Congressional Budget Office
Director's Blog

What amount of budgetary resources might be needed in the long term to carry out the Administration’s plans for defense that were proposed during 2009? CBO addresses that question in a study prepared at the request of the Chairman and the Ranking Member of the Senate Budget Committee. The study updates the resource projections contained in CBO’s January 2009 paper Long-Term Implications of the 2009 Future Years Defense Program, reflecting changes that the new Administration made to defense plans in preparing the President’s budget request for fiscal year 2010.

In CBO’s estimation, carrying out the Department of Defense's (DoD’s) 2009 plans for 2010 and beyond—excluding overseas contingency operations (the wars in Iraq and Afghanistan and some much smaller military actions elsewhere)—would require defense resources averaging at least $573 billion annually (in 2010 dollars) from 2011 to 2028. That amount, CBO’s base projection, is about 7 percent more than the $534 billion in total obligational authority the Administration requested in its regular 2010 budget, again excluding overseas contingency operations.  The projection also exceeds the peak of about $500 billion (in 2010 dollars) during the height of the Reagan Administration’s military buildup in the mid-1980s. During that period, for example, DoD was pursuing a Navy fleet of 600 battle force ships, more than twice the size of the current fleet of 287.

The department’s resource requirements to execute the same plans could be even greater. CBO has also estimated some “unbudgeted” costs that reflect the likelihood that weapon systems would cost more than initially estimated; that medical costs and fuel prices would grow at rates faster than DoD has anticipated; and that pay raises the Congress enacts for military personnel and DoD’s civilian employees might exceed the percentages in the department’s plans. Furthermore, additional appropriations may be necessary to fund overseas contingency operations.

Including the unbudgeted costs increases the projection to an annual average of $632 billion through 2028, or 18 percent more than the regular funding requested for 2010. Some 35 percent of the total unbudgeted costs between 2013 and 2028 are associated with overseas contingency operations; in particular, the analysis includes the potential costs—about $20 billion per year—of deploying 30,000 troops to contingency operations from 2013 through 2028. The total costs of $670 billion at the endpoint in 2028 would approach the peak of the past three years (measured in 2010 dollars), which includes the height of operations in Iraq.

Not included in the unbudgeted cost projections, however, is the funding needed to increase U.S. presence in Afghanistan as the President announced on December 1, 2009.  Although the Administration’s 2010 budget planned for an increase in U.S. service members in Afghanistan from 59,000 to 68,000, neither that budget nor CBO’s projection anticipated the further increase of 30,000 troops in Afghanistan. (See CBO’s recent analysis of the funding needed to support an additional 30,000 troops in Afghanistan.)

This study was prepared by a team led by Matthew Goldberg; the primary authors were Adam Talaber and Daniel Frisk of CBO’s National Security Division.
 

In February 2009, President Obama described his strategy for ending the war in Iraq, and announced that all U.S. combat operations there would cease by the end of August 2010 and all troops would be withdrawn by December 2011. In response to a request by the Chairman of the Subcommittee on National Security and Foreign Affairs of the House Committee on Oversight and Government Reform, CBO released a letter today outlining the costs for ceasing military operations in Iraq under the Administration’s plan and under four alternative timetables for withdrawal. 

The Administration’s Plan

According to the timeline described by Administration officials, the approximately 128,000 U.S. troops currently in Iraq would remain there through the Iraqi elections scheduled for January 2010. After that, the number of U.S. forces would decline to no more than 50,000 by the end of August 2010. In accordance with the Status of the Forces Agreement signed by Iraq and the United States in November 2008, the remaining 50,000 U.S. troops must leave the country by the end of December 2011. CBO estimates that to comply with that timeline, the Administration will need to withdraw military personnel from Iraq in two stages; one between the Iraqi election and August 2010, when almost 80,000 U.S. troops will be removed over a period of seven months, and the other before the end of calendar year 2011, when 50,000 troops will need to be withdrawn. 

CBO estimates that under the Administration’s plan, costs related directly to the U.S. forces conducting the war in Iraq—also called Operation Iraqi Freedom (OIF)—would total $156 billion over the 2009-2014 period, with annual costs decreasing from $69 billion in 2009 to less than $500 million in 2014. Since all U.S. forces would be withdrawn by the second quarter of 2012, nearly all of the costs from 2012 to 2014 (totaling less than $10 billion) would be for repairing equipment that is used in Iraq and returned to the United States and for replacing equipment lost in the conduct of the war.

Alternative Timetables

CBO examined several alternative timetables for withdrawal of U.S. forces from Iraq. Three would withdraw all U.S. forces before the end of December 2011, as planned by the Administration:

• Option 1: Remove U.S. forces beginning in October 2009 at a rate of 14,400 troops per month to complete the withdrawal by the end of June 2010.

• Option 2: Draw forces down more rapidly—at a rate of 17,500 service members per month—starting in October 2009 and removing all troops by May 2010.

• Option 3: Conduct the withdrawal at the same rate as Option 2—17,500 troops per month—but begin after Iraq’s elections, scheduled for January 2010. Under this option, withdrawal would be complete by September 2010.

CBO also examined another plan, Option 4, which would withdraw U.S. forces more slowly and steadily than under the Administration’s plan, at a rate of 5,500 troops per month over 23 months beginning after the Iraqi elections, with all troops withdrawn by the end of December 2011.

CBO identified how some of OIF’s direct costs would change, from the estimated $156 billion over the 2009-2014 period, under the four alternative timetables. Options 1 and 2 would provide the greatest savings—$50 million and $54 million, respectively—as troops would be withdrawn at a rapid pace beginning in October 2009 before the Iraqi elections. Savings relative to the Administration’s plan would be smaller, approximately $34 billion, if the withdrawal of U.S. forces from Iraq did not begin until after the elections and troops were withdrawn by September 2010, as in Option 3. The more gradual withdrawal CBO analyzed—Option 4—would cost about $5 billion more than the Administration’s plan.

CBO’s report describes the procedures involved in withdrawing troops and equipment from Iraq and some of the logistical constraints that may apply. CBO did not evaluate the operational or security disadvantages associated with drawing down U.S. forces in Iraq earlier or more rapidly than planned by the Administration. The withdrawal of significant numbers of U.S. military personnel before the Iraqi elections could increase security risks during a time of high tensions in Iraq.

This letter was prepared by Francis Lussier of CBO’s National Security Division.

Contractors play a substantial role in supporting the United States’ current military, reconstruction, and diplomatic operations in Iraq, accounting for a significant portion of the manpower and spending for those activities.

CBO released a study today, conducted at the request of the Senate Committee on the Budget, on the use of contractors in the Iraq theater to support U.S. activities in Iraq. The webcast of the press briefing is available here.

CBO found:

• From 2003 through 2007, and converting the funding into 2008 dollars, U.S. agencies awarded $85 billion in contracts for work to be principally performed in the Iraq theater, accounting for almost 20 percent of funding for operations in Iraq. Including funding for 2008 itself, the U.S. has likely awarded $100 billion or more for contractors in the Iraq theater.

• More than 70 percent of those obligations were for contracts performed in Iraq itself. The Department of Defense awarded contracts totaling $76 billion, and the U.S. Agency for International Development and the Department of State obligated roughly $5 billion and $4 billion, respectively, over the same period.

• Contractors provide a wide range of products and services in theater. Most contract obligations were for logistics support, construction, petroleum products, or food.

• Although personnel counts are rough approximations, CBO estimates that at least 190,000 contractor personnel, including subcontractors, work on U.S.-funded contracts in the Iraq theater. About 20 percent are U.S. citizens.

• The United States has used contractors during previous military operations, although not to the current extent. According to rough historical data, the ratio of about one contractor employee for every member of the U.S. armed forces in the Iraq theater is at least 2.5 times higher than the ratio during any other major U.S. conflict, although it is roughly comparable with the ratio during operations in the Balkans in the 1990s.

Private security contractors have been a particular focus of attention. Our analysis shows:

• Total spending by the U.S. government and other contractors for security provided by contractors in Iraq from 2003 through 2007 was between $6 billion and $10 billion.

• About 10,000 employees of private security contractors work directly for the U.S. government. Another 15,000 to 20,000 work for the Iraqi government, other contractors, and other customers, bringing the total to approximately 25,000 to 30,000 employees of private security contractors operating in Iraq.

• The costs of a private security contract are similar to those of a U.S. military unit performing similar functions. During peacetime, however, the private security contract would not have to be renewed, whereas the military unit would remain in the force structure.

Regarding the legal issues associated with contractor personnel, CBO finds that military commanders have less direct authority over the actions of contractor personnel than over their military or civilian government subordinates. In addition, the legal status of contractor personnel in Iraq is uncertain, particularly for those who are armed.

CBO’s report was prepared by Daniel Frisk and R. Derek Trunkey of our National Security Division.

The U.S. military invaded Iraq in March 2003, and the conflict there has continued for the ensuing five years. In September 2002, CBO published its first projection of the costs associated with a U.S. invasion of Iraq. CBO has subsequently provided the Congress with numerous updates of funding provided to date for that conflict, as well as projections of future costs under several alternative scenarios. Indeed, in part because the Defense Department has never published its own long-range timetable for future U.S. troop levels in the region, the “CBO troop scenarios” have been used as a basis for cost estimates and other discourse by many other organizations and individual researchers.

A new book about the cost of the war, “The Three Trillion Dollar War: The True Cost of the Iraq Conflict,” by Nobel-prize winning economist Joseph Stiglitz of Columbia University and his colleague Linda Bilmes of Harvard University’s Kennedy School of Government, has received significant attention. (To disclose any potential conflict, I am a friend and coauthor of Stiglitz.)  In contrast to the cost figure in the title of the Stiglitz-Bilmes book, CBO’s most recent testimony suggests that cumulative budgetary costs for the combined conflicts in Iraq and Afghanistan might total between $1.2 trillion and $1.7 trillion through 2017.

A natural question (and one that several people have indeed asked me) is why such a large disparity exists between CBO’s projections and those of Stiglitz and Bilmes.

Most importantly, CBO restricts its estimates to Federal budgetary costs, whereas Stiglitz and Bilmes include many other types of costs borne by veterans, their families, and U.S. taxpayers. The CBO testimony notes that the Congress had provided total funding of $604 billion through October 2007 (in “then-year” or “nominal” dollars without making any adjustment for inflation), not only for military operations but also for indigenous security forces, diplomatic operations and foreign aid, and medical care and disability compensation for veterans of the conflicts in Iraq and Afghanistan. Stiglitz and Bilmes report a comparable total of $646 billion when inflated to 2007 dollars.  So there’s not that big a difference when the two sets of estimates are put on a comparable basis.

Below, I go into more detail about all this.

Military costs (not including veterans benefits)

CBO’s analysis suggested that, depending on the rates at which U.S. troops are withdrawn from the region under two illustrative scenarios, costs of future military operations (including costs such as combat pay for deployed troops, fuel and transportation, and contractor support in the wartime theater, but excluding costs on medical care and disability benefits provided by the Department of Veterans’ Affairs, which were tallied separately) through 2017 could total between $485 billion and $966 billion. Using essentially the same “CBO scenarios,” Stiglitz and Bilmes project future costs of between $521 billion and $913 billion. The similarity of these figures is somewhat misleading, since we are measuring costs in different units. Again, CBO sums up “then-year” or “nominal” dollars without making any adjustment for inflation or the time value of money. Stiglitz and Bilmes instead use a present-value approach, in which they effectively discount the flow of future costs at a nominal interest rate of 4.5 percent to reflect the time value of money. Most economists prefer present-value figures, which is why Stiglitz and Bilmes undertook their analysis that way; the Federal budget process, however, is based on nominal dollars, which is why CBO undertook our analysis in the manner we did.

Notwithstanding those differences, the estimates of past and future costs of military operations that CBO has published are in rough agreement with Stiglitz and Bilmes’ estimates, which account for about half of their $3 trillion estimate of the total cost of the war.

Other costs

Beyond the costs of military operations, the remaining types of costs that Stiglitz and Bilmes consider can be classified into three broad categories: other government spending that could be attributed to the military operations; interest payments made by the Treasury to finance war-related debt; and costs outside the federal budget, which are borne by military veterans who served in Iraq or Afghanistan, their family members or, in the case of reservists, their employers, or U.S. citizens more broadly. Stiglitz and Bilmes track the costs of military operations through 2017, but track veterans’ disability and medical costs through 2046.

1. Other non-interest government spending

Within the category of other government spending, perhaps the most notable differences between CBO’s estimates and those from Stiglitz and Bilmes involve the cost of medical care and disability compensation provided by the Department of Veterans’ Affairs (VA).

For example, Stiglitz and Bilmes estimate that monthly compensation paid by the VA to disabled veterans of the conflicts in Iraq and Afghanistan could total between $277 billion and $388 billion over the next 40 years. (CBO truncates its corresponding estimates after 2017, but I will use the 40-year horizon throughout this discussion to maintain consistency with Stiglitz and Bilmes’ basic framework.)

• Stiglitz and Bilmes base their estimate on the experience of veterans from the first Gulf War, about 40 percent of whom applied for VA disability compensation since that war ended in 1991 and had their applications approved — that is, they were “rated.”  One-quarter of those veterans, however, were rated for conditions that are zero-percent disabling; Stiglitz and Bilmes assign those veterans the average benefit level even though they are not currently drawing any benefits. (VA sometimes uses a zero-percent disability rating as a placeholder to acknowledge that a disability first manifested during a period of active military service, although the disability does not yet adversely affect the veteran’s earning potential.)

• Furthermore, it is unclear whether Stiglitz and Bilmes adjusted for the number of veterans of the current conflict who might have become disabled as a result of their military service even if they had never deployed to the war zone; those veterans should be subtracted out when estimating the incremental cost of the war.  Their footnote 48 (p. 259) outlines a method for making that adjustment, though they begin that discussion by stating, “We have not adjusted for incremental cost — that is, the number of veterans who may have claimed disability even during peacetime.” Even if they did make the indicated adjustment, their method would not allocate enough of the disabilities to the peacetime baseline, and would instead attribute too many disabilities to the war.

• In summary, we estimate that the incremental number of veterans who are or will draw disability benefits may be only half of what Stiglitz and Bilmes estimate, in which case their costs would be too high by between about $150 billion and $200 billion.

Differences also arise between CBO’s and Stiglitz and Bilmes’ estimates of VA medical costs (as opposed to disability benefits) to treat veterans of the conflicts in Iraq and Afghanistan.

• In their higher case, Stiglitz and Bilmes apply to veterans of those recent conflicts the $5,765 average amount that VA spent in 2006 to treat veterans of all eras, including the aging Vietnam-era population. Stiglitz and Bilmes then increase the larger amount in subsequent years at a medical-specific inflation rate equal to twice the rate of general inflation. The VA, though, estimates that it spent less than half that initial amount — an average of $2,610 in 2006 — to treat veterans returning from Iraq and Afghanistan. It may appear surprising to some readers, but veterans of the recent conflicts on average require less medical care from VA than veterans of earlier conflicts such as the Vietnam War do today. (By contrast to recent veterans, many Vietnam-era veterans are now age 60 years or older and are being treated for age-related chronic conditions that demand more resources, on average, from the VA.)

• It is difficult to project how rapidly VA’s medical costs for recent veterans will grow in the future. The growth in costs will depend on how many veterans enter or remain in the VA medical system, as opposed to going elsewhere for their care, and on the change in the average annual cost for veterans who continue to use the system. Some veterans may migrate to other sources of medical coverage, such as employer-sponsored health insurance, for some or all of their care when they assimilate back in to civilian society. Others may find that their medical conditions are resolved satisfactorily with the care that they received at the VA and the passage of time; while they remain reliant on the VA, their demand for medical services will decline. Indeed, some data that we have obtained from the VA indicate that utilization of a variety of medical services tends to decline after a veteran’s first 3 to 6 months in the VA system (though a few medical services, such as residential rehabilitation for post-traumatic stress disorder or PTSD, show an increasing trend as discussed below). On the other hand, the medical costs for veterans who remain in the VA system or who enroll later will continue to grow as those veterans age, as has been the case for Vietnam-era veterans. It is uncertain how much of the long-run growth in cost should be attributed to the recent veterans’ service in Iraq or Afghanistan as opposed to aging.

• Because we believe that the short-term average annual cost ($5,765) in Stiglitz and Bilmes’ “high” case is about twice the appropriate value, and in light of the uncertainty in projecting both the average cost and number of veterans of the current conflicts who will utilize VA medical care in the future, Stiglitz and Bilmes’ projection of up to $285 billion for VA medical costs may be overestimated by at least $100 billion.

Before leaving the topic of VA medical care, I need to touch upon the incidence of PTSD among recent veterans.

• It is not clear how many veterans suffer from PTSD. DoD has collected data on the incidence of PTSD from the post-deployment health assessment (PDHA) and post-deployment health reassessment (PDHRA) surveys it administers to troops immediately upon return from deployment and again about 6 months later. A series of studies by Army Colonel Charles Hoge, M.D. and his colleagues have used data from those surveys to study the effects of deployments on the incidence of PTSD. Those studies are reporting positive screens for PTSD among 17 percent of active Army soldiers and 25 percent of Army National Guard and Army Reserve personnel. (One of the studies found higher PTSD screening rates for soldiers who had deployed more than once. The rates just cited include some such soldiers: CBO estimates that 27 percent of current active Army soldiers have deployed more than once and 7 percent more than twice. Some 9 percent of current Army reservists have deployed more than once and 2 percent more than twice).

• Two points should be noted when interpreting the screening rates for PTSD. First, those rates are particular to the Army; while we might expect similar screening results for Marines, we would not for Air Force or Navy personnel who do not participate in direct combat to the same degree as soldiers and Marines. As a lower bound, if all soldiers and Marines (the majority of the deployed forces) experienced the rates quoted above but the rates were zero for Air Force and Navy personnel, the overall screening rate among military personnel who have deployed would be about 10 percent. Second, a positive screen for PTSD on the PDHA or the PDHRA survey does not necessarily imply a diagnosis of PTSD; treatment is largely optional and not all soldiers who screen positive either seek or receive any treatment. Psychiatrists at DoD and VA have advised us that survey responses do not constitute a diagnosis — PTSD is not definitive until it is confirmed at two consecutive medical visits.

• VA, too, collects data on the incidence of PTSD. Their data through October 2007 indicate nearly 50,000 initial diagnoses of PTSD among the 264,000 veterans of Iraq and Afghanistan who have been treated at VA medical facilities — an apparent incidence rate of 18 percent. However, their report notes that, “up to one-third of coded diagnoses may not be confirmed when initially coded because the diagnosis is ‘rule-out’ or provisional, pending further evaluation.” Removing up to one-third of provisional diagnoses yields an adjusted PTSD incidence rate perhaps as low as 12 percent, roughly consistent with the DoD figures cited in the previous paragraph. VA estimates that it spent $35 million in 2007 to treat PTSD (including provisional cases) among veterans of Iraq and Afghanistan (an average of $700 per patient). That sum represents one-half of one percent of total VA medical costs for veterans of those conflicts.

Debt service costs

Another category of budgetary costs that Stiglitz and Bilmes examine is the cost of debt service.  In part to separate the costs of government activities from the financing mechanism (issuing debt versus raising taxes versus crowding-out other programs), CBO does not typically include debt service in its cost analyses. However, at the specific request of the House Budget Committee, CBO calculated the debt-service costs of the war on terrorism under the assumption that all spending for those operations, both past and present, was financed with federal borrowing. Under that assumption, CBO estimates that interest payments on spending thus far would total $415 billion over the 2001–2017 period. The path of spending generated by CBO’s first scenario would contribute 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. CBO’s range of $590 billion to $705 billion (in undiscounted dollars) over the entire period contrasts with Stiglitz and Bilmes estimate of $613 billion to $816 billion (over the same time period but expressed in discounted present-value dollars — their undiscounted totals would be higher).

Other costs beyond the Federal budget

As noted at the beginning of this post, Stiglitz and Bilmes do not limit themselves to federal budgetary costs — and that explains a substantial amount of the difference between their estimates of the cost of the war and CBO’s.

For example, in an attempt to measure the costs of deaths or injuries not compensated by any government agency, Stiglitz and Bilmes apply the economic construct of “value of statistical life” (VSL). Although the VSL calculation is a legitimate attempt to monetize one type of cost, none of the estimates that CBO has published or on which CBO has testified have included the VSL. The reason is that CBO’s charter generally restricts our cost estimates of legislative provisions to the Federal budgetary costs (except that, in accordance with the Unfunded Mandates Reform Act of 1995, we also estimate any mandates that legislation reported from a Congressional committee would impose on state, local, or tribal governments or on the private sector).

Stiglitz and Bilmes assign a VSL of $7.2 million (in 2007 dollars) to each death of a U.S. service member, and a prorated fraction of that amount to each serious injury. Although CBO does not promulgate or endorse any particular value for the VSL, I would note that the Stiglitz and Bilmes’ estimate is based on guidance that the Environmental Protection Agency promulgated in 2000. However, the EPA selected that value from a survey of 26 studies that estimated VSLs ranging from $0.7 million to $21 million in 2007 dollars; the bulk of those estimates fell within the narrower range of about $4 million to $8 million.

Finally, Stiglitz and Bilmes estimate macro-economic costs such as the effects on the U.S. economy of increased oil prices (to the extent those are a result of the war). The addition of those costs in their most-inclusive accounting, with all of their other assumptions set to “high,” leads to their estimate of $5 trillion for the total cost of the war. One could debate at length the causality between the war in Iraq and oil prices on the world market; Stiglitz and Bilmes attribute between $5 per barrel and $10 per barrel of the price increase to the war. They translate those price increases into total oil-related macro-economic costs to the U.S. economy of $187 billion and $800 billion, respectively.  CBO does not include these types of macro-economic effects in any of our formal cost estimates.

Summary

The bottom line, as it were, is that the war in Iraq and Afghanistan has clearly involved significant costs for the federal budget, as well as for soldiers and their families.  (The potential benefits are for others to debate.)  The Stiglitz-Bilmes estimates of the budgetary costs are likely at least somewhat high, but the biggest difference between our estimates and theirs is that they go beyond the cost to the federal government.

Much of CBO’s work in this area has been undertaken by outstanding analysts in our National Security Division (including Matthew Goldberg, the deputy director of that division, and Heidi Golding) and the national security team within our Budget Analysis Division (including Sarah Jennings, who runs that unit, and David Newman).