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Hearing of the House Budget Committee - The Growing Costs of the Iraq War

Interview

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Location: Washington, DC

BREAK IN TRANSCRIPT

REP. PAUL RYAN (R-WI): I thank the chairman for yielding and for holding this hearing. This is an important hearing.

Since the beginning of the 110th Congress, we've had repeated and vigorous debates about the war in Iraq and its costs, as we should. We've 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 Democrat budget resolution did accommodate this amount. But it is 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's 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's 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'm 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 just could 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's look at where we are today in our nation's history and what we're confronting.

This is a new "ism." This is a world war, like different past world wars, in size and scope. We are facing a mortal threat. Radical Islamic totalitarianism is a mortal threat to this country, it's 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's really quite low.

This is the chart that shows as a 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 toward national defense.

In Vietnam, we were above 8 percent. In Korea, we were about 11 percent. In the Cold War buildup, we were at about 6 percent of GDP.

So as a percentage of our economy, as a proportion of our federal budget, we're 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's important to put this in perspective. Equally important is the job of this committee to make sure that we're 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 CBO 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 out years, what will this look like if we have 75,000 troops in 2013, 30,000 troops thereon after. That is the kind of debate we ought to be having. We should be putting these in the base budget.

But let's remember the fact that we do have a real conflict on our hands that's not going away any time soon. We have to acknowledge that, put it in our budget, and let's look at the fact that we're 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.

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REP. RYAN: Thank you.

Peter, let me ask you about your baseline assumptions.

Do you include -- you include the war spending in your baseline, correct?

MR. ORSZAG: Our baseline is based on whatever has been enacted as of the sort of --

REP. RYAN: The most recent.

MR. ORSZAG: The most recent. So it does have supplemental funding embodied in it, yes.

REP. RYAN: Right, so it's -- whatever the last supplemental is, you just carry that out into the baseline, correct?

MR. ORSZAG: With inflation, correct. Right

REP. RYAN: With inflation. Okay, so if you think war spending is going to decline based on these drawdown scenarios you outline, or if it does in fact do what, you know, the 75,000 or the 30,000, does the baseline decline consistently with that?

MR. ORSZAG: No.

REP. 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 that you noted. On the other hand, there are lots of things, both on the non-defense side where people believe that it's possible that non-defense discretionary spending will keep pace not just with inflation, which is the baseline assumption, but with population growth and economic growth.

And then even within Defense, our analysis of the Defense Department's future plans as embodied in the Future Year Defense Plan suggest that there may be significant additional costs beyond inflation that are embodied in the current thrust of defense policy.

REP. RYAN: So all that will be soaked up by new plans?

MR. ORSZAG: It could be.

REP. RYAN: Could you bring up Chart Number 3, please -- whoever's doing number 3?

This is constant FY '08 dollars -- budget -- the Defense Department budget authority. If you take a look at this, historically in our history over these conflicts, spending shoots up, goes up at a very high level, and then comes back down and gravitates toward the average.

Do you have reason to believe that this kind of a conflict, even though -- and look at the Cold War, which is a long-lasting conflict. This one is probably a long-lasting one like that. Do you believe that 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 -- our own 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, in history will tell.

REP. RYAN: If I can get -- just -- okay, so in -- when you say that, I -- what comes to my mind is the fact that 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're not stretching our Guard and Reserves too much. Is that not what kind of you're talking about?

MR. ORSZAG: And then they want upgraded and new equipment --

REP. RYAN: Equipment, right.

MR. ORSZAG: -- and you have ongoing heath care cost inflation that's occurring in that system as well, and there are a variety of upward pressures on the defense budget.

REP. RYAN: Right. And so that is assuming that that is all on top of, not in place of, what they're doing and what they have, correct?

MR. ORSZAG: I'm sorry, I'm not sure --

REP. RYAN: Well, that is assuming new on top of -- they're not going to cut anything to make room, physical space for these new needs. They're just going to throw these new needs on top in their requests, is what you're saying.

MR. ORSZAG: There are some offsetting things, but again, if you look at their plans themselves, the offsets are not as big as --

REP. RYAN: Not nearly as big as what the plans may be.

MR. ORSZAG: Right.

REP. RYAN: So therein lies maybe a role for this committee to play, I would think, which is we have -- we entered this conflict with a 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?

You know, people talk about bases in Germany and other places that no longer prevent an immediate threat to us. This is something this committee could probably play a constructive role in, I would argue.

And so I just think it's important to note that our nation's history shows we ramp it up during these conflicts and then it comes back down toward the mean afterwards.

So it is not something we can confidently predict we're going to have in perpetuity higher, always, spending on defense. But also, I think it's important to note, given that 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's just a noteworthy point.

With that, I yield.

Thank you, Chairman.

REP. SPRATT: Before turning to Ms. DeLauro, let me get a clarification.

Now, 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 the future, including a supplemental. If it was enacted, you will carry it forward for future years.

MR. ORSZAG: That's correct.

REP. SPRATT: What we've asked you to do here was to not carry it forward but to develop a different model for extrapolating or projecting into the future. So I just want to make it clear, we didn't have a 10-year carry-forward of the supplementals. 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.

REP. SPRATT: Okay.

REP. RYAN: May I just --

REP. SPRATT: Sure.

REP. RYAN: -- 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 under -- especially under the lower cost scenario for the future.

REP. RYAN: Thank you.

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REP. RYAN: Thank you.

I just want to ask a couple quick questions and just follow up Mr. Boyd.

I agree these things ought to all be done in context -- percentage of GDP. And I think you'll find that it's shifted from defense over toward more domestic issues. And as we saw from the comptroller general, we have a big problem on our hands going as a percentage of GDP in the future.

The reason I stuck with defense is that's what this hearing's about.

Peter, I just have one quick question since, you know, I'm kind of the only Republican here.

Is -- taking these numbers -- you have $1.7 trillion costs with interests on the 30,000 level and then $2.4 trillion cost with interest in it at the 2013 level.

If the majority's budget resolution occurs and is implemented and executed and we do not have deficits after 2012, and therefore we're 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's still the case that --

REP. RYAN: Meaning --

MR. ORSZAG: -- that even after you're running a surplus in the baseline, that if additional spending reduces the surplus, you're not buying down debt as much as you would otherwise, and therefore there are additional interest costs. So the same logic still --

REP. RYAN: It's not the same interest costs, though, of additional debt financing versus canceling out, correct? Versus foregone cancellation -- is that -- you're imputing the same interest rate either way you go?

MR. ORSZAG: Yeah. In other words, if you have $1 trillion in debt outstanding and you add $100 billion to it, there's some interest on that. If you would have reduced it by $100 billion, run a surplus, but instead you don't, you have more interest than under the baseline.

REP. RYAN: So you're saying regardless of whether we're in 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're looking at the marginal impact on debt outstanding --

REP. RYAN: Okay.

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