that we have a lot of Chicken 
Littles out there in the world saying that Social Security will 
not be around. Well, $2.4 trillion is over half of what it 
would cost us to stabilize Social Security for the next 75 
years.
    Do you have any dispute with that particular figure?
    Mr. Orszag. Without disputing the $2.4 trillion as a 
significant sum, I would point out that that comparison does 
suffer from the flaw that the $4.7 trillion is in present 
value, and the $2.4 trillion is not, and therefore, it is not 
exactly an apples-to-apples comparison.
    Mr. Becerra. Not exactly, but I think even the oranges look 
pretty ugly.
    Can we go to the next chart, number 2?
    Again, the war request by the President just for the year 
2008 dwarfs what the President said we could not spend for 10 
million children in this country so that they could have health 
insurance. That, to me, is, perhaps, the most astonishing that 
the President said he had to veto the children's health care 
bill that would cover 10 million kids for a year who have no 
health insurance because we could not afford it. There you show 
that 40 days of Iraq war activity would more than cover the 
expense. When you see the chart that compares the two, the $196 
billion that the President requested for the 2008 war funding 
compared to the $12 billion that we would spend for 2008 to 
cover 10 million kids, I think it is pretty dramatic.
    Chart number 3, if I could have that one put up.
    I think my colleague from Texas Mr. Edwards went through 
this. Again, I think it is hard for anyone to understand why it 
is that the President is willing to spend so much on the war 
and not even have to pay for it using the government credit 
card, yet his request for our veterans falls way behind it. In 
fact, it falls behind what the Congress was willing to do when 
it comes to trying to protect our veterans.
    Chart number 6--or 5. Excuse me. Is it 6? Chart 6. Excuse 
me. Chart number 6.
    As many of you know, California right now has 500,000 
people who have been evacuated from their homes. We have had 
some six people who have been killed, dozens of people who have 
been injured as a result of these fires, many of them first 
responders. We have over 1,200 homes or buildings that have 
been destroyed, and there still is no end in sight. Yet, as you 
can see, the funding for the war dwarfs what we would spend for 
our first responders, and clearly, again, here, the President 
way underfunds our first responders and even what Congress is 
trying to do. But I think the interesting thing about this 
chart is that the bar on the left, the $25 billion, is the cost 
of borrowing money. That is not the cost of funding the war. 
That is just to pay the interest on the money that the 
President is requesting. That is what happens when you do not 
pay for something and you use the government credit card. 
Ultimately you have to pay for it. Well, the cost of paying the 
interest payments, which have no value because they are just 
interest payments on debt, exceeds by a tremendous amount what 
we are willing to spend on our first responders back in our 
home States.
    Chart 8, if we can go to the chart quickly, and then I will 
go to chart 9.
    Again, it puts more in perspective what we are talking 
about spending again on the government credit card because that 
$330 million a day is not paid for. That would equal the amount 
that we would spend for 45,000 veterans, giving them health 
care; new Border Patrol agents, 1,700; 46,000 more children 
could be in Head Start if we did not have to spend $330 million 
a day.
    As to the final chart, I think this one is the most 
telling, of course. We spend on a daily basis $333 million on 
this war, unpaid for. In other words, our children will have to 
pay for this in the future. Yet, when you take a look at the 
Gulf War just 10, 15 years ago, that was our net total cost, 
$2.1 billion for the entire cost of that war. That is because 
we had allies in this so-called Coalition of the Willing to 
come forward.
    So, Dr. Orszag, I thank you for having come forward with 
this information. I hope the American public will understand 
that, for the ordinary person in this country, there are costs 
to this war.
    Mr. Doggett. Will you yield?
    Mr. Becerra. I certainly will.
    Mr. Doggett. Reflecting back on your initial comments about 
the administration, as compelling as your charts and these 
soaring numbers are surely, this is a situation in which 
absence speaks much louder than words or statistics.
    Mr. Becerra. I yield back, Mr. Chairman, and I thank my 
colleagues for the opportunity to question.
    Chairman Spratt. Mr. McGovern.
    Mr. McGovern. Thank you, Mr. Chairman.
    Dr. Orszag, I want to thank you for your testimony and for 
providing such important information and analysis.
    While some of your testimony today builds on past reports, 
the impact of the Iraq war on the public debt is particularly 
important to this committee, which has the duty to draft a 
realistic budget. I only wish the President of the United 
States were listening and cared half as much about these issues 
as you do and as Chairman Spratt and as other members of this 
committee do.
    I am troubled by the fact that the administration did not 
send a witness here today. I am troubled by the fact that so 
many of my colleagues on the other side of the aisle are not 
here today. I get the feeling that some believe that if we do 
not talk about it, that we do not have to deal with it. But we 
have heard a lot this morning about the growing costs of the 
Iraq war, and this is a real issue.
    Now I would like to turn the conversation, if I may, to 
paying for the war. As your testimony illustrates, we are deep 
in debt from this war. Every second we borrow another $100 
billion here and another $100 billion there to finance this 
war, the deeper and deeper into debt we go, and every morning 
China and Japan and the Arab oil-exporting States wake up and 
they buy the debt. We borrow money for this war, and they hold 
the IOUs.
    We cannot keep borrowing money to pay for this war. We 
cannot keep putting it on the national credit card. Someday 
somebody is going to have to pay for this war, and right now 
the ``borrow and spend and borrow some more'' approach of the 
President's means that that ``somebody'' is going to be our 
kids and our grandkids, and that ``somebody'' is going to be 
the children and grandchildren of every military family in 
America, including those fighting in Iraq and Afghanistan, they 
are going to have to pay for this. And that ``somebody'' is 
going to be the children of the wounded, many grievously 
wounded. They are going to have to pay for this. So, on top of 
all of the sacrifice already demanded of their fathers and of 
their mothers, this President is also demanding that their 
children sacrifice their financial security to pay off his Iraq 
war debt.
    Just as the President intends to dump his mess of a war 
onto the lap of the next President of the United States, he has 
also deliberately and, in my opinion, cynically chosen to dump 
paying for this war onto the next generation.
    So here is my question: If President Bush actually started 
to pay for the war beginning with fiscal year 2008, how would 
that affect the budgetary costs of the war on the public debt? 
Now, he would not be reaching back to pay for the $600 billion 
in borrowed money to fiscal year 2007, so that is still there, 
accumulating debt interest, but imagine the President's 
actually paying for fiscal year 2008 and onward. What would the 
budgetary impact be if the President had finally found the 
courage to pay for his war?
    Mr. Orszag. Again, it depends on sort of what the course of 
the future war looks like, but under the two scenarios we have 
presented, if you offset the costs, he would reduce the impact 
on the debt, you know, in the slower phase-down case by a 
little bit more than $1 trillion; and then there is some debt 
service on that, too, so it is something like $1.2 trillion by 
2017 if he paid for future activities.
    Mr. McGovern. Which is significant.
    Mr. Orszag. That is a significant amount of money, yes, 
sir.
    Mr. McGovern. I also think--you know, sometimes--I think 
Mr. Becerra said this. We talk about these figures, and they 
are so enormous that I think people have kind of lost the 
ability to understand, you know, what $100 billion is or what 
$160 billion is. I was trying to do some calculations here. I 
mean, $160 billion, which is about 1 year of this war in Iraq, 
is equal to the entire budgets of the Department of 
Agriculture, Commerce, Justice, including the FBI and the 
entire Federal judiciary, Interior, Energy, Treasury, the 
Environmental Protection Agency, NASA. I mean, that is 
everything here in Washington. That is everything out in the 
field. I mean, we are spending a huge amount of money, and to 
put all of this on our credit card with no accountability and 
with no plan to pay for it I think is the height of 
irresponsibility.
    The fact of the matter is sooner or later the President 
somehow is going to have to find enough courage and integrity 
to pay for his war, or the disastrous budget impacts described 
by you and by some of the witnesses who will testify later are 
going to get worse and worse and worse than, I think, we have 
ever imagined here. So it will be just one more toxic legacy of 
this disastrous war that, I think, we will have to leave our 
kids to have to clean up.
    I think this committee in particular has a special 
responsibility to make sure that Members of both parties stand 
up to the plate and assume responsibility for this war. I mean 
this is a war that has been decided to be waged by this 
generation, and this generation ought not dump all of the costs 
on the next generation.
    I appreciate very much your testimony here today and all of 
your analysis.
    Thank you, Mr. Chairman.
    Chairman Spratt. Thank you, Mr. McGovern.
    Now Mr. Etheridge of North Carolina.
    Mr. Etheridge. Thank you, Mr. Chairman. Let me thank you 
for holding this hearing because it is the role of this 
committee to try to help set a direction.
    I think one of the things most troubling about all of this 
today--a great deal of it is about this amount of debt that we 
are piling up, as many of my colleagues have talked about. But 
let me ask you a question, and I am sorry Mr. Ryan is not here 
right now because he talked earlier about a percentage of GDP. 
My question to you is, if you can answer it succinctly, have 
you factored in the amount of borrowed money in the GDP? In 
other words, the GDP does not include the amount of money we 
borrow. That is a part of the expenditure of each year, isn't 
it?
    Mr. Orszag. The calculations that I gave you today were 
both without and then with borrowing costs, so the $2.4 
trillion has----
    Mr. Etheridge. Okay, but I think the chart we saw up here 
uses a portion of the expenditure; that is, the revenue coming 
in. Is the borrowed money a part of that revenue stream as you 
calculate the GDP?
    Mr. Orszag. I am not sure what chart you are referring to, 
sir. I am sorry.
    Mr. Etheridge. It was a chart that Mr. Ryan put up, this 
chart.
    Mr. Orszag. Oh, yes. That does not include debts. That is 
just the flow of spending each year----
    Mr. Etheridge. Okay.
    Mr. Orszag [continuing]. Not including any interest on 
outstanding government debt.
    Mr. Etheridge. So, if you use that chart, you really do not 
have a good frame of what is really happening in our budget 
process.
    Mr. Orszag. One of the reasons that----
    Mr. Etheridge. Let me tell you what I am getting to.
    Mr. Orszag. Okay. Thank you.
    Mr. Etheridge. Because if you look at World War II, and if 
you look at Vietnam, the amount of debt that the country held 
and the amount of interest we were paying would be 
substantially lower as a part of our GDP than it is today 
because that is the fastest-growing part of our budget today.
    Mr. Orszag. If you look over a long period of time, we have 
had the evolution of debt as a share of GDP. It was very high 
then in World War II because we faced a very substantial 
military conflict.
    Mr. Etheridge. Sure.
    Mr. Orszag. There have been changes in both directions 
since then.
    Mr. Etheridge. Okay. So here is what I am getting to. If 
you look at the budget, if you look at the scenario you have 
laid out, the amount of borrowed money, and we assume no one 
tackles the issue of paying for it----
    Mr. Orszag. Okay. Uh-huh.
    Mr. Etheridge [continuing]. Can you give us any indication 
at what point the amount of interest we are paying is going to 
crowd out everything else within this budget to include 
education and infrastructure?
    Because the amount of dollars available for the domestic 
side of the budget outside of the mandatory spending is 
continuing to be squeezed. At some point this interest rate 
continues to grow, even with the cost of dollars you are 
showing, without additional inflation, and obviously that has 
got to grow if we do not start paying our debts.
    Mr. Orszag. Let me put it this way: It is absolutely clear, 
under any analysis, that the Nation is on an unsustainable 
fiscal path, and the kinds of scenarios that we are discussing 
this morning exacerbate that unsustainable fiscal path in which 
higher debt and then higher interest costs will crowd out--will 
cause severe economic dislocation and problems eventually over 
time. That is exacerbated by additional spending on the war on 
terrorism, but it exists even in the absence of such spending. 
We are on an unsustainable fiscal path even without the type of 
money for the future that we are talking about in this hearing.
    Mr. Etheridge. All right. The long and short of it is that 
we have got to start paying our bills with real money.
    Mr. Orszag. There is no question that a broad array of 
economists believes that it would be much better if we started 
offsetting the costs of new initiatives and if we, as a Nation, 
started saving more.
    Mr. Etheridge. I asked that question in that context 
because, within the last week, I have talked to farmers who are 
now--we have asked the White House. We cannot seem to get money 
to help them in the worst drought we have had in 100 years. I 
have visited schools where children are in makeshift 
classrooms, and that is happening across this country.
    The truth is we are squeezing out the opportunities to deal 
with our own infrastructure while we are helping with other 
infrastructure, and I think this, over the long run, will 
inhibit our ability as a Nation to be able to grow and to 
compete in this fast-moving economic climate in which we find 
ourselves around the world.
    Do you have any disagreement with that fact?
    Mr. Orszag. Again, what I would say is there is no good 
outcome that comes from the fiscal path that we are on. We are 
borrowing--nationally, in terms of the Nation as a whole, we 
are borrowing an unsustainable amount from abroad. Every 
economist whom I know believes that that will change, the only 
question is when and how, and the sooner that we address those 
sets of challenges the better.
    Mr. Etheridge. Thank you.
    Thank you, Mr. Chairman. I yield back.
    Chairman Spratt. Thank you, Mr. Etheridge.
    We have got a vote coming up. Let us plow ahead in the 
hopes that we can, maybe, end this round of questioning.
    Mr. Moore, Dennis Moore.
    Mr. Moore. Thank you, Mr. Chairman.
    Thank you, Dr. Orszag, for being here.
    Mr. Edwards asked you questions about veterans' medical 
treatment. Do you recall those questions, sir?
    Mr. Orszag. Yes, sir.
    Mr. Moore. He asked you a question specifically about 
traumatic brain injury and about the cost of treatment of those 
personnel. Do you recall those questions, sir?
    Mr. Orszag. I believe he asked about PTSD, not traumatic 
brain injury.
    Mr. Moore. I am sorry. He did. Okay.
    What about traumatic brain injury? Do you have information 
on that in your statement and in the information provided?
    Mr. Orszag. Yes, we do.
    Mr. Moore. All right. What would be the cost--and I 
apologize. I apologize to Mr. Edwards. I had to step out during 
his questions. I had a constituent to meet.
    What would be the cost of providing medical treatment in 
the future to persons suffering from PTSD?
    Mr. Orszag. From PTSD?
    Mr. Moore. Yes, sir.
    Mr. Orszag. We can get you the figures. We have existing 
figures from the Veterans Administration on how much it is 
costing currently, and those were used along with extrapolated 
health care inflation to project future costs.
    Mr. Moore. Has the number of persons suffering from PTSD 
increased, to your knowledge, from past incidents, or do you 
know? Do you have that information?
    Mr. Orszag. The number has, as you would expect, as the 
number of veterans exposed to stressful situations increases.
    I think the question that we struggle with is how will the 
rate change. That is, we expect when the number of veterans 
goes up, that more people will suffer from PTSD, but will the 
rate increase or decline. And those are some of the 
countervailing forces that I delineated in my answers to Mr. 
Edwards.
    Mr. Moore. Yes, sir.
    Dr. Orszag, how many State National Guard units have been 
deployed, to your knowledge, to Afghanistan or to Iraq? Do you 
have that information?
    Mr. Orszag. I do not.
    Mr. Moore. We can get it?
    Mr. Orszag. We can get it.
    Mr. Moore. I would like to have that.
    [The information follows:]

    Question (Mr. Moore): How many states have sent National Guard 
units to either OIF or OEF?

    Answer: Based on the data that CBO has, it would appear that all 50 
states as well as the District of Columbia have sent units to either or 
both of these operations at some time.

    Mr. Moore. Any idea how much equipment has been left behind 
by State National Guard units in Iraq and at what cost?
    Mr. Orszag. We will also respond to you in writing on that.
    Mr. Moore. All right.
    [The information follows:]

    Question (Mr. Moore): What is the cost to the states to replace any 
equipment that those units left behind in theater?

    Answer: Because equipment for units in the National Guard is 
provided by the federal government and purchased by the Department of 
Defense, there is no monetary cost to the states that would result from 
units leaving equipment behind in theater. The Department of Defense 
noted in its February 2007 National Guard and Reserve Equipment Report 
for Fiscal Year 2008 that Army National Guard (ARNG) units had been 
directed to leave $3 billion worth of equipment in theater, which CBO 
estimates represents about 30 percent of the value of all Army 
equipment stationed permanently in theater.

    Mr. Moore. Do you know for a fact that that has happened in 
some circumstances, in some cases, though?
    Mr. Orszag. Yes.
    Mr. Moore. All right. Do you have any idea how many States 
have provided National Guard units? I mean, would it be a 
majority of the States, or do you know that?
    Mr. Orszag. We think so, yes.
    Mr. Moore. Yes. That would probably be at a cost of several 
billion dollars that you have not basically talked about in 
your information here; is that correct? I mean, you have not 
addressed that situation----
    Mr. Orszag. Our costs are Federal Government costs. I just 
want to be clear about that.
    Mr. Moore. Exactly. I am not pointing the finger at you. I 
am just saying that is something that was not covered by your 
testimony; isn't that correct?
    Mr. Orszag. I think there is some ambiguity about that, and 
we will get back to you.
    Mr. Moore. Thank you very much.
    Do you have any way of knowing what the equipment that was 
left behind by National Guard units would do to their readiness 
in the future to respond to a similar situation in the future?
    Mr. Orszag. An obvious statement would be the more 
equipment that is left there and not replaced, the more 
difficult it is. There are currently difficulties just even in 
the regular military with, for example, trucks in particular, 
more advanced trucks. So there are equipment shortages in 
various different parts of the military outside of the theater 
in question.
    Mr. Moore. I am not trying to be critical of you by asking 
these questions, but these were part of the overall picture. 
Your study basically and your testimony related to the costs to 
our country, to our Nation, for the deployment of troops and 
for the equipment that was deployed to Iraq and Afghanistan; 
isn't that correct?
    Mr. Orszag. To the Federal Government, yes.
    Mr. Moore. Right, but there are other costs to the States 
and to the readiness, potentially, in the future. Would that 
also be a fair statement?
    Mr. Orszag. Let me just hone in on ``readiness.''
    There is no question that the military has set a sort of 
norm that there should be two units at home for every unit 
deployed abroad for regular readiness purposes and training and 
what have you, and we are nowhere near that. We are, you know, 
somewhere close to one for one, and it ranges between .75 and 
1.5 in terms of units at home relative to those deployed 
abroad, and that is an unsustainable situation.
    Mr. Moore. Would it be correct to say, based upon the 
national debt at the time in the last, say, 6\1/2\, 7 years, 
that it was about $5.8 trillion to $6 trillion, and now it is 
over $9 trillion?
    Mr. Orszag. You are measuring gross debt----
    Mr. Moore. Yes, sir.
    Mr. Orszag [continuing]. And I prefer to use debt held by 
the public. But on gross debt figures, you are approximately 
correct.
    Mr. Moore. Well, thank you. And I leave you to your 
preference, but I would like to state that the debt, under my 
circumstances, has gone up over $3 trillion in the past 6\1/2\ 
to 7 years; is that correct, sir?
    Mr. Orszag. The gross debt increases will have gone up by--
I am just getting the exact number. It will just take me a 
second--something like that.
    Mr. Moore. All right. We can expect that figure to increase 
in the future based upon your testimony today and based upon 
what is happening in Afghanistan and in Iraq and as to the 
costs to our military. Is that correct as well, sir?
    Mr. Orszag. Yes. At the end of fiscal year 2007, the gross 
Federal debt was, indeed, $9 trillion. That figure will 
continue to increase.
    I would note, though, as an economist, the other concept of 
debt held by the public is the one that is typically used by 
the economics profession.
    Mr. Moore. I understand, but we have mortgaged the future 
of our children and grandchildren; is that correct?
    Mr. Orszag. The way I would put it is we are on an 
unsustainable fiscal path, and something has to give. There is 
no question about that.
    Mr. Moore. Thank you very much.
    Thank you, Mr. Chairman.
    Thank you, Dr. Orszag.
    [Response to Mr. Moore's question from CBO follows:]

    Question (Mr. Moore): What is the effect on the readiness of those 
units that left equipment behind?

    Answer: Leaving equipment behind in theater undoubtedly has a 
negative effect on the readiness of a unit once it returns to the 
States. Although CBO cannot quantify the size of this effect, many ARNG 
units were already short of equipment before they were mobilized to 
deploy to Iraq. Leaving some of their equipment behind would only 
aggravate the shortage. It should be noted, however, that the 
Department of Defense received more than $4 billion from the Congress 
to purchase equipment specifically for the ARNG in 2007. Although not 
all of the equipment to be purchased with these funds will have been 
delivered to Guard units yet, it should eventually go a long way to 
alleviate the shortages caused by leaving equipment in Iraq and 
Afghanistan. The Department of Defense has requested at least $4 
billion for equipment for the ARNG in 2008 and plans to devote an 
additional $18 billion over the five years (2009 through 2013) to 
purchase equipment for the Guard.

    Chairman Spratt. Mr. Bishop.
    Mr. Bishop. Thank you, Mr. Chairman. Thank you very much 
for holding this hearing.
    Dr. Orszag, I just want to make sure we all have the same 
set of numbers. The additional debt service cost on the $196 
billion supplemental, we have calculated it at approximately 
$25 billion. Do you accept that number?
    Mr. Orszag. Over the next decade?
    Mr. Bishop. No. What is the number? Just in 1 year.
    Mr. Orszag. Oh, no. That would be too high. The debt 
service on $200 billion for 1 year should be something--you 
know, approximately $10 billion.
    Mr. Bishop. Approximately $10 billion?
    Mr. Orszag. Yes.
    Mr. Bishop. That amount is approximately half of the amount 
by which the total nondefense discretionary funding that the 
House has passed exceeds the President's request, correct?
    Mr. Orszag. The disagreement between the Congress and the 
President over discretionary spending levels is a little bit 
more than $20 billion.
    Mr. Bishop. And that $20 billion is only about $6 billion 
above current services; is that correct?
    Mr. Orszag. I think that is approximately correct.
    Mr. Bishop. All right. So we are looking to spend $6 
billion above current services, and that amount has been 
described as representing fiscal irresponsibility. Yet it is an 
amount that is less than the additional debt service just on 
the Iraq supplemental; is that correct?
    Mr. Orszag. Six billion dollars is less than $10 billion, 
yes, sir.
    Mr. Bishop. Okay. Thank you.
    Now, the fiscal year 2007 supplemental was approximately 
$170 billion.
    Mr. Orszag. Correct.
    Mr. Bishop. I believe I heard you say that approximately 
$30 billion to $50 billion of that remains unobligated at this 
time.
    Mr. Orszag. Yes. I am just wondering if it is all from the 
fiscal year 2007.
    Those are all fiscal year 2007, yes.
    Mr. Bishop. Is that amount carried forward into fiscal year 
2008?
    Mr. Orszag. It can be obligated. Oh, yes, I remember now. 
About $30 billion can be obligated. There is some authority 
that cannot. It expires basically.
    Mr. Bishop. But some $30 billion could be carried forward. 
So, if we were to approve the entire $196 billion requested, 
the budgetary authority would be approximately $226 billion for 
fiscal year 2008 for the Iraq and Afghanistan wars?
    Mr. Orszag. We are mixing and matching a little bit because 
some of the $196 billion will, presumably, not be obligated in 
fiscal year 2008.
    Mr. Bishop. I guess that gets to my question.
    In the President's transmittal to us--I am just going to 
quote it. He said, ``I hereby designate the specific proposals 
of the amounts requested herein as emergency requirements. This 
request represents urgent and essential requirements.''
    If some $30 billion to $50 billion of the $170 billion--so 
20 to 30 percent of the original request--remains unobligated 
after the fiscal year is over, does that not beg the question 
of the level of urgency or the level of emergency associated 
with the request?
    Mr. Orszag. One complication is most of that money is in 
procurement and cannot, without some change, be used for 
operations and maintenance or other activities, so there is a 
sort of fungibility, or transferability, issue that would have 
to be addressed.
    Mr. Bishop. But there is some 60-some billion dollars of 
procurement money in the $196 billion; is that right?
    Mr. Orszag. Yes. I can look up the exact figure, but it is 
significant.
    Mr. Bishop. But procurement, assuming they could get it all 
done, could be as much as $90 billion out of the 220-some 
billion dollars?
    Mr. Orszag. Again, if you are mixing these two concepts 
together, yes.
    Mr. Bishop. I guess one of my concerns is I think--I do not 
know whether you would agree or not, but we are 5 years into 
this war. We are funding it via supplementals. The fact is that 
as much as a third of what had been requested as urgent in 
fiscal year 2007 remains unobligated now that we are into 
fiscal year 2008.
    Does it not underscore the lack of desirability, for a lack 
of a better phrase, of funding this through supplementals? I 
mean, would we not be able to apply greater scrutiny, would 
there not be greater planning associated with the expenditures 
if these were part of the regular budgetary process as opposed 
to these emergency supplemental processes?
    Mr. Orszag. There would generally be more scrutiny if 
everything were as part of the regular appropriations process. 
On the other hand, you know, in fairness, it is often difficult 
to project out exact amounts far out in a military conflict.
    I would just come back, though, to the procurement point, 
which is, again, a large share and much of the increase in the 
supplementals is coming in this area, and I will just come back 
to raising the questions that were raised in some of our 
reports about exactly what that is purchasing and whether it is 
directly tied to the war on terrorism, or whether it is 
accomplishing other objectives that the Defense Department 
would like to achieve that may be necessary for our overall 
military readiness, but that are not directly tied to the war 
on terrorism.
    Mr. Bishop. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman Spratt. Thank you, Mr. Bishop.
    Mr. Conaway.
    Mr. Conaway. Thank you, Mr. Chairman.
    Mr. Orszag, when was that 2007 supplemental available to 
DOD to start spending?
    Mr. Orszag. Well, I can get you the exact date. Hold on 1 
second.
    Mr. Conaway. July-ish?
    Mr. Orszag. May.
    Mr. Conaway. Certainly not October 1 of 2007----
    Mr. Orszag. No.
    Mr. Conaway [continuing]. Or of 2006. Excuse me.
    Somewhere towards the last half of the fiscal year, it 
became available for the DOD to spend?
    Mr. Orszag. In May 2007, the Public Law 110-28 provided $95 
billion out of the total, and I guess the other $70 billion 
was--I think the other $70 billion was available earlier on, so 
there is a split.
    Mr. Conaway. Okay. All right. But not the full year to get 
this money obligated.
    Mr. Orszag. Correct.
    Mr. Conaway. All right. Do you see anything just horrible 
about the fact that we have got some money, based on the fact 
that this request was made in late 2006, and that there was 
some money that may not have been yet spent?
    Would it have been wiser to obligate that money to take 
this argument away if it were not to be obligated on things 
they really needed?
    Mr. Orszag. You long ago taught me not to use words like 
``horrible.''
    Mr. Conaway. There you go.
    Mr. Orszag. Now, again, I would just come back to that it 
looks like a big part of this has to do with the procurement in 
terms of unobligated amounts that have been provided in budget 
authority.
    Mr. Conaway. All right. I am going off the subject just a 
little bit, but in talking about timing and about getting 
things done, the Senate and the House have both passed their 
versions of the military quality of life 2008 appropriations 
bill, and it is not at conference yet; it was brought back to 
the House; it has not passed yet. We started the fiscal year on 
October 1.
    Do you have any sense of what the veterans have not been 
getting this month as a result of the delays in bringing this 
bill back to the House?
    Mr. Orszag. I do not have any information on that to 
provide to you.
    Mr. Conaway. If I say it was $18.5 million a day off the 
House version that they are not getting those increased 
benefits while we sit and ponder the past, is that anywhere in 
the realm of----
    Mr. Orszag. I do not have any reason to doubt your figure.
    Mr. Conaway. Okay. All right. Let me put it this way. If, 
in fact, the military quality of life appropriations bill had 
an increase in it for 2008 versus 2007, can they spend that 
increase right now?
    Mr. Orszag. No. We are operating under a continuing 
resolution.
    Mr. Conaway. From the 2007 levels?
    Mr. Orszag. That is correct.
    Mr. Conaway. So it is fair to say that whatever that 
increase is, whether it is $18.5 million a day in increased 
benefits to our veterans, they are not getting it right now, 
that they are not getting those increases whatever they might 
be?
    Mr. Orszag. That would be a direct conclusion from it.
    Mr. Conaway. All right. Help me understand a little bit on 
the gross debt versus the net debt.
    Are we not paying interest on the debt held by the Social 
Security Trust Fund and other things? Are we not paying 
interest on that?
    Mr. Orszag. The question arises as to--there is interest 
paid from the rest of the government to the Social Security 
Trust Fund and to the other trust funds whose debt is included 
in gross Federal debt. There is a question about the degree to 
which those transfers between one part of the government and 
another part of the government represent the same net burden on 
the economy or net implications for the economy as net interest 
transactions between the government and the rest of the 
economy. So, when one part of the government pays another part 
of the government interest that is of a different nature than 
when the government pays private borrowers--or private 
creditors, actually----
    Mr. Conaway. Is that because the part of the government 
that is paying it is a revenue-generating part of the 
government where they are selling goods and services to 
somebody, and they are actually earning that money separate and 
apart, or is that money actually coming from taxpayers also?
    Mr. Orszag. The way I would put it is we tend to look at--
the net impact of the budget on, for example, the Nation's 
savings rate and on the macroeconomic demand tends to be tied 
to the unified budget concept, which incorporates both Social 
Security and the rest of the budget.
    Mr. Conaway. Okay. That is a bit hocus-pocus for Mom and 
Dad back at home. Debt service as shown up in the budget is on 
the gross debt, right?
    Mr. Orszag. The debt service that shows up in the budget--
you know, on the bottom line, when we say the budget deficit in 
fiscal year 2007 was 1.2 percent of GDP or was, roughly, $160 
billion, that is net interest. That is not gross----
    Mr. Conaway. So that does not include the interest that is, 
in effect, owed to the Social Security Trust Fund and that will 
ultimately have to get paid out, assuming the Federal 
Government is good for its debt?
    Mr. Orszag. Again, the reason is that you are collapsing 
Social Security's part of the government, and so----
    Mr. Conaway. I understand the mechanics, but when it comes 
time to pay that money out in 2017-ish----
    Mr. Orszag. We can have a very long discussion about the 
theology of the Social Security Trust Fund.
    Mr. Conaway. I am just talking about the debt versus the 
gross debt.
    Mr. Orszag. No, but it ties back to the broader question of 
the meaning of the Social Security Trust Fund and the mechanics 
of how those transactions are undertaken. And I would just go 
back to saying that the headline figures that we tend to use 
for the budget deficit relate to net interests paid to the 
public and not----
    Mr. Conaway. I am a CPA by trade. We are hiding the truth 
when we use a net deficit that eliminates the Social Security 
excesses that are collected each year to reduce our unified 
budget deficit. I think that is hiding the truth as well.
    Mr. Orszag, I appreciate your being here, buddy.
    Mr. Orszag. Thank you.
    Mr. Conaway. I yield back, Mr. Chairman.
    Chairman Spratt. Ms. Moore from Wisconsin.
    Let me say we have got 5 minutes and 12 seconds to cast our 
votes.
    Ms. Moore, if you would yield 30 seconds to Mr. Edwards, we 
will then save the balance of your time and come back as 
quickly as possible. We have got two votes, but the second vote 
will follow shortly after this one.
    Mr. Edwards.
    Mr. Edwards. Mr. Chairman, in response to my friend and 
colleague Mr. Conaway's comments, let me say into the record 
that last year, under the Republican leadership, this Congress 
failed to even pass a VA appropriations bill, yet this year we 
are hearing Republicans concerned. We are now 24 days into the 
new fiscal year. In 2006, they did not pass it until November 
30th; in 2005, December 8th; in 2004, January 23rd; in 2003, 
February 20th; in 2002, November 26th.
    It seems that the concern that the Republicans have today, 
this year, under the Democratic leadership in the Congress, 
which has increased veterans spending by $5.2 billion already 
this year--it seems like there is a lot more concern than there 
was during the 10 years that Republicans were in control. By 
the way, the last time the Republicans passed a VA 
appropriations bill on time was in 1996.
    I yield back.
    Chairman Spratt. We will return shortly. Meanwhile, the 
committee will stand in recess subject to the call of the 
Chair.
    [Recess.]
    Chairman Spratt. I call the hearing back to order, and we 
will finish with this witness as soon as possible.
    Mr. Berry of Arkansas.
    Mr. Berry. Thank you, Mr. Chairman, and thank you for 
holding this hearing.
    I am concerned that such a small number of our colleagues 
from across the aisle has chosen to attend and also that the 
administration has chosen not to participate in these hearings. 
As I understand it, they were offered the chance and were 
encouraged to do so, but they chose not to do that.
    I have several questions, Dr. Orszag. I think you are a 
good and honorable man. You have a very difficult job. I 
appreciate the way that you do it and present it in as honest a 
way as is humanly possible to do.
    Over and over in the short time I have been on this 
committee, people in a position like yours come before us and 
tell us that one of the problems they have is that it is 
difficult to track money at the Department of Defense. There is 
just not enough transparency. From time to time, it is hard to 
tell where the money is, who has got it, what to spend it on, 
and what have you.
    Am I stating that correctly?
    Mr. Orszag. I think it is fair to say that we do not have 
full transparency into the budget systems to the degree that it 
would be beneficial to have.
    Mr. Berry. I find myself--maybe it is a function of my age. 
I just got my Medicare card, and I am beginning to get maybe a 
little bit more focused on my children and grandchildren than I 
have been in the past, but I find myself very concerned. I 
think history's road is littered with the remains of great 
nations that got bogged down in a war and where they ended up 
spending their entire fortune and all they could borrow to go 
with it to deal with that, and where they ended up bringing 
their countries down. I would certainly hope that we would make 
the right decisions here and get ourselves on a path to a 
successful Nation, and not one that is just continuing to bog 
itself down in debt.
    I do not know if you even have the ability to answer this 
or not, but when the war was begun, when the President made 
that decision, he told us that the oil revenues in Iraq would 
be enough to pay for the reconstruction. Do you have any idea 
how much that revenue is and where it is going? Does it go back 
to the Iraqi Treasury or to the U.S. Treasury? Do they actually 
pay for anything themselves?
    Mr. Orszag. I think the clearest answer to that is that the 
reconstruction activities that we are undertaking on net have 
cost us--I gave you the figure over the past--you know, through 
2007. So it is not the case that any revenue generated from 
Iraq or elsewhere has been sufficient to offset the costs of 
what we have been undertaking.
    Mr. Berry. But you do not have knowledge of where that 
money goes?
    Mr. Orszag. We could respond in writing, but the short 
answer is that we can give you the figures, but in terms of 
tracing exactly where the money goes, that is a more difficult 
undertaking.
    Mr. Berry. Right. I think you had a line item in your 
testimony that mentioned international operations. Would that 
be the State Department?
    What I am really trying to get at here, are these private 
security forces like Blackwater, are they included in this 
supplemental? Do we pay for them out of DOD money, or does the 
State Department pay for them?
    Mr. Orszag. I believe that most of that money is included 
in the figures that we have given you.
    Mr. Berry. Okay. Well, it seems as though my colleagues 
from across the aisle are determined to try to make chicken 
salad out of chicken litter, and it is pretty difficult to do, 
and as much as we would all like to see a rosy picture--and 
goodness knows we are all ready for one, especially when it 
comes to this war and to Iraq--and as well-intentioned as, I 
think, you and your colleagues are, if you came here to cheer 
me up this morning, it is not working.
    I thank you very much for your time and for your knowledge.
    Mr. Orszag. I am sorry we did not cheer you up, but I guess 
that was not the intention of the hearing necessarily.
    [Responses to Mr. Berry's questions from CBO follow:]

    Question (Mr. Berry): To what extent have Iraqi oil revenues been 
used to fund Iraqi reconstruction, thereby reducing the potential 
fiscal liability of the U.S. Government?

    Answer: Iraqi oil revenues have not been as high as initially 
projected, this have not gone as far as hoped toward offsetting the 
fiscal liability of the U.S. Government. The Iraqi government had set a 
goal to export 2.5 million barrels of oil per day, and the 
International Monetary Fund (IMF) set a goal of 2.7 million barrels. 
Actual exports since the U.S. invasion have hovered about 1.5 millions 
barrels per day, largely due to war damage, sabotage, and diversion of 
some oil to the black market. Although many outside companies are 
interested in investing in Iraq's oil industry, few are willing to do 
so without a more stable security situation and better investment laws 
and regulations.
    Rising oil prices have had a positive effect, tending to increase 
oil revenues. However, Iraq's Ministry of Finance has been slow to 
transfer funds to the Ministry of Oil, making it difficult for the 
latter agency to maintain the oilfields and execute capital improvement 
projects. The U.S. Congress has thus far provided about $40 billion in 
reconstruction aid to Iraq, including funding from the Iraq Relief and 
Reconstruction Fund and the Iraq Security Forces Fund.

    Question (Mr. Berry): Are private security forces like Blackwater 
included in the supplemental appropriation? Do we pay for them out of 
DoD money, or does the State Department pay for them?

    Answer: Direct contracts to the three major security contractors in 
Iraq--Blackwater, Triple Canopy, and DynCorp--are managed and paid for 
by the State Department. DoD does not contract with those firms 
directly, but some of DoD's prime contractors purchase security 
services from subcontractors, and the three firms just mentioned may be 
among the subcontractors. Thus, indirectly, DoD may pay those firms as 
well. In either case, however--whether managed by DoD or by the State 
Department--the amounts are included in the appropriation totals 
contained in Dr. Orszag's prepared statement.

    Chairman Spratt. Thank you, Mr. Berry.
    Ms. Moore of Wisconsin.
    Ms. Moore. Thank you so much, Mr. Chair.
    I was very intrigued by a line of questioning that the 
Ranking Member was following when he indicated that perhaps the 
cost of the war was overstated. He said that the supplementals 
plus the regular budget and the debt service and the costs that 
you included beyond inflation such as, I would imagine, health 
care costs and unpredictable things were an overstatement. I 
was very intrigued, very excited, as a matter of fact, when he 
sort of suggested that if we were to diminish our commitment to 
certain Cold War assets and equipment, that we could, perhaps, 
have a different outcome.
    Just briefly--I know you have not had time, really, to do 
any number-crunching on this, but I was very intrigued by that 
line of questioning, and I am wondering would that amount to a 
tremendous difference if we were to exclude those Cold War 
assets from your future calculations?
    Mr. Orszag. Well, I guess the way I would put it is there 
are clearly significant opportunities, many of which are 
identified in the CBO Budget Options volume that we put out, 
for example, at the beginning of this year, to modify the 
course of future defense spending through changes in policy, 
and undoubtedly there are many policy choices that you all 
could make to alter the path of future defense spending.
    Ms. Moore. Thank you.
    You talked in your testimony about having greater access to 
the cost model that DOD utilizes, and I am wondering, there was 
a provision in the appropriations bill that would add a little 
bit more teeth to the 9010 measuring stability and security 
reports, which do not contain metrics on war costs and are not 
required by law. Would that be helpful to you in your analyses?
    Mr. Orszag. I am being told by the people who know ``not 
really.''
    Ms. Moore. Not really. Okay.
    I am wondering if you are familiar with A Unified Security 
Budget, a report of the task force, the principal authors being 
Miriam Pemberton and Lawrence Korb from the Foreign Policy in 
Focus, Institute for Policy Studies, and the Center for 
American Progress and the Center for Defense Information.
    Here they basically talk about the appropriateness of, you 
know, number one, providing the full costs of the defense 
budget and the war budget as a unified budget, but, in addition 
to that, the foreign ops budget, the diplomatic efforts, a 
unified approach. They say that a unified security budget would 
pull together in one place the U.S. spending on all of its 
security tools; you know, military forces, homeland security 
and prevention, quite frankly, nonmilitary international 
engagement.
    I am wondering if you have ever undertaken some sort of 
analysis or would undertake an analysis of what impact the 
unified budget would have.
    Mr. Orszag. I think in general, and this has arisen with 
regard to Homeland Security spending and in other areas, 
efforts like that can often provide more transparency and a 
better trade-off across different subcomponents of related 
efforts. There is difficulty, though, in the way that Congress 
is organized in jurisdiction across both authorizing committees 
and appropriations subcommittees in that kind of effort, so it 
is difficult to have an aggregate budget for some activity that 
is split among lots of different committees, and that often 
leads to complications that would need to be taken into account 
in evaluating that kind of approach.
    Ms. Moore. Okay. In my final seconds, I just wanted to 
revisit some of the comments that the Ranking Member made as he 
challenged your projections on the defense budget. He talked 
about balancing the budget.
    I am wondering, in his question and in your response, did 
you consider that defense is not subject to pay-go?
    Mr. Orszag. That is correct. Discretionary spending is not 
subject to the pay-as-you-go rules.
    Ms. Moore. So what was the relevancy--I guess I was not 
able to fully follow that--your give-and-take on that? Because 
neither of you mentioned that fact. So, when you started 
talking about the Republicans balancing the budget by, I 
believe, 2012, I am wondering what were his assumptions, as you 
understood them, about that?
    Mr. Orszag. Let me separate two things. One is what happens 
after 2012 and before--under any projection in which the budget 
is balanced and goes into surplus after 2012, which is the 
question that you are asking, which is--the spending we are 
talking about is discretionary spending, and one of the reasons 
that the CBO traditionally does not attach debt service costs 
to changes in something like discretionary spending is it is 
really hard to parse out what is--you know, you are collecting 
$100 in revenue, and then you are spending something. How much 
of the existing revenue is going for this kind of spending 
versus that kind of spending? It is much clearer when you are 
changing a mandatory program or a flow of taxes, the stuff that 
is subject to pay-go. If you are not offsetting it, then it is 
clearly adding to the budget deficit, and it has the debt 
service implications that then follow.
    On the discretionary side, I think the thought concept is 
there is a certain level of discretionary spending that is 
embodied, for example, in the baseline or that would occur in 
the absence of the war, and if the war is additional spending 
that is not offset in the rest of the budget, that has 
additional debt service costs. As I tried to make clear to Mr. 
Ryan, that occurs regardless of whether the budget overall is 
in surplus or in deficit. The key thing is whether any 
additional costs are offset somewhere else in the budget.
    Ms. Moore. Thank you so much.
    I will yield back.
    Chairman Spratt. Now Mr. Doggett has a couple of questions 
to wrap up.
    Mr. Doggett. Thank you very much.
    I would again note that throughout this hearing, at no 
point, except for one very brief moment, has there been more 
than one Republican Member present, and now there are no 
Republican Members present, not because we discouraged their 
participation, but for reasons that they can explain.
    I would like to redirect Mr. Orszag's testimony to an 
inquiry I had earlier that I got cut a little short on.
    Many of us feel that this surge was a serious mistake, that 
it has not accomplished its purpose. I understand it is not 
your function to analyze that aspect of it, but just looking 
purely at the dollars and cents at the time that you made your 
estimate at the Congressional Budget Office, you were 
criticized vigorously earlier this year, just as this 
administration has criticized almost everyone who differed with 
it on anything about the Iraq war. I note in particular that it 
was said that you had greatly overestimated the cost of the 
surge, and I would just ask you to respond generally on how the 
estimates of the Congressional Budget Office compare with the 
actual cost of the surge in this fiscal year.
    Mr. Orszag. The cost of the surge is very closely tied to 
the number of troops involved. We had originally put forward a 
range that at the lower bound was 35,000 additional troops. We 
are now above that. So I think the record shows that our 
analysis was right on target; again, a credit to the 
outstanding staff that CBO has. To the extent that the 
administration had criticized that original analysis, the 
facts, as they have turned out, have not been kind to that 
criticism.
    Mr. Doggett. I thank you.
    In fact, I believe Secretary Gates said you greatly 
overestimated this. Rather, the truth is that this 
administration, from its original $50 billion estimate on the 
cost of the war in Iraq right through to the estimates that are 
being made outside this committee today, consistently lowballs 
and misstates to the American people the true cost of the 
dollars and, of course, the true cost in blood that we are 
paying for this go-it-alone misadventure.
    I want to ask you about one other aspect of that. Again, I 
am just asking you about the numbers.
    Mr. Orszag. Uh-huh.
    Mr. Doggett. At the onset of this war, we were told by the 
administration, as far as the cost of reconstruction, this was 
going to be an easy matter; that it would be handled through 
the Iraqis themselves, because they were in a rich country.
    Of the costs of the Iraq war on the reconstruction side, 
how much have we already paid out versus this self-pay claim 
that was made at that time?
    I believe specifically on March 27th of 2003, the comment 
was, ``'The oil revenues of Iraq could bring between $50 
billion and $100 billion over the course of the next 2 or 3 
years. We are dealing with a country that can really finance 
its own reconstruction and relatively soon,' Paul Wolfowitz 
said here in testimony in the House.''
    Mr. Orszag. There is no question--and in the figures that I 
gave you for 2001 through 2007, you saw that a subcomponent of 
the $39 billion cost over that period, which is part of the 
overall $600 billion, is for reconstruction, and there is no 
question that there is a significant amount of net effect--
negative--that is extra cost in that area. In other words, it 
is not the case that reconstruction efforts have paid for 
themselves.
    Mr. Doggett. Have you done any analysis of how much of our 
appropriations have actually gone to pay for weapons for those 
who are opposing us? There has been, I know, a General 
Accountability Office study showing a significant diversion of 
weapons to the insurgents. Has there been any analysis of that 
at CBO?
    Mr. Orszag. We have not done that. That is more of a GAO 
type.
    Mr. Doggett. Then there has also been an indication that a 
significant amount of money--I believe the most recent purchase 
proposed $100 million of our appropriations--is going to buy 
the Iraqis weapons from the Chinese.
    Have you done any analysis of how much money has been 
expended on purchasing weapons from China, Russia, Iran?
    Mr. Orszag. No, we have not.
    Mr. Doggett. And with reference to the so-called--another 
bit of fiction, illusion, the so-called Coalition of the 
Willing, have you done any analysis of how much this 
administration has spent already and how much it has committed 
us to in the future to buy members of the Coalition of the 
Willing so that they would be willing.
    Mr. Orszag. Again, I wouldn't necessarily use that--that 
kind of terminology, but----
    Mr. Doggett. You speak more as an economist than an 
accountant, but I am speaking about the practical implications.
    Mr. Orszag. The information that I have is the Department 
of Defense has reported using $1.2 billion of its--or in the 
material for 2008 that it has requested, $1.2 billion of its 
funds for support of Coalition partners in 2006 and $1.4 
billion in 2007. That was part of the material that it used to 
justify its 2008 request.
    Mr. Doggett. That is out of its appropriations request for 
Iraq?
    Mr. Orszag. Again, those numbers are from the past, and, 
yes, it is part of this overall total, but we have the 
information from the request that they submitted for 2008.
    Mr. Doggett. Does that include building a missile defense 
system in Poland and the Czech Republic?
    Mr. Orszag. No.
    Mr. Doggett. So I don't know whether that is being done 
because of all of the renditions and the hidden prisons there 
are more directly related to Iraq.
    Does it include any trade benefits that were given to any 
of these alleged willing partners?
    Mr. Orszag. No.
    Mr. Doggett. Thank you very much.
    Chairman Spratt. Thank you, Mr. Doggett.
    And, Dr. Orszag, that concludes your testimony unless there 
are some parting remarks you would like to leave us with.
    Thank you for your participation and your excellent answers 
and for your entire staff for the solid work that they have 
done in preparation of this report. We are very, very grateful.
    Chairman Spratt. We will now turn to the second panel, 
which consists of Amy Belasco of the Congressional Research 
Service, and Professor Linda Bilmes of the Kennedy School of 
Government at Harvard University.
    Thank you both for your participation and for the efforts 
that you put into your testimony.
    As we previously indicated, your prepared testimony will be 
made part of the record, and you can summarize it as you see 
fit.
    Ms. Bilmes, let us begin with you, if that is agreeable 
with the two of you. The floor is yours, and you can summarize 
your statement to the extent that you see fit. Thank you once 
again for coming, and thank you for your fine work.

 STATEMENTS OF LINDA BILMES, PROFESSOR, JOHN F. KENNEDY SCHOOL 
      OF GOVERNMENT, HARVARD UNIVERSITY; AND AMY BELASCO, 
                 CONGRESSIONAL RESEARCH SERVICE

                   STATEMENT OF LINDA BILMES

    Ms. Bilmes. Thank you, Chairman Spratt.
    Thank you, Chairman Spratt and members of the committee. 
Thank you for inviting me today to speak on this important 
topic. I am Linda Bilmes, professor at the John F. Kennedy 
School of Government at Harvard University, and as you know, 
for the past 2 years I have been studying the total cost of the 
Iraq conflict, particularly the cost of caring for our 
veterans, with my colleague, Professor Joseph Stiglitz of 
Columbia University.
    The paper that we published 2 years ago estimated that the 
cost of the war would range from 1- to $2 trillion. That was 2 
years ago. We are currently updating that study, but so far our 
predictions have come closer than we even could have 
anticipated.
    I have been asked to speak today about the long-term 
accrued costs and the nonbudgetary costs of the war. By long-
term accrued costs, I refer to costs that we have already 
incurred but not yet paid, such as providing lifetime 
disability compensation and medical care to veterans with 
disabilities. And by nonbudgetary costs, I refer to the costs 
that the government does not pay, but someone else is bearing 
the costs; for example, the families taking care of wounded 
soldiers who return home, the loss of economic productivity 
when a soldier is killed or injured, and the impact on the 
economy of macroeconomic factors such as the price of oil.
    Finally, I was asked to say a word about the cost of paying 
interest on the money that we have borrowed to finance the war.
    The key message that I want to deliver is that these 
additional costs are very significant and very real. We 
estimate that the cost of providing disability benefits, 
medical care, and Social Security disability compensation to 
veterans from Iraq and Afghanistan is between 350- and 500 
billion over the course of their lives. This is based on claims 
activity by OIF/OEF veterans to date plus extrapolations of 
data from the first Gulf War.
    We estimate that the costs of replenishing military 
equipment that is being used up faster than it is being 
replaced is in excess of $100 billion. However, I want to note 
that the transparency in the Defense Department's account on 
this topic is very poor, so this may well understate the true 
amount.
    We estimate that the economic loss to the country from the 
deaths of more than 4,000 soldiers, U.S. soldiers, in the 
conflict is at least 30 billion based on using the standard 
valuation of statistical life methodology that the civilian 
government agencies such as OSHA, EPA and FDA adopt. This is a 
case where the official government estimates of the war 
significantly understate the true costs because the budgetary 
cost of a lost soldier is $500,000 as opposed to the 6- to $7 
million which civilian agencies use to estimate a loss.
    We expect the economic losses to the country from soldiers 
who are wounded, injured or incapacitated by mental illnesses 
will add between 200- to $300 billion to the cost of the war. 
This is based on a new analysis we have conducted with the 
assistance of a team of neurologists and psychiatrists at five 
VA hospitals and at the UCSF medical school shortly to be 
published in the New England Journal of Medicine, as well as 
research published by the Veterans' Disability Benefits 
Commission just last month.
    Another cost is the cost to the families. One out of every 
five disabled veterans, according to the Dole-Shalala 
Commission, has had a family member who has had to leave his or 
her job to become a full-time caretaker. Other families have 
had to make other adjustments, not completely leaving their 
jobs, but other adjustments, and we estimate the economic loss 
from this as 40 billion.
    I have not included but I want to note the issue of 
quality-of-life impairment. Many countries, including 
Australia, Canada, New Zealand and the U.K., pay lump sums 
purely for quality-of-life impairments. Those lump sums reach 
up to $500,000, and the President in his current proposals for 
reforming the disability compensation has proposed that we 
include a quality-of-life payment.
    Turning to the macroeconomic effects of the war, the effect 
on the price of oil, which has risen from $25 a barrel before 
the war to $90 a barrel now, is also a cost to the economy. 
Even if we attribute only 5 to $10--you are used to this, but I 
am not--even if we a attribute only----
    Chairman Spratt. There are about 14 minutes left for the 
vote, so there should be ample time for you to finish.
    Ms. Bilmes. Even if we attribute only $5 to $10 of this 
increase to the Iraq conflict, the impact on the economy is 
from 175- to $400 billion. The multiplier effect of this price 
increase, that is the amount that consumers spend less on other 
goods, adds another at least 187 billion.
    Finally, interest costs can be thought about in three ways. 
First, there is the money that we have already spent on what we 
have already borrowed. That amounts to about $85 billion, 
including $58 billion for Iraq. Second, there is the interest 
on money that we still have to pay in the future on what we 
have already borrowed, which adds another 450 billion. Third is 
the interest cost that we need to pay in the future on money 
which we will borrow in the future. We have not included an 
estimate of this, but it would be, depending on the assumptions 
used, very considerable.
    In summary, the budgetary costs of the war that we see 
capture only a fraction of the total costs, and taken together, 
we estimate that all of these costs I have described add nearly 
$1 billion on top of the total cost of the war that the 
government estimates.
    Thank you very much.
    [The prepared statement of Linda Bilmes follows:]

    Prepared Statement of Prof. Linda J. Bilmes, Kennedy School of 
                     Government, Harvard University

    Mr. Chairman, and Members of the Committee, thank you for inviting 
me to speak to you today on this important topic. I am professor Linda 
Bilmes, a faculty member at the Kennedy School of Government at Harvard 
University, where I teach management, budgeting and public finance.
    By way of background, in January 2006 I co-authored, with Nobel 
laureate Professor Joseph Stiglitz, a paper that analyzed the economic 
costs of the Iraq War. At that time, we estimated how much the war in 
Iraq was likely to cost in total, taking into account budget costs to 
date, future operating costs, long-term accrued liabilities (such as 
veterans disability compensation), and economic costs (such as the lost 
earnings of those who were killed and wounded). At that time, we 
estimated that the total cost of the war would be from $1.2 to $2.2 
Trillion, depending on the length of the war and other factors. We are 
presently updating out numbers and we will present an updated paper at 
the American Economic Association in January.
    One of the long-term costs we identified is the cost of providing 
lifetime disability benefits and medical care for veterans. After we 
published the paper, we were contacted by the major veterans' service 
organizations, who thanked us for shedding light on this topic, but 
urged us to take a closer look into the needs of returning veterans. As 
a result I wrote a second paper published in January 2007, specifically 
looking at the cost of providing medical care and disability benefits 
to veterans deployed in Operation Iraqi Freedom and Operation Enduring 
Freedom (OIF/OEF). [The paper, Soldiers Returning from Iraq and 
Afghanistan: The Long-term Costs of Providing Veterans Medical Care and 
Disability Benefits, KSG Research Working Paper RWP07-001 has been 
submitted for the record.] Since then I have testified twice to the 
House Veterans Committee on this topic and I am submitting my testimony 
to the record.
    As you know, Congress has already appropriated over $600 billion 
for the war effort in Iraq and Afghanistan, of which three quarters, is 
for operations in and around Iraq. This year, the President is 
proposing another nearly $200 billion in funding for operations, which 
would bring the monthly total for the conflict to an average of $14 
billion. I would like to especially commend my fellow witness this 
morning, Amy Belasco, who has done an excellent job tracking these 
expenditures. I think she would concur that the Department of Defense 
accounting and reporting systems make it very difficult to know exactly 
where the money is being spent. Her efforts have been invaluable.
    My testimony this morning is not going to focus on past 
expenditures. But before I begin, I would like to say something about 
the use of the ``emergency supplemental'' vehicle for funding the war. 
In my opinion as a budgeting professor, this is not the best way for 
the US budget system--or any budget system--to operate. The purpose of 
the emergency supplemental facility is to fund a genuine emergency or 
unforeseen event, such as Hurricane Katrina. The late transmittal of 
the supplementals during the budget process leads to less congressional 
review and a lower standard of detailed budget justification than 
regular appropriations. It is difficult to understand why, five years 
into the war, we are still funding it largely in this manner. We are 
denying the budget staff of both parties, who are some of the very best 
staff members in the Congress--the budget committees, the authorizing 
committees, and the appropriations committees--the opportunity to 
review these numbers thoroughly. So it is not surprising, given this 
lack of transparency, that we have seen widespread waste and alleged 
corruption in payments to contractors, a lack of timely requests for 
vital equipment such as MRAPs, and continuing shortfalls in critical 
areas such as veteran's health care.
    My second, related, point related is that the Pentagon's financial 
systems do not permit accountability over spending. In report after 
report, the Department's own auditors, its own Inspector General and 
the GAO have concluded that the financial control systems at DOD are 
not capable of providing accurate, transparent accounts of where money 
is actually going. In addition, their accounts do not include accrued 
long-term liabilities. In the private sector, Congress enacted the 
Sarbanes-Oxley law almost unanimously in order to make corporate 
executives personally accountable for accurate and honest accounting. 
But at DOD, there is still no accountability for spending hundreds of 
billions of taxpayer dollars. This problem has been compounded by the 
huge sums that are being spent in Iraq. I strongly urge Congress to 
strengthen existing financial control laws and to consider enacting new 
ones that would require more transparency over financial transactions 
at the Defense Department.
    These problems are directly relevant to the topic I will address 
today, which is how to estimate the total, long-term costs of the Iraq 
War. The government estimates prepared by CBO and CRS are measuring the 
budgetary cost of the war. The estimates that Professor Stiglitz and I 
have prepared count the full economic costs of the war. This includes 
long-term accrued liabilities, human costs, social costs and macro-
economic costs.

                            LONG-TERM COSTS

    When I speak of long-term costs, I am referring to the costs that 
the US taxpayer will pay for decades even if we pulled out of Iraq 
tomorrow. These can be considered ``promissory notes'' of the war--
accrued liabilities that must be paid. For example, in the first Gulf 
War in 1991, the operating costs of the war were paid mostly by our 
allies. By some accounts we even made a profit. But today, 16 years 
after the end of that war, the US government is still paying $4 billion 
a year in disability compensation to veterans of Desert Storm/Desert 
Shield. And even that doesn't include what we are spending on medical 
care and Social Security disability benefits for the veterans of that 
war, and on medical research into Gulf War illness.
    In the Iraq and Afghanistan conflict, there are 4 major categories 
of long-term costs. These are 1) veterans' disability payments, 2) 
veterans' medical care; 3) Social Security disability compensation, and 
4) replenishment of military equipment.
    Let me turn first to veterans. This war has imposed an enormous 
strain on our armed forces. Of the 1.5 million men and women who have 
served to date, about one third have done second or third deployments 
and the majority has had initial deployments extended. These men and 
women are serving in harsh, nerve-wracking conditions, in a war where 
there are no clear front lines. Anyone driving a truck, even when they 
are not on patrol, can be blown up.
    In Iraq alone there have already been 3,800 deaths, 28,000 wounded 
in combat, and another 28,000 injuries and illnesses among our forces. 
Thanks to advances in battlefield medicine we are saving many more of 
the injured than in previous wars. There are 7.5 wounded for every 
fatality, compared with a ratio of under 3 in Vietnam and Korea. Many 
of these are grievous injuries that include TBI, amputations, burns, 
blindness, spinal injuries and polytrauma--which is a combination of 
such things. If you include all those who are wounded in combat, or 
injured in a vehicle accident or contract a disease, there are 14 
casualties for every death. But even this doesn't tell the full story,
    There is a near epidemic of mental health trauma among solders 
returning from this war, To date 720,000 soldiers have been discharged. 
Over 250,0000 of them have already been treated by VA hospitals for 
medical conditions related to their service, with 95,000 treated for 
mental health conditions and more than 45,000 for PTSD. Over 200,000 
have already applied for disability benefits from the VA. The long-term 
costs of the war will include providing medical care for these veterans 
and paying them disability compensation and other benefits such as 
vocational rehabilitation, adaptive housing, family benefits and 
prosthetics.
    A related long-term cost to the government is providing Social 
Security disability compensation. This is decided based on a single 
criterion: whether or not the person is able to work. There are a 
significant number of OIF/OEF veterans who will fall into this 
category. For example, according to the Veterans Disability Benefits 
Commission, one-third of patients with PTSD are ``unemployable''. Given 
that there are 45,000 confirmed cases of PTSD already, that implies 
that already 15,000 Iraq war veterans may be eligible for Social 
Security disability compensation, in addition to all those who have 
serious physical disabilities.
    If we maintain a presence in Iraq through 2017 we estimate that the 
long-tern cost of providing all these benefits over the lifetime of the 
veterans will be at least $400 billion. We projected these costs based 
on the number of claims and medical visits of the current veterans, and 
on historical data from the first Gulf War. For example, we know that 
28% of OIF/OEF veterans have already applied for veteran's disability 
benefits and 88% of the ones that have been processed have been 
approved. Based on the Gulf War conflict, we can project how many Iraq 
and Afghan veterans will eventually seek disability compensation. Even 
through that was a short war with little ground combat, 45% of veterans 
applied for benefits and 87% were approved.\1\ More than 40% are 
enrolled and using the VA health care system. In reality, many veterans 
experts and medical doctors predict that Iraq war veterans will claim 
benefits and use VA health care system at a far higher rate than in the 
Gulf War.

                             MILITARY RESET

    A second long-term cost is the replacement of military equipment. 
We are repairing equipment in Iraq, but it is depreciating at a much 
faster rate than we are replacing it. The military has already said it 
will need $10 to $15 billion to replace equipment in the Army and 
Marines each year for the remainder of the war and for at least two 
years beyond. But there are other forces that will also need re-tooling 
as a result of the conflict. For example the Air Force fleet is aging 
rapidly due largely to the harsh flying conditions in Iraq. The Air 
Force estimates that it will need $400 billion to restore the fleet to 
its target age. If only 10% of that cost is attributed to the five 
years of effort in Iraq, that alone is $40 billion in cost. I will not 
go through all of our estimates here. But in total we estimate that all 
of this will add from $100 to $200 billion to the long- term budgetary 
cost of the war.

                       ECONOMIC COSTS OF THE WAR

    Now let me turn to the social and economic costs of the war. 
Economic costs differ from budgetary costs in several ways. First, they 
include costs borne by those other than the federal government, such as 
veterans, their families, or the communities where they live. An 
example of this is when a family member is forced to quit (or change) 
jobs in order to be a caretaker for a disabled veteran. Consider, for 
example, a veteran with severe physical or brain injuries who is 100% 
disabled. He will receive about $44,000 from the Veterans Department 
and perhaps an additional $12,000 in Social Security disability pay. He 
will receive health care and some additional benefits. But all of this 
adds up to a fraction of what it costs to look after a young man (or 
woman) who needs help getting dressed, eating, washing and other daily 
activities, as well as constant medical attention, 24 hours every day, 
7 days per week. Someone else--perhaps a wife, husband, parent or 
volunteer in the community--is bearing the real cost of providing this 
care. The formula for calculating veterans' disability compensation is 
supposed to approximate the earnings that a veteran would have obtained 
had he not become disabled. But a recent in-depth analysis by the 
Veterans Disability Benefits Commission showed that the dollar amounts 
paid to younger veterans and to those with severe mental disabilities 
do not come anywhere close to matching what they could have earned.\2\
    Economic costs also refer to prices paid by the government that do 
not reflect full market value, or where there is a short or long-term 
impact on the economy as a whole. The US government's disability 
stipend doesn't compensate for the pain and suffering of the veteran 
and his family, or the impairment in quality of life, or the loss of 
economic productivity because he can no longer work. These costs are 
very real--but hard to quantify. For example, if veteran's hospitals 
cannot hire enough mental health professionals to treat the epidemic of 
PTSD, the burden is shifted onto the veterans and families. They are 
the ones who bear the cost of waiting in a queue for long hours, facing 
month-long delays,\3\ and traveling hundreds of miles to seek medical 
attention.

                   ECONOMIC VALUE OF THE LOSS OF LIFE

    One of the major economic costs is the loss of productive capacity 
of the young Americans who have been killed or seriously wounded in 
Iraq. We have estimated these costs, which we refer to as ``social 
costs'', for soldiers who have been killed, wounded or injured. The 
government's budgetary estimate does not include the loss of economic 
output that occurs when a soldier is killed or incapacitated. Although 
it is impossible to translate the value of a life into purely monetary 
terms, the government commonly uses this approach and determines the 
``Value of statistical life'' or ``VSL'', based to some extent on the 
value of foregone earnings and contributions to the economy. This 
method is also widely used by economists and by insurance companies and 
other private sector concerns. There are a wide range of VSL values in 
use. If an American is killed in an environmental or workplace 
accident, the US government estimates the value of a human life at more 
than $7 million.
    Despite the fact that the military ``family'' mourns the loss of 
its soldiers, the official budgetary cost for a soldier's death is 
$500,000 paid to the soldier's family. This amount is a small fraction 
of the value used in even the narrowest economic estimates--and much 
lower than the $6--$7.5 million range used by civilian government 
agencies such as EPA, OSHA and FDA.\4,5\ In many cases, the dead were 
young men and women in peak physical condition, at the beginning of 
their working lives. Their true economic value could easily have been 
much higher.
    Using a VSL of $7 million, the economic cost of the more than 4,000 
American deaths in Iraq and exceeds $30 billion. And while it seems 
harsh to convert these deaths into cold financial numbers, at the same 
time it is important to recognize that our economy will suffer as a 
result of the fatalities in this war.
    We could also apply the VSL to the estimated 1,000 US contractors 
who have died in the region, man of whom were highly skilled 
specialists, working on reconstruction projects such as fixing the 
electricity grid and oil facilities. We have not counted their true 
loss to the success of the project in Iraq, or the fact that their high 
casualty rate has made it more difficult and more expensive for western 
contractors to hire replacements to perform these jobs. In addition, 
the standard budgetary cost does not include the cost to the military 
of having to recruit and train a new soldier to replace the one who has 
died. Nor does it take into account any indirect costs--such as the 
impact on morale, or the heightened risk of PTSD among comrades of the 
fallen soldier who have witnessed the death.

               ECONOMIC COST OF THE SERIOUSLY INJURED \6\

    The wounded contribute significantly to the cost of the war, both 
in a budgetary sense (in the form of lifetime disability payments, 
housing assistance, living assistance and other benefits) and in an 
economic sense.
    To date, there have been more than 60,000 ``non-mortal 
casualties'', among US servicemen deployed to OIF/OEF, half of them in 
combat. 13,000 of these were seriously wounded and unable to serve 
after their injuries. The number also includes 31,000 servicemen and 
women who were injured in other ways while serving (such as truck 
accidents, construction accidents, training accidents, friendly fire 
and other reasons) or who succumbed to illness or disease, and required 
medical evacuation.
    There are also thousands of veterans who incur various injuries and 
illnesses while on active duty who are not medically evacuated. These 
numbers are reflected in the quarter of a million returning soldiers 
who have already been treated at a veteran's medical facility. 80% of 
these veterans have applied for disability benefits which means that 
for at least 200,000 soldiers fighting in Iraq or Afghanistan have been 
left with a physical or mental impairment.
    In our study, Professor Stiglitz and I estimated the economic loss 
to the wounded based on the severity of their injuries. We assigned 
economic values to soldiers who have suffered brain injury, amputation, 
blindness, other types of severe injuries ( e.g., burns, spinal, and 
major organs), injuries that require medical evacuation (not including 
those counted above) and PTSD. We estimate that those with grievous 
injuries, who can no longer be employed, suffer an economic loss as 
great as someone who has been killed because their labor output will 
essentially be lost to the economy and therefore we should assign them 
a VSL similar to the one we used to calculate the value of statistical 
life. Using the percentage of disability service-connectivity they 
receive, we have then assigned partial values for injury to those with 
other significant impairments, such as moderate TBI and traumatic eye 
injuries.
    Since our earlier study, we have done new research to determine the 
number of serious injuries including a study with several VA hospitals 
to gather empirical data. Some have questioned whether all the 
casualties in combat or accidental should be attributed to the war. The 
Dole-Shalala Commission argued strongly that they should. To address 
this point we compared the rate of accidental death and injuries for 
the five years prior to the war with the rates since 2003. In both 
cases the current rates are approximately 50% higher. We will be 
publishing this study shortly.
    In total, we find that the economic costs of injuries will add a 
further $200 to $300 billion to the cost of the war.

               ECONOMIC COST OF MENTAL HEALTH DISABILITY

    Another significant economic cost arises from mental health 
disability. The Veterans Disability Benefits Commission discovered that 
disability pay for serious mental health problems understated the 
economic loss by a wide margin. For example, it found that VA benefits 
cover only 69% of the income that a 35-year old veteran with a mental 
health disability could have expected to earn had he not been disabled. 
For veterans who are rated 100% mentally disabled the Commission found 
that the lifetime earnings disparity--the difference between what the 
veterans could have earned and the disability compensation he was 
paid--was as high as $3.6 million.\7\
    The Commission also found that veterans with severe mental health 
disorders had the poorest overall ratings on health and quality of 
life. Among veterans suffering from PTSD, one out of every three was 
not capable of working at all (``individually unemployable''). In 
addition, long-term mental health disorders led to poor physical 
health. The Commission writes: ``Physical disability did not lead to 
lower mental health in general. However mental disability did appear to 
lead to lower physical health in general.\8\ This confirms the findings 
of Dr. Charles Marmar, chief psychiatrist at the Veterans Hospital in 
San Francisco, who has led a 30 year longitudinal study of Vietnam 
Veterans.\9\ The results of his study found that PTSD patients suffered 
diminished well-being, physical limitations, compromised health status, 
permanent unemployment, days spent in bed, and perpetration of 
violence.\10\

                       QUALITY OF LIFE IMPAIRMENT

    The Disability Commission provided a sense of the kind of life 
impairment that veterans experience. It found that 57% of all veterans 
with any kind of disability suffer ``severe or very severe'' bodily 
pain. This finding is all the more extraordinary because the data 
includes veterans who are only rated 10% disabled. Nearly half of the 
veterans surveyed took daily pain medication, and one quarter of them 
required help in routine activities such as bathing, dressing and 
preparing meals. Overall, 53% of the veterans reported that their 
disability had ``a great effect'' on their lives. Three quarters of the 
veterans agreed with the statement: ``Living with my service-connected 
disability bothers me every day''.\11\
    The impairment to quality of life was strongest among veterans with 
mental health disorders. For example, 99% had worse health status, 
overall, than would have been expected in their age bracket. They also 
scored extremely poorly on overall life satisfaction. Overall life 
satisfaction, even for the 10% disabled level, is only 61%. For those 
rated 50-90% mentally disabled, the overall life satisfaction measure 
hovers around 30%.\12\
    The VA does not currently pay explicit compensation for quality of 
life impairments, and we have not yet included one in our study. 
However a number of other countries, including the UK, Canada, 
Australia and New Zealand, pay specific compensation for quality of 
life . Maximum lump-sum payments for quality-of-life loss in these 
countries range from $220,459 in Australia to more than $500,000 in 
Britain. It is worth noting that the President has recently proposed--
as part of his overhaul of the veteran's disability compensation 
system--that the US should begin to pay a quality of life stipend.

                     COSTS TO FAMILIES OF VETERANS

    The repeated tours of duty have imposed an enormous emotional, 
social and economic strain on the individuals serving and their 
families. When a service member is critically wounded, friends and 
family members put their lives on hold. This puts enormous financial 
and emotional strain on their loved ones. Current law offers caregivers 
few employment protections, so they not infrequently lose their jobs 
and suffer financial consequences. The Dole-Shalala Commission 
estimated that 20% of families of veterans who were wounded, injured or 
otherwise incapacitated (such as with mental illness) have been forced 
to leave their employment in order to become full time caretakers.
    We are in the process of estimating some of the economic costs to 
the families of having to sacrifice their income and jobs, some of the 
additional health care costs that families and society will incur in 
caring for seriously injured veterans. We believe this will impose an 
economic cost in excess of $40 billion.

                          MACROECONOMIC COSTS

    Finally, let me briefly discuss the macroeconomic costs of the war, 
in particular, the effects of the increased price of oil. The price of 
oil in March 2003 was $23 a barrel and has now hit $90 per barrel. We 
attribute some portion of this increase to the war in Iraq. Looking 
back to 2003, at that time the futures markets, even taking into 
account factors such as the increasing demand in China and India and 
the constraints on refining capacity, still predicted that oil prices 
would remain flat. Instability in Middle East is a major reason for 
failure of normal supply response. However in order to be conservative 
we have only attributed $5 to $10 of this increase to the war.
    The increased price of oil hurts the economy in two ways. First, it 
takes money out of the hands of consumers and transfers it to the oil 
producers. America imports around 5.0 billion barrels a year,\13\ which 
means a $5 per barrel increase translates into extra expenditure of $25 
billion (a $10 increase would be $50 billion) per year.\14\ Americans 
are poorer by that amount. If the increase persists for seven years, as 
our conservative estimate assumes, that's $175 billion. For our 
moderate estimate which assumes the effect is for eight years, the cost 
is $400 billion.
    Second, there is a multiplier effect. The reduced purchasing power 
of Americans leads to a reduction in aggregate demand. Assuming a 
standard multiplier of 1.5 that implies that our GDP is reduced by 
approximately $150 billion a year.\15\ Again, I emphasize that this is 
a conservative approach given that nominal oil prices are four times 
what they were in 2003
    We assume GDP has gone down $25 billion x 1.5 = $37.5 billion every 
year, a total of $187 billion. We believe, however, that the total 
impact may in fact be considerably higher.
    Globally, high oil prices and the resulting higher interest rates 
dampened our trading partners' economies, just as it dampened ours. The 
result was that they bought less from America.
    Finally, we can pose the counterfactual question: what would have 
been the impact on America had the money we spent on Iraq been spent at 
home? Clearly there have been some winners in the economy--such as the 
oil companies and certain defense contractors. But overall, war 
expenditures have weakened the economy by more than just higher oil 
prices. Government money spent in Iraq does not stimulate the economy 
in the way that the same amounts spent at home would. To the extent 
that the Iraq war crowded out other expenditures, it lowered domestic 
aggregate demand. The money we have spent in Iraq has had a lower 
multiplier than the same amount invested here; funds that end up being 
spent on contractors in Nepal or transporting troops do not have a 
long-term investment in the economy.
    These macroeconomic costs that we have estimated can be huge, 
depending on the assumptions and how comprehensive an analysis we 
complete. At a bare minimum, the macroeconomic costs of the war have 
exceeded $200 billion, but they may add hundreds of billions to the 
long-term economic cost of the war.

                                SUMMARY

    In summary the budgetary costs of the war capture only a fraction 
of the total costs. There are other significant costs--including costs 
that will occur in the future as well as costs the government does not 
pay in full or at all. There are also costs which are real, but less 
easy to put into dollar terms. These include the cost of pain and 
suffering and the diminished quality of life. In addition, there are 
significant costs in the form of lower economic activity overall. Taken 
together, we estimate that all these costs add nearly $1 billion on to 
the total cost of the war that the government estimates.

                                ENDNOTES

    \1\ Today 169,000 Gulf War veterans are receiving disability 
benefits. (GWVIS Reports).
    \2\ Final Report for the Veterans' Disability Benefits Commission: 
Compensation, Survey Results, August 2007
    \3\ McClatchy Newspapers, (Charlotte Observer Sunday October 21st) 
revealed that some of the most severely injured veterans have to wait 
more than 30 days to see a doctor in the VA system. Waiting times were 
longest in areas such as traumatic brain injury and related diagnostic 
services.
    \4\ The ``peak'' age for VSL may be 29, in terms of lost earnings 
potential, with a VSL between $6 and $7.5 (Viscusi, and Aldy, NBER 
Working Paper 10199, 2003). Adjusting these numbers for 2007 dollars 
the average VSL would exceed $8 million.
    \5\ Compensation typically has been far higher if the individual 
has been injured or killed in an ordinary automobile accident or an 
accident in the private workplace. Outside of government, juries 
frequently award much higher amounts in wrongful death lawsuits, in 
compensation for the pain and suffering of the family.
    \6\ [Editor's Note: No footnote text supplied.]
    \7\ VDBC, Ibid.
    \8\ VDBC Report, p. 15 conclusions
    \9\ [Editor's Note: No footnote text supplied.]
    \10\ Zatzick, Marmar, Weiss et al, ``Posttraumatic Stress Disorder 
and Function and Quality of Life Outcomes in a Nationally 
Representative Sample of Male Vietnam Veterans'', RAND Corporation 1997
    \11\ From VDBC Report, September 2007
    \12\ Ibid.
    \13\ In 2004, they were slightly over 4.8 million barrels, in 2005, 
in 2006 slightly more than 5 million barrels. As this book goes to 
press, imports for 2007 have been running slightly lower than in 2006.
    \14\ We emphasize that these are approximations. We have not 
adjusted the numbers either for inflation, for the time value of money, 
or for the changing levels of imports over the period. Fine tuning the 
calculations by making these adjustments would lead to slightly larger 
numbers than those used in our estimate. ck
    \15\ Given the low level of savings in the US, we can expect 
consumers to spend an equivalent amount less on other goods. Even 
governments (especially state and local governments, which must limit 
spending to revenues) will have to spend less on goods made in America 
as they spend more on oil imports. And, of course, lower spending will 
cause the economy to produce less. Standard estimates of the multiplier 
are at around 1.5.15 which we use in our conservative estimate.

    Chairman Spratt. We have about 12 minutes, so let us get 
started.

                    STATEMENT OF AMY BELASCO

    Ms. Belasco. Chairman Spratt and other distinguished 
members of the committee, thank you for asking the 
Congressional Research Service to testify about the important 
issue the committee is considering: the growing cost of the war 
in Iraq.
    This testimony makes the following key points:
    First, CRS estimates that Congress has provided about 615 
billion to date for Iraq, Afghanistan and enhanced security at 
defense bases, including appropriations to the Department of 
Defense, the State Department, aid AID, and the Department of 
Veterans Affairs. This includes moneys provided in the fiscal 
2008 continuing resolution. This total includes about 455 
billion for Iraq, 127 billion for Afghanistan, and 28 billion 
for enhanced security.
    On October 22nd, as you know, the administration submitted 
an additional request, which includes an additional--an 
additional request of 43.6 billion. If Congress chooses to 
provide those funds, CRS estimates the total war costs would 
reach about 803 billion, including some 192 billion in fiscal 
2008 for Iraq and Afghanistan.
    Our preliminary estimate is that if Congress chose to 
appropriate the moneys in this request, the total for Iraq 
would reach about 609 billion and about 160 billion for 
Afghanistan.
    In recent years, war costs have more than doubled from some 
72 billion in fiscal 2004 to 165 billion in fiscal 2007. Most 
of this increase does not appear to reflect changes in either 
the number of deployed personnel or increases in the intensity 
of operations. Rather, the increase reflects a number of 
unanticipated requirements for force protection, gear and 
equipment, funding to train partners, to train Afghan--train 
and equip Afghan and Iraq security forces, and the single 
largest factor that results in part from a broadened definition 
of those expenses that are war-related, moneys for reset to 
repair, replace and, as the Pentagon has defined it, upgrade 
war-worn equipment.
    There are also increases due to various programs which have 
a more indirect connection to war costs.
    Because war funding has generally been provided as 
emergency supplemental appropriations, the administration and 
the Defense Department developed their requests on a separate 
track and may not make the same kind of trade-offs that are 
made between programs in the regular budget.
    Like other funding requests, DOD's war requests were 
assessed by OMB and the President, but funding levels are not 
subject to the same budgets caps or to long-term budget plans 
as DOD's regular spending.
    Relying on emergency supplemental appropriations has both 
advantages and disadvantages. Potential advantages include 
meeting wartime needs more expeditiously, providing the 
services with more capable equipment for future needs, enabling 
the services to buy large amounts of equipment ranging from 
trucks to radios that have proved important for wartime and 
that were not funded in previous DOD budgets, buying equipment 
earlier than planned, and meeting some unanticipated 
requirements for counterinsurgency warfare.
    Potential disadvantages would include potentially 
increasing readiness problems from equipment shortages because 
DOD has chosen to upgrade rather than do standard maintenance 
in some equipment, and upgrading takes longer than standard 
maintenance; purchasing some equipment whose requirements have 
not been fully vetted; funding programs that may not have been 
subject to the same scrutiny as those in the regular budget; 
and reducing visibility on total program costs and potentially 
eroding budget discipline.
    To address potential effects like these, Congress could 
either require DOD to restore its earlier stricter definition 
of war costs, which has been changed in regulation as hence 
reflects the policy decision, or another alternative would be 
to delay consideration of much of the fiscal 2008 reset request 
until the submission of the fiscal 2009 regular budget when 
baseline requirements could also be considered potentially at 
the same time.
    CRS estimates that in fiscal 2008, DOD has about 45 billion 
in unobligated balances available from previous war 
appropriations which could be used to meet many of the urgent 
war needs until passage of the fiscal 2008 emergency 
supplemental request.
    Finally, as requested, CRS has estimated that the Army 
could finance or cash-flow its war operating expenses without 
passage of the fiscal 2008 supplemental until about mid-January 
of 2008. They would do this by using funds that would otherwise 
be used later in the year.
    If DOD used--transferred additional funds to the Army, and 
the Army slowed nonreadiness-related operating funding, as has 
occurred in previous years, we estimate that the Army can 
finance the operations until mid-February of 2008.
    Thank you very much.
    [The prepared statement of Amy Belasco follows:]

 Prepared Statement of Amy Belasco, Specialist in U.S., Defense Policy 
               and Budget, Congressional Research Service

                        INTRODUCTION AND SUMMARY

    Chairman Spratt, Ranking Member Ryan, and other distinguished 
members of the committee. Thank you for asking the Congressional 
Research Service to testify about the important issue the committee is 
considering: the growing cost of the war in Iraq.
    This testimony makes the following key points.
     First, CRS estimates that Congress has provided about $615 
billion to date for Iraq, Afghanistan and enhanced security at defense 
bases including appropriations to DOD, the State Department and AID, 
and the Department of Veterans' Affairs (VA).
     This total includes about $455 billion for Iraq, $127 
billion for Afghanistan and $28 billion for enhanced security, and 
reflects $5 billion provided in the current FY2008 Continuing 
Resolution. On October 22, 2007, the Administration submitted an 
additional request, which includes an additional $43.6 billion for Iraq 
and Afghanistan. If Congress chooses to provide those funds, CRS 
estimates that total war costs would reach about $803 billion including 
some $192 billion in FY2008.
     In recent years, annual war costs have more than doubled 
from some $72 billion in FY2004 to $165 billion FY2007. Most of this 
increase does not reflect changes in the number of deployed personnel 
but rather several other factors:
     unanticipated requirements for force protection gear and 
equipment;
     funding to train partners and train Afghan and Iraqi 
security forces; and
     the single largest factor, resulting from a broadened 
definition of war-related expenses primarily for reconstitution or 
reset--funds to repair and replace war-worn equipment to include 
expenses with a more indirect connection to war needs.
     Because war funding has generally been provided as 
emergency supplemental appropriations, the Administration and the 
Defense Department have developed requests on a separate track, and may 
not have made the same kind of trade-offs between programs as is done 
in the regular budget. Like other funding requests, DOD's war requests 
are assessed by OMB and the President but funding levels are not 
subject to the same budget caps applying to other discretionary 
spending. DOD has also broadened the scope of programs funded as war-
related activities in recent years.
     Relying on emergency supplemental appropriations has both 
advantages and disadvantages. Potential advantages include
     providing the services with more capable equipment for 
future needs;
     enabling the services to buy large amounts of equipment 
ranging from trucks to radios that have proven critical for war 
fighting which were not funded in DOD's previous regular budgets;
     buying equipment earlier than planned; and
     meeting some unanticipated requirements for counter-
insurgency warfare.
     Potential disadvantages include:
     contributing to equipment shortfalls because DOD chose to 
upgrade rather than do standard maintenance on equipment such as 
Bradley fighting vehicles and M-1/A-1 tanks;
     purchasing some equipment whose requirements have not been 
fully vetted, such as replacement of pre-positioned equipment stationed 
overseas;
     funding programs that have not been subjected to the same 
scrutiny as programs funded in the baseline budget; and
     reducing visibility on total program costs.
     To address potential effects like these, Congress could 
either require DOD to restore its earlier, stricter definition of war 
costs or delay consideration of much of the FY2008 reset request until 
submission of the FY2009 regular budget request in February 2008 when 
baseline requirements would also be considered. CRS estimates that in 
FY2008, DOD has about $40 billion to $45 billion in unobligated funds 
available from previous war appropriations which could be used to meet 
many urgent war needs until passage of the FY2008 emergency 
supplemental request. 1
---------------------------------------------------------------------------
    \1\ According to DOD, unobligated balances of war funds total $53 
billion as of August 2007, consisting primarily of investment funding. 
If an additional $11 billion is obligated in the last month of the 
fiscal year, about $42 billion would remain available for FY2008. CRS 
estimates that DOD figures do not include about $7 billion in funds 
transferred from baseline appropriations to meet war needs. Taking 
these funds into account, would increase unobligated funds to almost 
$50 billion; see Table A1 in CRS Report RL33110.
---------------------------------------------------------------------------
     As requested, CRS estimated how long the Army could 
finance or `cash flow' its war operating expenses without passage of 
the FY2008 supplemental request. Assuming that DOD receives its regular 
appropriation for FY2008, we project that the Army could finance or 
`cash flow' its war expenses until about mid-January 2008 using funds 
that would otherwise be used later in the fiscal year. If DOD used its 
transfer authority and the Army slowed non-readiness-related operating 
funding for its regular activities, as has occurred in previous years, 
we estimate that the Army could finance operations until mid-February 
2008.
    The remainder of the statement discusses these and other points.

                    COMPARISONS TO OTHER MAJOR WARS

    To put the cost of Iraq and Afghanistan in perspective, it may be 
useful to compare those costs to previous wars. Looking strictly at 
military costs and using estimates prepared by CRS Specialist, Stephen 
Daggett that are adjusted for inflation, the discussion below compares 
the cost-to-date after six years of operations to previous wars. 
2
---------------------------------------------------------------------------
    \2\ CRS calculations for DOD costs relying on a variety of data, 
all converted to FY2007 dollars.
---------------------------------------------------------------------------
    The cost of all DOD funds appropriated thus far for the three GWOT 
operations--Iraq, Afghanistan and enhanced security--now equals about 
90% of the 12-year war in Vietnam ($670 billion) and about double the 
cost of the Korean war ($295 billion). 3
---------------------------------------------------------------------------
    \3\ Estimates prepared by Stephen Daggett; all figures converted to 
FY2007 dollars; military costs only.
---------------------------------------------------------------------------
    The cost of all three operations thus far is now over six times as 
large as the cost of the first Persian Gulf War ($94 billion). 
Comparisons to that war are problematic, however, because the United 
States paid some $7 billion, or about 7% of the cost of the war because 
our allies, principally Kuwait and Saudi Arabia, reimbursed the United 
States for most of the cost. 4
---------------------------------------------------------------------------
    \4\ Department of Defense, Annual Report to Congress for Fiscal 
Year 1994, January 1993; converted to FY2007 dollars by CRS.
---------------------------------------------------------------------------
    The Iraq war itself has thus far cost about 65% as much as Vietnam. 
On the other hand, Iraq has cost about 50% more than Korea to date and 
about four and a half times more than the costs incurred for the first 
Persian Gulf War.

                    COSTS-TO-DATE AND FY2008 REQUEST

    Now to costs. There are several ways to look at the cost of the 
current conflicts in Iraq and Afghanistan. DOD witnesses often cite the 
current `burn rates' or monthly obligations as of a particular date. 
While this figure reflects current spending, it does not reflect 
overall costs.
    DOD's war cost reporting system captures the amounts that have been 
obligated for Iraq, for Afghanistan, and for enhanced security and 
hence shows how funds have been allocated after the fact or once 
contracts or purchase orders are signed and military or civilian 
personnel are paid. DOD's figures do not reflect the total amounts that 
Congress has appropriated to date which includes funds that remain to 
be obligated in later years.
    Nor does DOD's reporting system capture some intelligence funding 
that DOD does not administer and may not include other war funds 
appropriated. Nor does DOD capture amounts that have actually been 
spent. 5 Concerned about the accuracy of its reporting, DOD 
asked a private firm to conduct an audit on war cost tracking. 
6 Although DOD's current FY2008 request identifies the funds 
for Iraq vs. those for Afghanistan, DOD has not presented a breakdown 
by operation of all funds received to date. 7
---------------------------------------------------------------------------
    \5\ DOD's financial systems do not segregate `amounts spent' or 
outlays for war expenses from its regular or baseline budget because 
the funds are mixed in the same account.
    \6\ CRS Report RL33110, The Cost of Iraq, Afghanistan, and Other 
Global War on Terror Operations Since 9/11, July 16, 2007 by Amy 
Belasco; http://www.congress.gov/erp/rl/pdf/RL33110.pdf; hereinafter, 
CRS Report RL33110. For example, DOD does not consider the 10 C-17 
aircraft added by Congress in the FY2007 supplemental to be war-
related.
    \7\  See Table 1a. In DOD, FY2008 Global War on Terror Request, 
February 2007; hereinafter DOD, FY2008 GWOT Request; http://
www.dod.mil/comptroller/defbudget/fy2008/fy2007--supplemental/FY2008--
Global--War--On--Terror--Request.pdf.
---------------------------------------------------------------------------
    To present a more complete picture, CRS has estimated how all funds 
appropriated to date are split between Iraq, Afghanistan and enhanced 
security, relying on DOD and other data. In addition, CRS includes not 
only DOD appropriations, but also State Department funds for its 
diplomatic operations, AID funds for reconstruction and aid programs, 
and Department of Veterans Affairs (VA) funds for medical care of 
veterans of these two conflicts. CRS estimates do not include any VA 
disability benefits for Iraq and Afghan veterans since CRS was not able 
to get figures from the VA. About 90% of total funds appropriated to 
date have been for DOD military operations and support in theater as 
well as to train Iraq and Afghan security forces.
    Total War Cost-to-Date. CRS estimates that Congress has provided a 
total of about $615 billion for Iraq, Afghanistan and other counter-
terror operations, and enhanced security at U.S. bases, often referred 
to by the Bush Administration as the global war on terror (GWOT). This 
total includes funds in the FY2008 Continuing Resolution. Of this 
amount, about:
     $573 billion is for DOD;
     $41 billion is for foreign aid, reconstruction, and 
building and operating embassies in Iraq and Afghanistan; and
     $1.6 billion is for VA medical care for veterans of these 
conflicts.
    On a monthly basis, CRS estimates that DOD is spending about $11.7 
billion for the three GWOT operations. This year's average monthly 
spending for Iraq and Afghanistan is running substantially higher than 
the $8.8 billion in FY2006 and the $7.7 billion in FY2005. These 
increases reflect both higher spending by the services to buy new 
weapon systems to replace and upgrade war-worn equipment and higher 
operating costs--particularly in Iraq--much of it is unexplained in 
available budget documents. 8
---------------------------------------------------------------------------
    \8\ CRS estimates based on Table 6, Ibid and monthly DOD war cost 
reports as of July 2007.
---------------------------------------------------------------------------
    Cost of Iraq. CRS estimates that Congress has provided about $455 
billion for Iraq including:
     $423 billion for DOD;
     $31 billion for State/AID; and
     $1.6 billion for VA medical care.
    Average monthly spending for Iraq is running about $9.7 billion, 
well above the $7.4 billion in FY2006 and the $6.5 billion in FY2005. 
Only a small amount of the increase in FY2007 reflects the `surge' in 
troops in Iraq. 9
---------------------------------------------------------------------------
    \9\ CRS estimates that the increase of 30,000 troops in Iraq cost 
between $3.5 billion and $4 billion in FY2007, adding about $300 
million to monthly spending and accounting for 13% of the increase.
---------------------------------------------------------------------------
    Cost of Afghanistan. CRS estimates that Congress has provided a 
total of about $128 billion for Afghanistan including about:
     $118 billion for DOD;
     $10 billion for State/AID; and
     $100 million for VA Medical costs.
    Average monthly obligations are running about $1.7 billion for 
Afghanistan, again substantially more than the $1.4 billion in FY2006 
and the $1.1 billion in FY2005. The increase may reflect higher troop 
levels and operating costs.
    Enhanced Security and Other. CRS estimates that Congress has 
appropriated about $28 billion for enhanced security at DOD bases. 
Average monthly obligations for enhanced security now run about $30 
million a month, less than half of last year's level.
    Of the $615 billion total for the three missions appropriated thus 
far, CRS was unable to allocate about $5 billion in war-related 
appropriations that appear not to have been captured by DOD's tracking 
system, a problem also identified by GAO. 10
---------------------------------------------------------------------------
    \10\ The $615 billion includes the $5.2 billion provided to DOD in 
Sec. 123, H.J. Res. 52, P.L.110-2, FY2008 Continuing Resolution, 
enacted 9-29-07. See also, Table 3 in CRS Report RL33110.
---------------------------------------------------------------------------
Status of FY2008 Request
    Congress has not yet acted on the Administration's FY2008 request 
for war funding with one exception--the FY2008 Continuing Resolution 
includes funding requested by the Administration's for Mine Resistant 
Ambush Protected (MRAP) vehicles, trucks with a V-shaped hull that have 
proven more effective against attacks from Improvised Explosive Devices 
than uparmored HMMWVs. 11
---------------------------------------------------------------------------
    \11\  In the FY2008 CR (H.J. Res 52, P.L. 110-92) Congress approved 
$5.2 billion for Mine Resistant Ambush Protected (MRAP) vehicles that 
the Administration requested in a July 31, 2007 budget amendment.
---------------------------------------------------------------------------
    As of today, including the request submitted on October 22, 2007, 
the Administration has requested $192.5 billion for FY2008's war-
related activities in Iraq and Afghanistan including DOD costs, State 
and AID, and VA medical. 12 This total includes about $158 
billion for Iraq and $33 billion for Afghanistan, and includes the MRAP 
funds which Congress has already provided.
---------------------------------------------------------------------------
    \12\ See Sec. 123, H.J.Res 52, P.L.110-92 enacted September 29, 
2007, and OMB, `Estimate No. 6, FY2008 Emergency Budget Amendments, 
Operation Iraqi Freedom, Operation Enduring Freedom and Selected Other 
International Activities,' 10/22/07; http://www.whitehouse.gov/omb/
budget/amendments/amendment--10--22--07.pdf
---------------------------------------------------------------------------
    Senior appropriators have said that they may not consider the 
FY2008 supplemental request until January or February of 2008, though 
some interim or bridge funding may be included in DOD's FY2008 regular 
Defense Appropriations bill which has been passed by the House and 
Senate. 13 When DOD receives its regular or baseline 
appropriations, it is expected to finance war costs until a 
supplemental is passed by using regular funds slated to be needed at 
the end of the year and any interim funds provided.
---------------------------------------------------------------------------
    \13\ Conferees to H.R. 3222, the FY2008 DOD Appropriations bill 
have been appointed by the House but not the Senate.
---------------------------------------------------------------------------
                  HOW AND WHY WAR COSTS HAVE INCREASED

    In recent years, DOD's annual war costs have more than doubled from 
$72 billion in FY2004 to about $165 billion in FY2007, an increase of 
$93 billion. Little of this increase reflects changes in the number of 
deployed personnel. Rather, the increase is attributable to several 
factors: 1) certain unanticipated requirements for force protection 
gear and equipment; 2) the cost of training and equipping Afghan and 
Iraqi security forces; and 3) even more, to a broadened definition of 
the types of programs that would be considered part of war 
reconstitution or reset--funds to repair and replace war-worn 
equipment.
    Although the major cost drivers in war costs would be expected to 
be changes in the number of deployed military personnel and the 
intensity of conflict, this does not appear to have been the case 
because average deployed military strength has changed relatively 
little in the past four years (see below).
    Changes in Deployed Military Personnel. Although DOD does not 
report these figures to Congress, the best measure of military 
personnel levels may be average strength because it captures the 
average number of military personnel in theater for a year, taking into 
account the ups and downs as units rotate, and the amount of time that 
individual service members are in theater. This figure is equivalent to 
a full-time-equivalents (FTE) for civilians. Between FY006 and FY2007, 
average strength increased by about 6,000 reflecting the increase in 
troop levels announced by the President in January 2007. 14
---------------------------------------------------------------------------
    \14\ Defense Manpower Data Center, DRS 17253, Average Number of 
Members Deployed by Month, September 2001--July 2007 based on the 
Contingency Tracking System; CRS estimated the average of FY2007 by 
assuming the same level in August and September 2007 as of July 2007.
---------------------------------------------------------------------------
    The average strength of military personnel deployed in the Iraq and 
Afghanistan theater of operations has grown from 219,000 in FY2004 to 
254,000 in FY2007, an increase of about 15% increase. During the same 
period, however, costs have grown by about 130%, more than doubling. 
15 Thus there appears to be little correlation between 
changes in personnel levels and changes in costs.
---------------------------------------------------------------------------
    \15\ Ibid.
---------------------------------------------------------------------------
    Changes in Operational Tempo. In the past four years, direct 
operating costs--a reflection or the intensity of operations--have 
grown by about $4 billion, from $6.9 billion in FY2004 to about $11.3 
billion in FY2007, a 65% increase. This would suggest that the 
intensity of operations has grown. While service witnesses have 
frequently testified that operating rates for equipment are several 
times higher than peacetime levels and in an especially harsh 
environment, DOD has not provided Congress with the total number of 
miles driven by tanks, fighting vehicles or trucks each year that would 
show whether the overall pace of operations has risen. It appears, 
however, that a major reason for the $4 billion increase is higher fuel 
prices as cited by DOD in its FY2005 Supplemental justification. 
16
---------------------------------------------------------------------------
    \16\  Department of Defense, FY2005 Supplemental Request for 
Operation Iraqi Freedom (OIF), Operation Enduring Freedom (OEF), and 
Operation Unified Assistance, February 2005 http://www.dod.mil/
comptroller/defbudget/fy2006/fy2005--supp.pdf; and CRS Report RL32783, 
FY2005 Supplemental Appropriations for Iraq and Afghanistan, Tsunami 
Relief and Other Activities by Amy Belasco and Larry Nowels, May 12, 
2005, CRS-22; hereinafter, CRS Report RL32783; http://www.congress.gov/
erp/rl/pdf/RL32783.pdf.
---------------------------------------------------------------------------
    Factors Cited by the Defense Department. The Defense Department 
cites a variety of factors, ranging from higher personnel benefits to 
fuel prices, to explain increases in war costs in its budget 
justifications. Together, we estimate that these could explain about 
$42 billion of the $93 billion increase in annual war costs between 
FY2004 and FY2007. These factors include:
     $3 billion more for higher war-related personnel benefits 
(for higher rates for imminent danger pay, family separation 
allowances, hardship duty, death gratuities, and traumatic injuries); 
17
---------------------------------------------------------------------------
    \17\  CRS Report RL33298, FY2006 Supplemental Appropriations: Iraq 
and Other International Activities; Additional Katrina Hurricane Relief 
coordinated by Paul Irwin and Larry Nowels, June 15, 2006, p. CRS-31; 
hereinafter, CRS Report RL33298; http://www.congress.gov/erp/rl/pdf/
RL33298.pdf.
---------------------------------------------------------------------------
     $10 billion more is for force protection--for example, 
uparmored HMMWVs, night vision goggles (from $2 billion in FY2004 to 
more than $12 billion in FY2007); 18
---------------------------------------------------------------------------
    \18\ CRS Report RL32783, p. CRS-33; Congress added $1.5 billion for 
Mine Resistant Ambush Protected (MRAP) vehicles to the $11.3 billion 
requested for force protection gear in Table 2 in DOD, FY2007 Emergency 
Supplemental Request for the Global war on Terror, February 2007; 
hereinafter, DOD, FY2007 Supplemental Request; http://www.dod.mil/
comptroller/defbudget/fy2008/fy2007--supplemental/FY2007--Emergency--
Supplemental--Request--for--the--GWOT.pdf; for Congressional add, see 
House Appropriations Committee, Press Release, May 24, 2007; for FY2008 
request, see Table 2 in DOD, FY2008 GWOT Request.
---------------------------------------------------------------------------
     $4 billion more to defeat improvised explosive devices 
(from $0 in FY2004 to $4.4 billion in FY2007); 19
---------------------------------------------------------------------------
    \19\ See Table 5 in CRS Report RL33110.
---------------------------------------------------------------------------
     $4 billion more for higher fuel prices ($3.5 billion cited 
in FY2005 Supplemental);
     $13 billion more the cost to train and equip Afghan and 
Iraq Security Forces (from $0 funded in DOD in FY2004 to $12.9 billion 
in FY2007); 20
---------------------------------------------------------------------------
    \20\ Ibid.
---------------------------------------------------------------------------
     $7 billion for higher troop levels and heightened naval 
presence in FY2007 to meet the President's `surge' in force levels. 
21
---------------------------------------------------------------------------
    \21\ CRS Report RL33900, FY2007 Supplemental Appropriations for 
Defense, Foreign Affairs, and Other Purposes, July 2, 1007 by Stephen 
Daggett, Amy Belasco, Pat Towell, Susan B. Epstein, Connie Veillette, 
Curt Tarnoff, and Rhoda Margesson, July 2, 2007, p. CRS-38; 
hereinafter, CRS Report RL33900.
---------------------------------------------------------------------------
    This leaves about $51 billion to be explained. 22
---------------------------------------------------------------------------
    \22\ CRS calculation based on differences between FY2004 and FY2007 
in categories listed.
---------------------------------------------------------------------------
    Of other factors cited by DOD, the $34 billion increase in annual 
reset requests--the repair, replacement, and upgrading of equipment--is 
the largest single factor in the growth in the past four years. Of the 
$51 billion increase,
     About $34 billion is for reset or reconstitution (from 
about $4 billion in FY04 to $38 billion in FY07);
     Some amount that CRS has not been able to identify for 
accelerating the creation of standardized units in the Army and Marine 
Corps (level in FY04 and FY07 unclear); and
     Possibly about $3 billion to `grow the force' or increase 
Army and Marine Corps strength, (perhaps $1 billion in FY2004 to about 
$4 billion in FY07). 23
---------------------------------------------------------------------------
    \23\ CRS calculations based on various sources, including DOD, 
Supplemental & Cost of War Execution Reports and DOD, FY2007 
Supplemental Request.
---------------------------------------------------------------------------
    Taking these additional factors into account, about $14 billion of 
the increase between FY2004 and FY2007 would remain unexplained.
    Role of Reset or Reconstitution. The largest single reason for the 
growth in costs between FY2004 and FY2007 appears to be reconstitution 
or reset--the repair, replacement, and upgrading of war-worn equipment 
as DOD defines it. To date, DOD has received about $64 billion in 
funding for reset. With the just submitted new FY2008 request, the 
total for reset would be $47 billion. That brings the total for enacted 
and requested funding to about $110 billion. 24 The FY2008 
reset request is some $43 billion more than in FY2004. 25
---------------------------------------------------------------------------
    \24\ CRS calculations based on Office of the Secretary of Defense, 
Report To Congress, Long-Term Equipment Repair Costs, September 2006, 
p.24 and p.25; Congressional Record, August 2, 2006, p. S8571; DOD 
FY2007 Supplemental Request, p.75; DOD, FY2008 GWOT Request, p. 62; and 
SAC, Fiscal 2008 War Supplemental, p. 7.
    \25\ CRS assumed $4 billion for all services compared to the $3.3 
billion for Army and Marine Corps in Office of the Secretary of 
Defense, Long-Term Equipment Repair Costs, Sept. 2006, p. 24 and p. 25; 
Table 2 in DOD, FY2007 Supplemental Request.
---------------------------------------------------------------------------
    Although repair and replacement costs might be expected to grow 
over time as operations wear down equipment, it appears that much of 
the growth reflects a broadening of the definition of war-related 
funding as well as `front loading' or requesting funding in advance as 
OMB Director Ronald Portman acknowledged. 26 Providing 
additional funds for reset faces fewer hurdles when war operations are 
funded on a separate track from its baseline or regular requests.
---------------------------------------------------------------------------
    \26\ For changes in repair costs, see Figure 2-2 and Figure 2-3 in 
CBO Paper, Replacing and Repairing Equipment Used in Iraq and 
Afghanistan: The Army's Reset Program by Frances Lussier, September 
2007, hereinafter, CBO, Army Reset; http://www.cbo.gov/
showdoc.cfm?index=8629&sequcence=0&from=7. For front-loading and 
changes in definition, see CRS Report RL33900, p. CRS-42 to CRS-43; 
Table 2 in DOD, FY2008 GWOT Request.
---------------------------------------------------------------------------
                    THE EMERGENCY BUDGETING PROCESS

    The Administration has requested and Congress has agreed to use 
emergency supplemental funds to pay for almost all of the cost of the 
wars in Iraq and Afghanistan thus far. 27 War funds have 
generally not been under the overall discretionary limits set within 
annual budget resolutions so that they do not compete with other 
programs. While few disputed that initial war costs for Afghanistan and 
Iraq met the budget resolution's criteria for emergency spending--
necessary and vital, urgent, sudden, requiring immediate action, 
`unforeseen, unpredictable, and unanticipated,` and `not building over 
time.' Some members now question whether those criteria still apply to 
war costs in the sixth year of operations. 28
---------------------------------------------------------------------------
    \27\ For example, war funds in the FY2007 Supplemental (Sec. 10002, 
P.L.110-28) and provided as `additional' appropriations in DOD's FY2007 
regular appropriations (Sec. 9011, P.L.110-28) were designated as 
emergency funds; see also, Title IX, Sec. 9011 in P.L. 108-287, P.L. 
109-148, P.L. 109-289; DOD also received some funds as non-emergency 
funding in the FY2003 Consolidated Appropriations (P.L. 108-7) and the 
FY2003 Regular DOD Appropriations Act, P.L. 107-48; see Table A1 in CRS 
Report RL33110.
    \28\ Sec. 204 (a) (6)(A) of S. Con. Res 21, May 17, 2007.
---------------------------------------------------------------------------
    In recent years, Congress has set separate caps for war funds. For 
example, the FY2008 budget resolution (S. Con. Res. 21) no longer 
classifies war costs as emergency funds but instead, sets a level in a 
separate category for `overseas deployments.' That level--set in the 
resolution at the Administration's initial request--may be adjusted in 
the House. Changes in that level in the House are not subject to the 
overall budget caps for discretionary programs. 29 Thus, it 
appears that war costs and baseline programs essentially remain on 
separate tracks.
---------------------------------------------------------------------------
    \29\ Sec. 101 (121) and Sec. 207 (d) (1) (E), H. Rept. 110-153 on 
S. Con. Res 21.
---------------------------------------------------------------------------
                  DOD BUDGETING PROCESS FOR WAR COSTS

    Although much of the standard budget review process is followed for 
developing war cost requests--the services submit their requests, the 
Office of the Secretary and OMB review those requests, and ultimately, 
the President sets the level. But unlike the baseline budget, the 
overall funding level for war requests is not set in advance, and war 
requests have generally been considered on a separate track. In FY2008, 
Congress required DOD to submit a full year of war costs with its 
regular budget. Since then, the President has submitted two additional 
requests.
    Relying on supplementals has been considered appropriate for war 
funding because conditions on the ground make it more difficult to 
predict defense needs, particularly in the early stages of a conflict. 
In FY2008, however, Congress required that the President submit a 
complete and detailed request for FY2008 with the regular budget. In 
response to this requirement, DOD simultaneously developed requests for 
the FY2007 Supplemental, FY2008 regular budget, and the FY2008 
Supplemental. Some observers believe having several alternative ways to 
cover costs may have eroded budget discipline.
    DOD's recent requests have also gone beyond traditional definition 
of immediate `incremental costs,' including some programs with more 
indirect or longer-term connections to ongoing war operations such as 
equipping standardized units in the Army and Marine Corps, upgrading 
equipment as part of reset, buying pre-positioned equipment, and 
increasing the size of the Army and Marine Corps.
    In DOD's regular budget process--a six-year process referred to as 
the Planning, Programming, Budgeting and Execution System (PPBES)--
senior officials make trade-offs within a `top line' or total funding 
level set in advance by the President, based on the relative costs and 
benefits of various expenses and programs as well as the relative risks 
of choosing to fund programs in the immediate budget year rather than 
in a later year.
    DOD's War Cost Guidance. DOD recently revised the regulations that 
guide the services in developing war cost requests. These revised 
guidelines appear to institutionalize previous interim guidance and 
practice that broadened the definition of war costs. 30 
Traditionally, the cost of contingencies was expected to include only 
incremental costs directly related to operations--in other words, costs 
`that would not have been incurred had the contingency operation not 
been supported'(emphasis added). 31 The guidance goes on to 
warn that `Costs incurred beyond what was reasonably necessary to 
support a contingency operation cannot be deemed incremental expenses, 
since such costs are not directly attributable to support of the 
operation.' 32
---------------------------------------------------------------------------
    \30\ The latest Financial Management Regulations for contingency 
operations are dated September 2007 and supercede September 2005 
regulations. These regulations were developed in the mid-1990s in 
response to difficulties in estimating the cost of contingency 
operations such as Bosnia.
    \31\ Section 230902, DOD, Financial Management Regulations, Chapter 
12, Sec. 23, `Contingency Operations,' Sept. 2007, hereinafter, DOD, 
FMR, `Contingency Operations'; http://www.defenselink.mil/comptroller/
fmr/12/12--23.pdf.
    \32\ Ibid.
---------------------------------------------------------------------------
    Examples of incremental expenses are:
     special pays for those deployed overseas such as imminent 
danger or separation pay for those with families;
     the additional costs of activating national guard and 
reserve personnel in pay and benefits;
     transportation of personnel and equipment and setting up 
base support services;
     maintenance above planned peacetime levels to repair 
equipment that has been operated at higher operating tempo rates;
     `Other Services and Miscellaneous Contracts;'
     procurement, Research, Development, Test & Evaluation 
(RDT&E), and military construction that is `associated with supporting 
a contingency operation,' `only if the expenditures were necessary to 
support a contingency operation and would not have been incurred in 
that fiscal year in the absence of the contingency requirement' 
(emphasis in original). 33
---------------------------------------------------------------------------
    \33\ DOD, FMR, `Contingency Operations,' p. 23-25.
---------------------------------------------------------------------------
    To distinguish these incremental costs, the guidance required that 
the military services show assumptions about troop levels, operational 
tempo, and reconstitution though little of this information has been 
provided to Congress. In addition, the guidance lists and describes the 
types of incremental expenses that are to be reported monthly.
    In guidance issued to the services to prepare their FY007 and 
FY2008 requests, DOD reiterated that the services would have to 
demonstrate that any investment requests were `directly associated with 
GWOT operations,' rather than to offset `normal recurring replacement 
of equipment.' 34 In addition, the services were also 
required to show that reset plans could be executed in FY2007, 
presumably to meet an emergency criteria. 35
---------------------------------------------------------------------------
    \34\ Under Secretary of Defense, Memorandum for Secretaries of the 
Military Departments, `Fiscal Year (FY) 2008-2013 program and Budget 
Review,' July 19, 2006, p.34-49, specifically, p. 36, 39, 41.
    \35\  CRS Report RL33110, p. CRS-31.
---------------------------------------------------------------------------
    Change in DOD's Definition of War Costs. During the final stages of 
preparation of the FY2007 supplemental, however, DOD appears to have 
adopted a new and expanded definition of war costs that permits the 
services to fund reconstitution or equipment replacement for not only 
operations in Iraq and Afghanistan but also `the longer war on terror.'
    On October 25, 2006, Deputy Secretary of Defense Gordon England, 
issued new `ground rules' for the services in developing their FY2007 
Supplemental requests stating that the services could include 
`incremental costs related to the longer war against terror (not just 
OEF/OIF)' including replacement of war-worn equipment with newer models 
and `costs to accelerate specific force capability necessary to 
prosecute the war.' 36 There is no specific definition of 
the `longer war on terror' although it is now one of the core missions 
of the Department of Defense. 37
---------------------------------------------------------------------------
    \36\ Deputy Secretary of Defense Gordon England, Memorandum for 
Secretaries of the Military Department, `Ground Rules and Process for 
FY '07 Spring Supplemental,' October 25, 2006.
    \37\ CRS Report RL33110, p. CRS-31-p. CRS-32.
---------------------------------------------------------------------------
    In September 2007, DOD published revised budgeting guidance for 
contingency operations that institutionalizes the changes in the 
October 2006 England memo. 38 This new guidance includes a 
new section on budgeting for `large-scale contingencies' that expands 
the definition of expenses that would be considered part of reset. For 
large-scale contingencies which include `intense combat or long-term 
stability or anti-insurgency operations,' the guidance permits the 
services to request `expenses beyond only direct incremental costs' on 
a case-by-case basis. 39
---------------------------------------------------------------------------
    \38\  Although the revised guidance is dated September 2007, it was 
apparently issued as interim guidance earlier. It also appears that the 
guidance endorse requests by the services in earlier supplementals that 
were approved by Congress.
    \39\  DOD, FMR, `Contingency Operations,'p. 23-45.
---------------------------------------------------------------------------
    The guidance also includes not only expenses that `relate directly 
to operations' but also those that are `a result or consequence of the 
operations such as reconstitution activities (to replenish stocks, 
replace battle losses, or worn equipment or systems), depot maintenance 
and other supporting actions,' as well as special funding authorities 
such as coalition support. 40
---------------------------------------------------------------------------
    \40\ Ibid.
---------------------------------------------------------------------------
    This new definition differs substantially from the traditional 
definition of reset--the `process of bringing a unit back to full 
readiness once it has been rotated out of a combat operation,' by 
repairing and replacing equipment and resting and retraining troops.' 
41 The new guidance allows the services to restore or buy 
new equipment that meets a higher standard to meet its future missions 
by enhancing capability or adding new technology as well as rebuilding 
equipment to its original condition (italics added). Thus the guidance 
endorses actions to:
---------------------------------------------------------------------------
    \41\ Office of the Secretary of Defense, Report to Congress, Ground 
Force Equipment Repair, Replacement, and Recapitalization Requirements 
Resulting from Sustained Combat Operations, April 2005, p. 8; see also 
GAO-06-604T, Defense Logistics: Preliminary Observations on Equipment 
Reset Challenges and Issues for the Army and Marine Corps, p. 3.
---------------------------------------------------------------------------
     reach a `desired level of combat capability;'
     appropriate to the units' future mission;
     `restore and enhance combat capability;'
     insert new technology; and
     rebuild equipment to its original condition. 42
---------------------------------------------------------------------------
    \42\ For example, the guidance for vehicle reset endorses `Actions 
taken to restore units to a desired level of combat capability 
commensurate with the units' future mission. It encompasses procurement 
activities that restore and enhance combat capability to unit and pre-
positioned equipment that was destroyed, damaged, stressed, or worn out 
beyond economic repair due to combat operations by procuring 
replacement equipment * * * [including] major repairs/overhauls and 
recapitalization (Rebuild or Upgrade) that enhances existing equipment 
through the insertion of new technology or restores selected equipment 
to a zero-miles/zero-hours condition;' see DOD, FMR, `Contingency 
Operations,' p. 23-21 to p. 23-22.
---------------------------------------------------------------------------
    The new guidance may be intended to help the services provide for 
unanticipated requirements, and apply some of the lessons learned in 
the Iraq and Afghan wars--for example, by providing more force 
protection, meeting threats from improvised explosive devices, buying 
support equipment like trucks, radios, and loading pallets that are 
traditionally under-funded, or fully equipping the reserve-component 
now playing a key role. The new standards appear to provide the 
services with broader leeway to include programs that are expected to 
contribute to future needs rather than restricting war requests to 
programs tied directly to ongoing conflicts.

              CHANGES IN EXPANDING DEFINITION OF WAR COSTS

    Adopting these higher standards also appears to provide a rationale 
for including expenses in supplementals that have more indirect 
connections to ongoing operations. Some observers have questioned 
whether certain programs, funded in emergency supplementals, contribute 
significantly to war operations:
     equipping standardized units in the Army and Marine Corps;
     personnel costs to increase the size of the Army and 
Marine Corps;
     reset, particularly, replacing war losses with equipment 
just beginning production, upgrading equipment for future needs, and 
buying pre-positioned equipment.
    Standardizing Units in the Army and Marine Corps. In FY2005 and 
FY2006, DOD requested and received a total of $10 billion in 
supplementals to fund its ongoing initiative to standardize the 
configuration of Army and Marine Corps units--an effort referred to as 
modularity in the Army and restructuring in the Marine Corps. The Army 
argued that accelerating the creation of standardized units would 
decrease the stress on Army forces by providing more units to deploy.
    Critics suggested that these expenses were more appropriately 
considered regular rather than emergency budget costs and that 
standardizing units may not contribute significantly to reducing stress 
on the force. 43 While DOD argues that modularity makes it 
easier to swap out units during rotations, only some deployed units are 
modular. Modular units have fewer personnel, and some studies have 
found that these units make a small contribution to reducing stress on 
the force. It appears that most, if not all, funding for modularity is 
now in DOD's regular budget.
---------------------------------------------------------------------------
    \43\ CRS Report RL33110, p. CRS-34 to CRS-35; CRS Report RL32783, 
p. CRS-30 to p. CRS-31.
---------------------------------------------------------------------------
    Increasing the Size of the Army and Marine Corps. Until January 
2007, the Administration and DOD argued that the increases in the size 
of the Army and Marine Corps above pre-war levels should be considered 
war costs because they would be temporary increases to relieve stress 
on the force, which would no longer be necessary once the conflicts in 
Iraq and Afghanistan were resolved. This was the rationale for 
including the personnel costs of the additional Army and Marine Corps, 
referred to as `active-duty over strength' in emergency supplementals 
rather than baseline requests. 44 Some Members of Congress 
argued that the Administration should permanently expand the size of 
the Army and Marine Corps to relieve stress on the force.
---------------------------------------------------------------------------
    \44\ CRS Report RL33298, p. CRS-32.
---------------------------------------------------------------------------
    In January 2007, the Administration reversed its position, 
endorsing permanent increases of 65,000 personnel in the Army and 
27,000 in the Marine Corps by 2012. In its FY2007 Supplemental request, 
the Administration included not only the military personnel cost but 
also an additional $1.7 billion to equip an expanded force contending 
that the additional forces would reduce the stress on the force from 
frequent rotations.
    Some observers have questioned this rationale, noting that most of 
the additional forces would not be available until 2012 or 2013. In its 
report, the Senate Armed Services Committee transferred this funding to 
DOD's baseline request on the basis that the Administration's 
initiative to `grow the force,' was a regular rather than a war-related 
expense. 45 According to recent testimony, the Army is 
planning to add forces sooner, though it's not clear whether DOD's 
FY2008 request includes funding for that change. 46
---------------------------------------------------------------------------
    \45\ CRS Report RL33999, Defense: FY2008 Authorization and 
Appropriations, by Pat Towell, Stephen Daggett, and Amy Belasco, 
October 9,2007, p. 19, hereinafter CRS Report RL33999; http://
www.congress.gov/erp/ra/pdf/RL33999.pdf,
    \46\ SAC, FY2008 War Supplemental, p. 69.
---------------------------------------------------------------------------
    Replacing War Losses. Although war losses are generally accepted as 
an appropriate war-related expense, recently, there has been 
controversy about DOD's original FY2007 emergency war requests, which 
included requests to replace lost equipment with new systems about to 
or just-beginning production which would not be delivered for two to 
three years. Examples include:
     $389 million to replace F-16 aircraft with Joint Strike 
Fighters;
     $146 million to buy CV-22 Ospreys;
     $388 million for C-130J aircraft; and
     $375 million for EA--18G electronic warfare requirements.
    Partly in response to congressional scepticism, the Administration 
withdrew these requests in its March 2007 amendment which provided 
funding for additional troops to support the additional five combat 
brigades being sent to Iraq in the troop `surge.' 47 That 
scepticism may be reinforced by the finding in the new CBO report that 
the Army's FY2007 request included funds to replace not only 
helicopters lost in theater but also losses of some 40 helicopters in 
other non-war-related operations, which many observers would continue a 
baseline rather than a war-related requirement. 48
---------------------------------------------------------------------------
    \47\ DOD withdrew these requests and re-allocated the funds to 
additional support personnel associated with the higher troop levels of 
the `surge;' see CRS Report RL33900, p. CRS-44 to CRS-45.
    \48\ Ibid., p. 22-p. 23, and Table 2-3.
---------------------------------------------------------------------------
    Expanded Definition of Reset. While Congress has largely endorsed 
DOD's past reset request, some questions have been raised about these 
requests. In the FY2007 Supplemental, for example, appropriators 
rejected some of DOD's FY2007 reset-related requests on the basis that 
the proposed depot maintenance or procurement was either not 
executable, not clearly an emergency, or provided funding in advance of 
requirements. 49 Congress may want to ask DOD to identify 
which requests are part of the `long war on terror,' rather than for 
Iraq and Afghanistan. Some observers might suggest that to the extent 
that requests were for this purpose, they might be considered more 
appropriately within the context of DOD's regular budget where they 
would compete with other defense needs.
---------------------------------------------------------------------------
    \49\ CRS Report RL33900, p. CRS-42 to CRS-43.
---------------------------------------------------------------------------
    A new report by the Congressional Budget Office on Army reset 
programs estimates that more than 40% of the Army's funding for reset 
thus far--or about $14 billion--is not to repair or replace systems 
returned from overseas, the traditional definition. Instead, CBO 
reported those funds are to upgrade systems to new capabilities, buy 
new equipment to eliminate longstanding shortfalls, and replace pre-
positioned equipment stocks. CBO estimates that almost half of the 
FY2007 funding was for these purposes. 50
---------------------------------------------------------------------------
    \50\ CBO, Replacing and Repairing Equipment Used In Iraq and 
Afghanistan: The Army's Reset Program by Frances Lussier, September 
2007, p. ix and p. 31ff,, Tables 2-4 and Table 2-5; hereinafter, CBO, 
Army Reset Program; CRS calculation of FY2007 of non-reset share from 
CBO Table 2-5.
---------------------------------------------------------------------------
    CBO's report states that over 40% of the Army's war request in the 
past three years has been to rebuild, upgrade, and purchase new or 
upgraded equipment for reserve component, modular units, and pre-
positioned equipment--the broader definition of reset--rather than to 
replace lost equipment or repair equipment returned from theater. This 
included, for example:
     upgrades to Bradley fighting vehicles, previously funded 
in the baseline budget;
     rebuilding heavy trucks to an `as new' status;
     buying replacements for pre-positioned equipment used in 
theater;
     buying additional trucks for the reserve-component to fill 
longstanding gaps; and
     buying medium trucks to equip new modular units. 
51
---------------------------------------------------------------------------
    \51\ CBO, Army Reset Program, passim.
---------------------------------------------------------------------------
    Although the Army argues that the upgrades provide improved 
capability, potential questions for Congress are whether such repair 
and equipment requirements are urgent or war-related requirements in 
light of the one to three years required for delivery. Given the lead 
time to buy such new systems, the Army may rely on its current 
inventory to provide equipment rotating back with units, which is 
possible since the Army is generally using 20% or less of its inventory 
in theater and in many cases, already has upgraded equipment available 
to send to the Iraq and Afghan theater. 52
---------------------------------------------------------------------------
    \52\ Ibid., Summary Table 1 and Table 1-1.
---------------------------------------------------------------------------
     POTENTIAL ADVANTAGES AND DISADVANTAGES OF EMERGENCY BUDGETING

    What are some potential advantages and disadvantages of relying on 
emergency budgeting to fund war costs? Potential advantages might 
include the following:
     wartime needs could be met more expeditiously;
     the services, particularly the Army and Marine Corps, have 
been able to meet certain longstanding goals to upgrade and buy 
equipment;
     the services have bought upgraded, more capable, equipment 
earlier than planned; and
     funding ongoing programs such as modularity in 
supplementals gives the Army room to fund other needs.
    At the same time, potential disadvantages include the following:
     readiness may have reduced because upgrades take longer 
than standard maintenance and hence, equipment may be returned to units 
later;
     purchasing equipment whose requirements have not been 
fully vetted, such as Army pre-positioned stocks;
     visibility on total program costs may be reduced; and
     budget discipline may be eroded.
    Potential Benefits of Emergency Budgeting. The expanded definition 
of emergency requests, particularly reset, may have allowed the 
services, particularly the Army and Marine Corps, to fill certain 
longstanding gaps in their inventories for equipment that had not been 
deemed sufficiently important to be included in previous budgets, some 
of which may have be needed in these conflicts. This included, for 
example, many items that have been included in the Unfunded Priority 
List (UPLs), lists of items that are not included in the President's 
budget that are often submitted to the congressional defense 
committees.
    Supplemental requests have also allowed the services to fund 
certain support items that typically receive less priority than 
aircraft, helicopters, and tanks or other major weapon systems in 
regular budgets. This includes funding in `Other Procurement' accounts, 
which covers a wide range of seemingly mundane support items such as 
radios, tactical vehicles, and loading pallets. During war-time 
operations, the services realized the importance of these items and 
requested substantial funding in supplementals.
    Providing the Army with $5 billion in funding in FY2005 and FY2006 
reduced the pressure on the Army's budget by covering costs that had 
been previously funded in their regular budget. This may have made it 
easier for the Army to cover unanticipated cost increases in programs 
such as the Future Combat Systems.
    Costs of Emergency Budgeting: Readiness Effects. Congress may want 
to ask whether the Defense Department's decision to fund major upgrades 
and purchase new weapon systems and equipment for reset may have 
lowered readiness by contributing to equipment shortages for units 
training to deploy. CBO points out that major system upgrades or 
modifications take longer than performing standard maintenance or 
refurbishing older equipment and delay when equipment returns to units. 
CBO's new report cites two examples: a tank can be reconditioned in 
four months while it takes two years to recondition and upgrade that 
same tank, and an overhaul of a heavy truck takes two to three months 
whereas rebuilding those trucks would take one year (Heavy Expanded 
Mobility Tactical Trucks). 53
---------------------------------------------------------------------------
    \53\ CBO, Army Reset Program, p. 36 to p. 37.
---------------------------------------------------------------------------
    The broader definition of reset could also have lowered readiness 
by putting into the depot maintenance queue major upgrades and 
overhauls of equipment that take more time to complete and may be less 
urgently required than other items. According to GAO testimony and a 
recent report, the Army's repair depots do not target items needed by 
units preparing to deploy but simply repair equipment as it returns. 
54
---------------------------------------------------------------------------
    \54\  GAO-07-814, Defense Logistics: Army and Marine Corps Cannot 
Be Assured That Equipment Reset Strategies Will Sustain Equipment 
Availability While Meeting Ongoing Operational Requirements, September 
2007; http://www.gao.gov/new.items/d07814.pdf; GAO-07-439T, Defense 
Logistics: Preliminary Observations on the Army's Implementation of Its 
Equipment Reset Strategies, January 31, 2007; http://www.gao.gov/
new.items/d07439t.pdf.
---------------------------------------------------------------------------
    Costs of Emergency Budgeting: Incomplete Vetting. Because the 
services have drawn heavily on pre-positioned equipment for Iraq and 
Afghanistan, DOD has included replacements in their war-related reset 
requests. The Army is currently re-examining its overall pre-
positioning strategy to reflect the 2006 Quadrennial Defense Review. A 
recent GAO report points out that the Army's pre-positioning 
implementation plan could `result in investments for the pre-
positioning program that do not align with the anticipated DOD-wide * * 
* strategy,' and recommended that the Army synchronize its strategy 
with that of DOD, a recommendation that DOD endorsed. 55
---------------------------------------------------------------------------
    \55\ GAO-07-144, Defense Logistics: Improved Oversight and 
Increased Coordination Needed to ensure Viability of the Army's 
Prepositioning Strategy, February 2007, p. 4 and p. 7.
---------------------------------------------------------------------------
    Similar dilemmas may arise in other areas where DOD requests in war 
supplementals items that may not fit in with ongoing modernization 
efforts, as may be the case for uparmored HMMWVs and MRAP vehicles. 
Those systems will create additional support costs that may not be 
anticipated in regular budgets.
    Lack of Visibility on Costs and Reduced Budget Discipline. Because 
supplemental and regular funding is requested simultaneously, it 
becomes difficult for Congress to get a full picture of DOD plans as 
well as the past, current and future costs of weapon systems. At the 
same time, the availability of supplementals and broadened definition 
of war costs, gives DOD (and Congress) an alternate funding vehicle 
that is not subject to standard budget caps, and hence a potentially 
attractive way to add funding to the defense budget.
    Some observers have raised concerns that the services may be 
relying too heavily on future supplementals to cover various programs, 
which may allow DOD to delay facing trade-offs between programs.

                          POLICY ALTERNATIVES

    Although both the President and Secretary of Defense Gates have 
suggested that troop levels in Iraq are likely to decrease in 2008 
below pre-surge levels, there remains considerable uncertainty about 
the pace of troop decreases. Administration and Defense witnesses have 
stated repeatedly that changes in troop levels will reflect the 
situation on the ground. 56
---------------------------------------------------------------------------
    \56\ Senate Appropriations Committee, transcript, Hearing on the 
Fiscal 2008 War Supplemental, September 26, 2007, p.55-p. 57, p. 64-
p.65.
---------------------------------------------------------------------------
    Potential options for Congress to avoid some of the dilemmas raised 
by separate emergency budgeting could include the following:
     require DOD to define the criteria for war funding less 
broadly ; or
     delay consideration of much of the FY2008 reset request 
until FY2009, which could encourage DOD to make trade-offs between 
those programs and their baseline requirements within a set limit.
    With about $45 billion in investment funds likely to be available 
to spend as of the beginning of FY2008, DOD might be able to meet 
urgent reset needs while Congress considers its FY2008 reset request. 
57
---------------------------------------------------------------------------
    \57\ According to DOD, war-related carryover is $53 billion as of 
August 2007, consisting primarily of investment funding. If an 
additional $10 billion is obligated in the last month of the fiscal 
year, about $43 billion would remain available for FY2008. CRS 
estimates that DOD figures do not reflect an additional $7 billion in 
funds transferred from baseline appropriations to meet war needs. 
Taking these funds into account, would increase unobligated funds that 
are available to over $45 billion; see Table A1 in CRS Report RL33110.
---------------------------------------------------------------------------
        FINANCING ARMY OPERATIONS WITHOUT A FY2008 SUPPLEMENTAL

    As you requested, CRS estimated how long the Army could continue to 
fund FY2008 war operations using strictly funds from the regular FY2008 
DOD appropriations bill. Under that assumption, CRS estimates that the 
Army could continue to finance its operating costs--both baseline and 
war--until about mid-January. This estimate assumes that the Army uses 
operation and maintenance (O&M) funds slated to be used at the end of 
the year to cover war costs in the initial months of the year. 
58
---------------------------------------------------------------------------
    \58\ CRS assumes baseline Army O&M spending of $6.9 billion 
monthly, including $2.3 billion in DOD's baseline program (the average 
of House and Senate recommended levels) and $4. 6 billion in war 
spending, based on the FY2008 request.
---------------------------------------------------------------------------
    If DOD transferred additional funds to the Army and if the Army 
slowed its non-readiness regular non-war support spending as occurred 
last spring, CRS estimates that the Army could last an additional 
month, or until mid-February 2008.

    Chairman Spratt. We have 6 minutes and 42 seconds to make a 
vote. With your patience and forbearance, we will go and come 
back as quickly as we can. We have two votes. I want to make 
sure that there will be some coming back because I certainly 
have questions that I would like to put to you, but if that is 
agreeable with you, we will be back as quickly as possible.
    The committee stands in recess subject to call of the 
Chair.
    [Recess.]
    Chairman Spratt. I think we will have a couple more 
showing.
    I have some questions for the witnesses, and then we will 
let you get on your way.
    Let me thank you for your excellent testimony. We have got 
questions we would like to ask you about it, but you have added 
tremendously to our knowledge already.
    Let me say to Ms. Belasco in particular, you may sometimes 
wonder as you labor over those CRS reports who is reading them. 
There are several Members who are reading them, and you do a 
very, very good job of getting all of the facts there in 
something that is enormously difficult to master. You have done 
a great job.
    You say in your testimony that DOD's reporting system 
doesn't necessarily capture certain funding; intelligence 
funding, for example. But you imply that there are other items 
that it simply doesn't capture, identify as war funding.
    You also indicate that DOD asked for a private firm to 
conduct an audit and to help it set up its system for war cost 
tracking. Do you know of the status of that system, and have 
you been allowed access to that in your work to determine as 
you track war cost funding?
    Ms. Belasco. My understanding is the audit is not complete 
yet.
    Chairman Spratt. So have they built a structure? Have they 
consulted anyone outside DOD about how it should be designed?
    Ms. Belasco. I don't know the answer to that. I mean, I do 
know that they are working on looking at their own war costs. 
And, for example, one of the things that I include and they 
don't include is moneys that have been transferred from DOD's 
regular appropriations act to meet unanticipated war needs, and 
they are actually looking at this question.
    But----
    Chairman Spratt. What other items are they not capturing? 
You mentioned intelligence.
    Ms. Belasco. For their monthly burn rates and for their 
obligations report, some of them don't capture intelligence 
spending which is not administered by the Defense Department, 
and that is about--to date I would have to double check it, but 
it is probably $25 billion over the past few years.
    There is also some moneys from fiscal 2003 which were--
which I count as war-related because that is what they were 
appropriated for, and I don't think they capture those as well.
    The other kind of--the other issue that is beginning to 
surface is also that the Defense Department, in their 
justification materials, now includes a line that says non-GWOT 
and intelligence spending. So they themselves are starting to 
categorize some of the moneys appropriated in supplementals as 
not relating to war, like increases to cover higher fuel prices 
in the baseline budget, or, for example, the additional C-17s 
that Congress approved in the fiscal 2007 supplemental but that 
they do not consider to be related to the global war on terror.
    This makes things rather messy.
    Chairman Spratt. You mentioned in your testimony that there 
has been an enormous increase in the account called--or under 
the rubric of ``reconstitution,'' which is different from 
``reset.'' Apparently it is more inclusive, a broader category 
than ``reset.'' Would you differentiate the two, and could you 
shed some light on why this reconstitution account is now up to 
$45-, $46 billion a year?
    Ms. Belasco. I am sorry, what was the question again?
    Chairman Spratt. Would you differentiate--how do you 
distinguish ``reset'' from ``reconstitution,'' and why has the 
category of reconstitution gone up to $46 billion, $10 billion 
in 1 year? Is procurement being assigned to this account that 
would otherwise be procured in the ordinary course of business?
    Ms. Belasco. First of all, I think the question of 
``reset'' versus ``reconstitution'' itself is a bit murky. The 
terms are sometimes used interchangeably.
    Part of what may have happened is that the definition of 
what is considered to be ``reset,'' that DOD has broadened its 
definition of what is considered to be ``reset.'' 
``Reconstitution'' was the traditional term, and it used to 
mean simply restoring a unit to where it was before it was 
rotated out for operations, and that included anything from if 
there were problems with their equipment and it needed to be 
repaired to retraining troops in their old skills.
    But recently the Defense Department revised its financial 
management regulations, which I recommend as bed-time reading 
if you have insomnia. And that has, in a sense, 
institutionalized a change in the definition of ``reset,'' 
which actually has been going on for some time. And that 
definition is far--is significantly broader than the previous 
sort of standard traditional definition of ``reset,'' which is 
that you restore a unit to where it was, and--but there are a 
couple of very significant changes, and this was most clear 
last October when Deputy Secretary Gordon England issued new 
guidance to the services for preparing their 2007 and 2008 war 
cost requests.
    And he said explicitly in a memo that went out to the 
service that the--that the services could include incremental 
costs--this is a quote--incremental costs related to the longer 
war against terror, parenthesis, not just OEF/OIF, including 
replacement of war-worn equipment with newer models and, quote, 
costs to accelerate specific force capability necessary to 
prosecute the war, and this was the longer war on terror.
    So this, in a sense, helped provide justification for the 
services to expand the types of things that they would request 
as part of reset. And you can see this in the regulations as 
well where they say----
    Chairman Spratt. Is ``reconstitution'' a new word, or is it 
an old word that has been redefined?
    Ms. Belasco. It is an old word, and in their regulations, 
they use ``reset'' rather than ``reconstitution,'' but they 
define it in a very different way. They used to be somewhat 
interchangeable.
    But what is different about the definition is now what they 
are talking about is that requests for reset would be towards a 
desired level of combat capability to meet a unit's future 
mission to restore and enhance combat capability, insert new 
technology. So all of this is a much more--a much higher 
standard than was previously the case. And once they have put 
it----
    Chairman Spratt. I appreciate that.
    Let us turn now to Mr. Edwards.
    Mr. Edwards. Mr. Chairman, thank you.
    Professor Bilmes, from my position as Chairman of the VA 
appropriations subcommittee, I want to extend a special thank 
you to you for the efforts you have made to quantify in both 
the economic and in human terms the terrible price paid for our 
servicemen and women who have fought in combat in Iraq and 
Afghanistan, a price I am sure all of them were willing to 
make, but nevertheless a price that we ought to be aware of in 
this Congress as we consider our funding levels for VA medical 
care and for VA benefits, which today simply are not adequate 
or come close to compensate these great Americans for their 
sacrifices.
    Mr. Chairman, some of the comments in the written testimony 
of Professor Bilmes, I think, were so important. While they are 
technically in the record, for those who might be watching this 
hearing, I would like to just repeat and restate some of those 
for the record.
    The fact is that out of 1.5 million servicemen and women 
who served in Iraq and Afghanistan, to date 720,000 have been 
discharged. So technically 720,000 are now veterans.
    We have had 60,000 nonmortal casualties, a casualty rate of 
14 casualties for every 1 combat death. So while many Americans 
through their daily newspapers keep up with loss of life in 
Iraq, for which there can be no true cost associated, the fact 
is for every 1 of those, there are 14 Americans who may be 
paying a price every day for the rest of their lives as a 
result of the Iraq and Afghan wars.
    Of the 720,000 veterans who have been discharged, 220,000, 
or 34 percent, have already been treated for medical conditions 
at VA hospitals; 95,000 have been treated for mental health 
care problems, and 45,000 of those appear to have full-blown 
post-traumatic stress disorder; 13,000 severely wounded 
veterans, whose wounds are so severe they could not continue to 
serve in the military after their injuries or combat wounds 
occurred; and economic loss estimated due to combat injuries to 
be 200- to $300 billion.
    As Professor Bilmes said, one out of every five families, I 
believe, who has a veteran in that family with a significant 
disability as a result of the war has had to leave his or her 
job in order to care for their loved one, for our veterans.
    I think those are costs that every Member of Congress ought 
to think about in the months and years ahead as we decide where 
to go in this war, what its true costs are, and every Member of 
Congress ought to consider as we look at veterans budgets and 
health care budgets.
    Professor Bilmes, my question to you would be this: There 
is a great difference between the economic and medical cost 
estimates of the Congressional Budget Office versus yours. 
Could you talk about that difference and give me your 
evaluation of the methodology used by the CBO and any 
differences of opinion you might have about that methodology?
    Ms. Bilmes. Well, I think that, you know, first of all, the 
CBO is estimating the costs for 10 years, I believe, or less, 
and I am estimating the lifetime costs, which, for a 25-year-
old veteran, recent veteran, I am estimating for 50 years, and, 
you know, prorated for a 35-year-old and so forth. So that 
accounts for a substantial amount of it.
    Secondly, my estimates are based on a number of things: 
First of all, looking at the--we know how many veterans have 
already claimed disability compensation and have already been 
to the VA for care. What we don't know is how many more will.
    Now, we have based our estimates on essentially two things: 
First on looking back at the first Gulf War. Now, the veterans 
from this war have the same eligibility as veterans from the 
first Gulf War. So that is a good comparison in terms of 
benefits. But, of course, that war lasted for 1 month and with 
a small number of injuries.
    Now, if my estimates are based on--and I think they are 
conservative. Just assuming that the same number of veterans 
from this war claim disability compensation and medical care as 
those in the first Gulf War, we would see the kind of estimates 
that I am talking about.
    The other issues to take into account in terms of 
estimating this are the level of health care inflation 
included; the cost-of-living adjustment included; the cost of 
how long, of course, the war goes on; the rate of injuries 
going forward; and a variety of other factors.
    And I cannot fully explain the discrepancy between in my 
own estimates and the CBO estimates, but I will say that during 
the last two breaks for votes, we have been discussing it, and 
I suspect that we will resolve them.
    I will also say that we have--for the past year, I have 
been involved with a group of psychiatrists and neurologists at 
UCSF Medical School and the five VA hospitals around the San 
Francisco area in which we have been collecting actual 
empirical data on health care usage and claims usage in that 
region. So we expect to shortly publish those findings in the 
New England Journal of Medicine, and I believe they will form 
an ongoing basis for these projections.
    Mr. Edwards. I want to thank you for your excellent work to 
date. And I hope in the future we discuss the honest cost of 
this war, that we absolutely must include in that the 
continuing price being paid every single day by tens of 
thousands of American veterans who are suffering from physical 
and mental combat wounds. And we should take care of those 
patriotic citizens in a way that they have not been taken care 
of by administration budget requests to date.
    Thank you.
    Chairman Spratt. Thank you.
    What was the name of the hospital where the research is 
being done?
    Ms. Bilmes. University of California San Francisco, UCSF 
medical school.
    Chairman Spratt. Mr. Doggett.
    Mr. Doggett. Thanks to both of you for your important 
testimony.
    Professor, we have heard over the last several years so 
many misrepresentations, so many gross untruths, so many lies 
from this administration about the cost of the war in Iraq that 
it was refreshing to have the landmark study that you and Dr. 
Stiglitz provided concerning the true cost of this war, and I 
know you are working on updating it.
    I believe, if I remember correctly, that the general 
reaction of the administration to your initial study was that 
you were the folks with the green eyeshades, and the bean 
counters, and that decisions need to be made for other reasons.
    Let me ask you about an area that I am sure is difficult to 
give true numbers on looking at it from an economic standpoint, 
but wouldn't you agree that there is a very real cost to 
America in systematically disguising the real cost of this war? 
Isn't there a cost to delusion?
    Ms. Bilmes. Well, I think that by not looking at the true 
cost of the war, it makes it very difficult for you in Congress 
to essentially do a cost-benefit analysis when you take a vote. 
I mean, if you think you are taking a vote on a $70 billion 
supplemental, and the true cost is actually twice that, you are 
not really able to do your job properly.
    So I think that the way that the administration has 
requested money for this war through this series of so-called 
emergency supplementals is a misuse of the vehicle, of the 
emergency supplemental, and I certainly would argue that war 
costs should be made transparent and more full.
    Mr. Doggett. So if you come in and you reject the findings 
of the bipartisan Iraq Study Group, and instead increase the 
number of troops in the surge, and then when an independent 
group like the Congressional Budget Office responds to a 
request from our Chairman for the cost of that surge, and you 
criticize the actual results of what the surge will cost by not 
counting in all of the front-line troops, not counting in the 
support troops--and, I guess, Mr. Chairman, the Congressional 
Budget Office is due for some criticism because though they 
were accused by the Secretary of Defense of greatly 
overestimating the cost, they actually underestimated the cost 
slightly of the surge.
    Let me ask you if when you have this delusion, when you 
have these misrepresentations, if there is a cost not just in 
dollars, but if there isn't a link to the blood that has been 
spilled and the lives that have been lost? And I am thinking 
specifically, for example, of the administration's delay in 
providing the armor that our troops needed to be protected from 
the IEDs.
    Ms. Bilmes. Yes. I mean, very much so, and I think nowhere 
do we see this more than in the situation with the MRAPs. I 
mean, we know that 4 years ago the Marines were already asking 
for MRAPs because they already knew conclusively that they 
protected our soldiers better from exactly the type of injuries 
they were facing in Iraq than even the up-armored Humvees. And 
despite that, it was not until Secretary Gates came in and 
ordered a review and looked at it that we have finally now, 4 
years later----
    Mr. Doggett. And many lives.
    Ms. Bilmes.--and many, many lives later that we have 
finally asked for the money for the resources to replace the 
18,000 Humvees.
    But, of course, you can't just wave your hand and replace 
18,000 vehicles overnight. It takes a while to actually 
manufacture them.
    So all of this while we are continually exposing our troops 
to injury and death as a result of sort of a penny wise, pound 
foolish approach to the budgeting.
    Mr. Doggett. As you know, there has been some discussion 
around these halls lately about a war tax. But isn't it true 
that we are already paying a Bush war tax, a Bush gas tax every 
time we pump a gallon of gasoline? Aren't we paying higher 
prices because of the war in Iraq?
    Ms. Bilmes. Well, I mean. I would say yes and no. I mean, 
on the one hand, because of the way this war has been waged, it 
has been waged with an all-volunteer paid Army and with paid 
contractors. So essentially the cost in blood has been 
translated into a financial cost, and since we have borrowed 
all of the money to go to war, the financial cost has been 
passed on to the next generation. So you could argue that we 
have not--we, the public--we have not borne the cost of the war 
at all yet, except for in the economy there are a number of 
factors which do affect us to a certain extent, one of them 
being the price of oil.
    Now, the price of oil before we went to war was $25 a 
barrel, and at that time the futures market, which looks out 
and scans the horizon for changes, already anticipated the 
enormously growing demand from China and India. And they 
nevertheless expected that the price of oil would remain 
constant.
    So certainly if my colleague Joe Stiglitz was here, this 
being exactly the area where he won his Nobel Prize for this 
assymetry of information, he would argue that you should 
attribute almost all of the increase of the oil price to the 
instability in the Middle East caused by the invasion of Iraq.
    But I, being a conservative person, said we should only 
count $5 or $10 worth of this increase, and that alone has an 
impact on the economy of $2- to $400-. And it--obviously, 
people feel it when they buy gas because they feel that they 
have less money to spend on other things.
    Mr. Doggett. I gather, just in concluding from your 
testimony, that you and Dr. Stiglitz do agree that we have 
hardly had shared sacrifice, that there have been some people 
that have actually been winners in this tragedy, and who are 
they?
    Ms. Bilmes. Well, there have been a small number of winners 
such as the oil companies, and some contractors such as Kellogg 
Brown and Root and Blackwater, but overall there have been few.
    And our counterfactual analysis, which looks at how the 
economy would have fared had we invested the money at home, 
shows that we would be considerably better off if we had 
invested the money at home.
    Mr. Doggett. Thank you.
    Chairman Spratt. Mr. Bishop.
    Mr. Bishop. Thank you, Mr. Chairman. I apologize for coming 
in late.
    We talk a great deal in this Congress about entitlement 
reform and about mandatory spending, and we hear particularly a 
great deal of that from our friends on the other side of the 
aisle and from the President.
    I guess my concern is that the way in which we have handled 
the budgeting for this war and certainly the way in which the 
outyears----
    Chairman Spratt. I don't believe your speaker is on.
    Mr. Bishop. Certainly the way in which the outyear costs 
have been projected have become a de facto entitlement.
    The submission of supplemental funding requests, generally 
late in the cycle, generally associated with an enormous amount 
of Presidential arm-twisting and Presidential advocacy and 
associated with words such as ``urgency'' and ``emergency,'' 
certainly takes an enormous amount of discretion away from the 
Congress and, in effect, takes this now $200-billion-a-year 
expenditure and puts it approximately in the category of an 
entitlement.
    Would you agree with that analysis or that assessment?
    Ms. Bilmes. I would, and I have in my testimony strongly 
criticized the use of the emergency supplemental mechanism for 
funding the war.
    The purpose of this mechanism or this vehicle is to fund 
actual unforeseen circumstances, and everyone who has looked at 
this issue, including academics, the CBO, the GAO, the CRS and 
others, have criticized the sort of consequences of this.
    I think the most insidious consequences of this is really 
the fact that there are several hundred very experienced staff 
members in the Congress, at OMB and elsewhere who are very, 
very good at looking at numbers and scrubbing budgets and 
trying to understand how much it costs to do something, and 
they have really been cut out of the process and have been 
denied the opportunity to look--to have accountability and 
transparency for the American taxpayer in terms of how the 
money is being spent.
    I think if not from my colleague here at CRS, we really 
would have very little sense of where some of the money is 
actually ending up.
    Mr. Bishop. I have to believe that the use of this practice 
is purposeful, and I have to believe that it is related at 
least in part to the enormous amount of waste, fraud and abuse 
that we have seen in terms of how these funds have actually 
been expended relating to the little oversight that they have 
received prior to their approval.
    By the same token, the now obligations that we have in 
terms of veterans' compensation, veterans' disability payments, 
Social Security disability payments, those are fixed 
obligations that we have unless we behave in a fashion that 
would simply be obscene to retreat from those obligations. So 
those, in effect, have now become de facto entitlements as 
well; would you agree?
    Ms. Bilmes. Absolutely. Every corporation has to include 
its long-term accrued liabilities on its books. You have to 
include the cost of your pension plan on your balance sheet, 
and I think that the government also needs to recognize that 
these are long-term accrued liabilities, they are promissory 
notes. They are part of the war costs.
    Mr. Bishop. And your estimate of those costs for veterans' 
payments would be approximately 400 billion; is that right?
    Ms. Bilmes. That is right.
    Mr. Bishop. And then for Social Security disability, 
another 400 billion; is that correct?
    Ms. Bilmes. No. That is included in the----
    Mr. Bishop. So the Social Security disability is included.
    And the military reset cost is another 100- to 200-?
    Ms. Bilmes. Yes.
    Mr. Bishop. So long-term costs that in effect are 
entitlements now would be about 600 billion.
    Ms. Bilmes. Roughly speaking.
    Mr. Bishop. Thank you, Mr. Chairman.
    Chairman Spratt. Thank you, Mr. Bishop.
    Mr. Becerra.
    Mr. Becerra. Thank you. Thank you to the witnesses for 
their testimony.
    I am going to make references to a couple of charts that we 
have on the budgetary costs. I would like to begin actually 
with chart number 2, which talks about the costs in comparison 
to other government programs and government services like 
children's health care.
    My understanding--actually can we do something? Can we go 
back to chart 1 that talks about the increasing costs of the 
war for a second?
    To me this is an incredible--not that one. Chart 1.
    There is an incredible activity occurring here in this 
country. We are spending more each year for our activities in 
Iraq since the President declared mission accomplished, and 
there is nothing to tell us that this will end anytime soon. In 
fact, every time we get a request from the President for 
unpaid--for moneys for this military adventure in Iraq, it ends 
up being more than the previous request.
    And so as we see this mounting debt, because all of those 
figures are debt, we haven't paid a cent for any of these costs 
for the war. It is all going to be on the government credit 
card. It begins to add up.
    Now, if we can go back to the chart that talks about 
children's health care. As we see the cost of war escalating, 
we find that the President is telling us we have to make trade-
offs. One of those trade-offs is that he vetoed recently a bill 
to provide health care coverage to America's children who don't 
have health insurance. We had a bill that we put on the 
President's desk to give him health care coverage for 10 
million children in this country over the next year for the 
next 5 years, and that would have cost us about $12 billion to 
accomplish compared to the cost of just 1 year's worth of 
military campaign in Iraq of over almost a--excuse me, almost 
$200 billion.
    The reason I ask this is because while we see the cost of 
war continue to escalate, and now the consequences of this war 
beginning to hit home, 10 million children, kids in families 
that work, suffering the consequence, we also have to ask are 
we getting the best that we can out of that money that we are 
spending. And my understanding is that at this stage, the 
Pentagon's auditors, the Pentagon's auditors can't tell us if 
some $10 billion of moneys that we put out there for 
contracting to do work, principally in reconstruction, is being 
spent well, or even if it got spent for reconstruction.
    And so I guess the question I would have for either of the 
two of you is can you tell us if we have had good accounting of 
all of the dollars that we have expended in Iraq for the 
American people?
    Ms. Belasco. I am really not an auditor.
    There are any number of reports by the Special Inspector 
General for Iraq, which you have raised all sorts of questions 
about how well money has been spent for both reconstruction and 
training of Iraqi security forces.
    Mr. Becerra. Professor Bilmes, any particular comment?
    Ms. Bilmes. I mean, I think that the overall level of 
accounting and budget transparency at the Defense Department is 
an issue that I would strongly urge the Congress to take on, 
and it extends beyond just this war.
    I mean, the Congress has passed a number of pieces of 
legislation over the years, including the Financial Management 
Integrity Act, the CFO Act, and so forth, which require 
government departments to produce auditable, clean financial 
statements.
    Now, when these laws were passed, none of the government 
had auditable, clean financial statements. Now almost the 
entire government does with the exception of the Department of 
Homeland Security, and that is because it is trying to 
consolidate 22 different agencies; and the Department of 
Defense, which, although there are some people who certainly 
are trying very hard to do it, the Department as a whole has 
not sort of got religion about this subject.
    And, you know, Secretary Rumsfeld made a speech on 
September 10th, 2001, saying that the number one problem facing 
the Defense Department was the lack of financial transparency. 
And that was, you know, September 10th, 2001. That was the last 
we ever heard of it.
    Now, since then this problem has gotten worse, not better, 
as a result of all of the war spending, which has really 
blurred the procurement accounts, you know, to a point of the 
inspector general's report is--you know, it is a scary read, 
and the auditor reports are scary reads.
    So I think that considering that Congress, almost 
unanimous, has passed the Sarbanes-Oxley bill for the private 
sector requiring financial transparency and personnel 
responsibility, I would urge Congress to enact a sort of 
modified Sarbanes-Oxley law which would require financial 
transparency at the Defense Department.
    Mr. Becerra. Thank you for this testimony.
    Mr. Chairman, as I prepare to yield back, I would just like 
to mention as I am looking at some notes, with one contract 
alone, the Pentagon, in a contract with KBR, which is the 
subsidiary of Halliburton, they have already identified in the 
Pentagon nearly $2.4 billion in questioned and unsupported 
costs on the law cap contract, which is the contract to provide 
logistical support to our troops, just in that one contract.
    So, Mr. Chairman, I think maybe there is some good advice 
that we are receiving from some of the witnesses. Certainly if 
we are going to be asked to spend this much money on a military 
adventure by the President and at the same time swallow that he 
is telling us we can't afford to provide 10 million children 
with health care, children of working families, I think we 
really do have to have some better accounting of what we are 
doing in Iraq.
    With that, I yield back the balance of my time.
    Chairman Spratt. Mr. Doggett.
    Mr. Doggett. Thank you, Mr. Chairman.
    Ms. Belasco, if I understand your written testimony, you 
have attempted to give an apples-to-apples, inflation-adjusted 
dollar cost of the cost of what has been spent in the current 
wars versus what we did in Korea, in Vietnam; is that correct?
    Ms. Belasco. Yes.
    Mr. Doggett. And if I understand your testimony and the 
findings that have been made, we are--already we have spent 
about twice the cost of the Korean War?
    Ms. Belasco. Yes.
    Mr. Doggett. And we have spent--again, comparing apples to 
apples in real dollars, we have already spent about 90 percent 
of the cost of the 12-year war in Vietnam.
    Ms. Belasco. Well, but I do want to clarify that those 
figures refer to the costs not only for Iraq, but also for 
Afghanistan and advanced securities, global war on terror.
    Mr. Doggett. We also heard testimony about at least 70 
percent of that is in Iraq. But you also point out, making it 
Persian Gulf-specific, that we have already spent six times the 
cost of the Persian Gulf war.
    Ms. Belasco. Yes. But, again, all three operations.
    Mr. Doggett. Yes. And you add to that, however, on the cost 
of the Persian Gulf war, United States taxpayers were only 
asked to pay 7 percent of the costs because we had other people 
contributing to the costs of the war.
    Ms. Belasco. Kuwait and Saudi Arabia.
    Mr. Doggett. And in the case of this war, we are actually 
paying others to come into the war instead of relying on 
substantial payments from other people paying for the war.
    Finally, I would like to note that we have now gone through 
the testimony of two important witnesses. We have not had one 
of the 16 members of the Republican side of this committee 
appear, just as we did not have anyone from the administration 
appear on this very important matter.
    As we look at the $2.4 trillion figure that is the estimate 
for the cost of these wars, it is a mind-boggling number, but, 
as Mr. Becerra pointed out earlier, if we want to try to 
compare it and understand it, it is about half of the 75-year 
cost of eliminating all of the shortfall in Social Security. It 
is more than every American, government, private, public, will 
spend on health care this year. It would be enough to purchase 
the average cost of a home in the United States today for 10 
million American citizens. It would provide $36,000 in 4-year 
tuition assistance to every high school student who will 
graduate this year. It is an enormous figure. It would--in just 
5 months of spending in Iraq alone, it would permit us, 
according to the House Transportation Committee, to fix every 
deficient bridge in this country.
    It is an immense factor, and the American people need to 
understand that while there is a tragic cost in blood, that the 
cost to our pocketbooks, to our grandchildren and great-
grandchildren's pocketbooks is immense.
    Thank you.
    Chairman Spratt. Thank you, Mr. Doggett.
    Mr. Bishop.
    Do you have any further questions.
    Mr. Doggett. No, sir.
    Mr. Becerra?
    Mr. Becerra. No.
    Chairman Spratt. Mr. Bishop.
    Mr. Bishop. Thank you, Mr. Chairman, and I will be brief.
    Mr. Becerra outlined some numbers that highlighted the 
contrast between what we have been attempting to do, which is 
to provide health care to 10 million children of the working 
poor at a cost of approximately $12 billion a year, or actually 
7 billion more per year than the President is willing to spend. 
Contrast that against 196 billion for our 1-year-only 
supplemental and 25 billion just in interest on that on what we 
have spent in Iraq thus far.
    It seems to be there are at least two arguments for SCHIP. 
One, it is simply the right thing to do. It is what an 
enlightened society does.
    The second is more practical and pragmatic, and that is 
that if we provide adequate health care to our society as they 
are younger, as they age and ultimately become eligible for 
Medicare, they will be less expensive to support once they 
become Medicare-eligible.
    Do you know if anyone has done any assessment of the long-
term impact of our Medicare exposure relative to providing 
adequate health care to the young of our society?
    Ms. Bilmes. I am sure there is one of my colleagues at the 
Kennedy School who is doing that. I can certainly find out who 
it is and get back to you.
    Mr. Bishop. You would agree that is yet another long-term 
cost of the spending priorities that are being pursued by this 
administration?
    Ms. Bilmes. Well, I mean, absolutely, and I would say in 
terms of directly the cost of the Iraq war, I mean, many more 
of these veterans will be qualifying for Medicare, and it 
then--and will be using it more than would, you know, have been 
the case had they not been in Iraq.
    So another cost that we have not actually tabulated, but 
there are so many sort of costs that we have not quantified, is 
the additional costs to Medicare and possibly Medicaid of Iraq 
war veterans who will be using their services more frequently 
than they would have otherwise, particularly those with mental 
health conditions who then develop additional physical 
ailments.
    Mr. Bishop. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman Spratt. Let me say to both of our witnesses, thank 
you very much indeed for your contributions to the hearing 
today, that you have done previously and in the future, and we 
look forward to possibly working with you further as we explore 
this topic. But you have made a great contribution to this 
record today.
    The hearing stands adjourned.

                                ADDENDUM

    [Majority slides presented during the hearing follow:]

    
    
    
    [Minority slides presented during the hearing follow:]

    
    
    [Whereupon, at 1:50 p.m., the committee was adjourned.]

                                  
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