Friday, March 6th, 2009 at 3:47 pm
The Fiscal Impact of Winding Down a War
Peter Orszag, Director
The President is committed to responsibly winding the war down. I don’t do foreign policy, but I can tell you this: ending wars saves money – and so the Administration’s budget includes savings from ramping down overseas military operations over time.
Yet critics are claiming that, in calculating the amount saved by ramping down operations in Iraq and Afghanistan, the Administration is wrong to compare its proposed funding levels to the level in 2008—the last year in which overseas operations were fully funded. Such criticisms are inconsistent not only with common sense but also established practices of budget accounting (and even what the critics themselves have said in the past).
The last time the United States began to ramp down from a prolonged, expensive military engagement, President George H.W. Bush was in office. With the Cold War having just been won, President Bush, for the 1991 budget, proposed a deficit reduction package that included substantial reductions in defense funding.
President Bush’s budget at the time reflected exactly the same budgetary treatment from ending the war that ours does. The baseline (that is, the deficit path before the President’s policies) reflected the high levels of defense spending precipitated by the Cold War, which had just ended at that point. Since President Bush proposed constraining defense spending over time to reflect the end of the Cold War, budgeteers credited the Administration with savings – just as the savings from winding down the war are credited under our budget. The scored savings, reflected in President Bush’s 1991 budget, are shown in the table below.
More importantly, what happened? The savings projected in President Bush’s 1991 Budget were achieved—and more. By 1995, the defense ramp-down started by President Bush and continued by President Clinton had achieved more than double the savings assumed by President Bush’s 1991 budget.
The bottom line: A ramp down in military operations produced savings then, and can produce real savings now.
President George H.W. Bush's FY 1991 Budget
(Percent of GDP)
| |
1991 |
1992 |
1993 |
1994 |
1995 |
| Defense Baseline |
5.2% |
5.1% |
5.0% |
5.0% |
4.9% |
| Defense Policy |
5.1% |
5.0% |
4.7% |
4.6% |
4.4% |
| Defense Savings |
-0.1% |
-0.1% |
-0.2% |
-0.4% |
-0.5% |
| |
|
|
|
|
|
| Actual defense spending |
5.4% |
4.8% |
4.4% |
4.1% |
3.7% |
Sources: Congressional Budget Office Reestimate of the President’s FY 1991 Budget for the baseline and proposed policy. For actual defense spending, OMB historical tables.
