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Bush’s Surge and U.S. Taxation

The news is in.  President Bush is sending over 20,000 troops to Iraq to more effectively combat insurgents.  The president announced that most of the five brigades being deployed will ‘help Iraqis clear and secure neighborhoods, help them protect the local population, and help them ensure that Iraqi forces left behind are capable of providing the security that Baghdad needs.’  Otherwise Mr Bush feels that radical Islamic extremists will grow in strength, topple moderate governments and fund their ambitions with oil revenues.

Apparently, according to CNN, the Democrats who have just assumed control of both houses of Congress are unlikely to block funding for this latest surge in troop deployment; the sentiment being to protect troops already in place and prevent a U.S. defeat.  Opponents of the war point to the 3,000 lives already lost and a $400b price tag after nearly four years of fighting.  They want Congress to deny President Bush the additional funding needed to pay for a military campaign that is increasingly unpopular and costly.  According to a CBS poll conducted earlier this month, Mr Bush’s overall approval rating is just 30% (87% of Democrats disapprove) while the costs of conducting the war are running at $200m a day. 

Senator Majority Leader Harry Reid said on 8 January that the real costs for the troop deployment will be $100b unless the war effort can be wound down.  ‘I think we’ve got to tell the president what he’s doing is wrong.  We’ve got to start bringing our folks home,’ he said.  Possible presidential candidate Senator Obama has summed up his party’s position.  He has said that Democrats oppose any measure would increase the risk to the troops already deployed.  But he adds:  ‘Is there a way of conditioning appropriations so that the president is constrained . . . that is something we’re investigating right now.’

 Nearly a year ago, according to MSNBC, the total costs of conducting the war were being estimated at upwards to $2t depending on the difficulty of the conflict and the impact on oil costs.  The national debt which was 5.8t in the immediate aftermath of the Twin Towers attacks now exceeds $8.6t as a consequence of financing the war on terrorism.  Interest on that debt in fiscal 2006 (Oct. 2005 – Sept. 2006) was $405b. 

What the ultimate impact of the war will be on the U.S. economy is debated.  An obvious consequence of exploding national debt is a weaker dollar.  In the five years since 9/11, the dollar has lost 45% of its value against the euro.  Further, the trade deficit has exceeded 7.65b.  Private investors and foreign central banks have diversified out of the dollar.  Foreign investors own more U.S. assets than U.S. investors own foreign assets.  Social Security pensions have been compromised by the Windfall Elimination Provision for Americans living abroad.  And health care continues to remain unaffordable by many Americans.

The new Democratic Congress will be looking for ways to counter the United States decline as a debtor nation.  The Bush presidency, it must be remembered, enacted legislation, in the name of stimulating the economy, that cut income tax rates, slashed capital gains taxes, and repeals the estate tax.  Now Democrats have already approved measures to thwart deficit spending by requiring that any increases in federal benefit programs be offset by cuts in federal spending elsewhere.  These measures will likely lead to tax hikes and impose difficulties extending President Bush’s tax cuts - cuts that have cost the treasury $1t in tax revenues so far.  Little wonder IRS is stepping up audits of 6-figure income tax filers, of American expatriates, of U.S. investors in foreign corporations, and of offshore tax havens. 

However much supporters of the Bush Administration may justify the costs of fighting terrorism – and world governments might do well to consider the merits of uniting to oppose threats posed by rogue nations – the respected journalist Walter Cronkite has long upheld the idea that America might better consider spending its resources in alleviating conditions of economic want in poorer nations.  ‘If we’re hoping to succeed in this world, and to have an ever more peaceful world, and not a more violent world, we’re going to have to learn to understand each other and to appreciate what we can do for each other.’