On the campaign trail in 2016, Donald Trump wasn't shy when it came to the issue of debt. As he told Norah O'Donnell of CBS This Morning at the time, "I'm the king of debt. I'm great with debt. Nobody knows debt better than me. I've made a fortune by using debt and if things don't work out I renegotiate the debt. I mean, that's a smart thing, not a stupid thing." So how perfect that he would become the president of debt, presiding (like his two predecessors) over what TomDispatch regular Stephanie Savell, co-director of the Costs of War Project at Brown University, calls America's "credit-card wars." Those conflicts, already almost 17 years in the making and still spreading, may, when the costs finally come due, lend a hand in the bankrupting of America and leave those who don't fit comfortably into the 1% bracket in a ditch somewhere in Trump country.
Perhaps it's lucky, then, that Americans elected the "king of debt" as their president, since he's had a whole lot of experience with one other aspect of debt: bankruptcy, when things suddenly start to go bad and those debts begin to truly pile up. After all, our king of debt managed to send his Atlantic City casinos over a cliff into the abyss of bankruptcy in the 1990s, leaving stock and bond holders in just such a ditch and yet somehow emerging with millions of dollars for himself. It was an escape act worthy of Houdini and, rest assured, if anything like it were to happen to this country on his watch, he'd undoubtedly do the same thing, possibly no less successfully. Perhaps beforehand he could give the U.S. military (and the rest of us) a few tips about how to jump ship on those wars before they do in not just Afghans, Pakistanis, Iraqis, Syrians, Yemenis, Libyans, and the rest of the targeted crew across the Greater Middle East and Africa, but us, too. In the meantime, let Savell tell you a little about what lies ahead when those credit card bills come due. Tom
Today's War-Financing Strategies Will Only Increase Inequality
By Stephanie Savell- Advertisement -
In the name of the fight against terrorism, the United States is currently waging "credit-card wars" in Afghanistan, Iraq, Syria, and elsewhere. Never before has this country relied so heavily on deficit spending to pay for its conflicts. The consequences are expected to be ruinous for the long-term fiscal health of the U.S., but they go far beyond the economic. Massive levels of war-related debt will have lasting repercussions of all sorts. One potentially devastating effect, a new study finds, will be more societal inequality.
In other words, the staggering costs of the longest war in American history -- almost 17 years running, since the invasion of Afghanistan in October 2001 -- are being deferred to the future. In the process, the government is contributing to this country's skyrocketing income inequality.
Since 9/11, the U.S. has spent $5.6 trillion on its war on terror, according to the Costs of War Project, which I co-direct, at Brown University's Watson Institute for International and Public Affairs. This is a far higher number than the Pentagon's $1.5 trillion estimate, which only counts expenses for what are known as "overseas contingency operations," or OCO -- that is, a pot of supplemental money, outside the regular annual budget, dedicated to funding wartime operations. The $5.6 trillion figure, on the other hand, includes not just what the U.S. has spent on overseas military operations in Iraq, Afghanistan, Pakistan, and Syria, but also portions of Homeland Security spending related to counterterrorism on American soil, and future obligations to care for wounded or traumatized post-9/11 military veterans. The financial burden of the post-9/11 wars across the Greater Middle East -- and still spreading, through Africa and other regions -- is far larger than most Americans recognize.- Advertisement -
During prior wars, the U.S. adjusted its budget accordingly by, among other options, raising taxes to pay for its conflicts. Not so since 2001, when President George W. Bush launched the "Global War on Terror." Instead, the country has accumulated a staggering amount of debt. Even if Washington stopped spending on its wars tomorrow, it will still, thanks to those conflicts, owe more than $8 trillion in interest alone by the 2050s.
Putting the Gilded Age to Shame
It's hard to fathom what that enormous level of debt will do to our economy and society. A new Costs of War study by political scientist and historian Rosella Capella Zielinski offers initial clues about its impact here. She takes a look at how the U.S. has paid for its conflicts from the War of 1812 through the two World Wars and Vietnam to the present war on terror. While a range of taxes, bond sales, and other mechanisms were used to raise funds to fight such conflicts, no financial strategy has relied so exclusively on borrowing -- until this century. Her study also explores how each type of war financing has affected inequality levels in this country in the aftermath of those conflicts.
The implications for today are almost painfully straightforward: the current combination of deficit spending and tax cuts spells disaster for any hopes of shrinking America's striking inequality gap. Instead, credit-card war spending is already fueling the dramatic levels of wealth inequality that have led some observers to suggest that we are living in a new Gilded Age, reminiscent of the enormous divide between the opulent lifestyles of the elite and the grinding poverty of the majority of Americans in the late nineteenth century.
Capella Zielinski carefully breaks down what effects the methods used to pay for various wars have had on subsequent levels of social inequality. During the Civil War, for example, the government relied primarily on loans from private donors. After that war was over, the American people had to pay those loans back with interest, which proved a bonanza for financial elites, primarily in the North. Those wealthy lenders became wealthier still and everyone else, whose taxes reimbursed them, poorer.
In contrast, during World War I, the government launched a war-bond campaign that targeted low-income people. War savings stamps were offered for as little as 25 cents and war savings certificates in denominations starting at $25. Anyone who could make a small down payment could buy a war bond for $50 and cover the rest of what was owed in installments. In this way, the war effort promoted savings and, in its wake, a striking number of low-income Americans were repaid with interest, decreasing the inequality levels of that era.- Advertisement -
Taxation strategies have varied quite significantly in various war periods as well. During World War II, for instance, the government raised tax rates five times between 1940 and 1944, levying progressively steeper ones on higher income brackets (up to 65% on incomes over $1 million). As a result, though government debt was substantial in the aftermath of a global struggle fought on many fronts, the impact on low-income Americans could have been far worse. In contrast, the Vietnam War era began with a tax cut and, in the aftermath of that disastrous conflict, the U.S. had to deal with unprecedented levels of inflation. Low-income households bore the brunt of those higher costs, leading to greater inequality.
Today's wars are paid for almost entirely through loans -- 60% from wealthy individuals and governmental agencies like the Federal Reserve, 40% from foreign lenders. Meanwhile, in October 2001, when Washington launched the war on terror, the government also initiated a set of tax cuts, a trend that has only continued. The war-financing strategies that President George W. Bush began have flowed on without significant alteration under Presidents Obama and Trump. (Obama did raise a few taxes, but didn't fundamentally alter the swing towards tax cuts.) President Trump's extreme tax "reform" package, which passed Congress in December 2017 -- a gift-wrapped dream for the 1% -- only enlarged those cuts.
In other words, in this century, Washington has combined the domestic borrowing patterns of the Civil War with the tax cuts of the Vietnam era. That means one predictable thing: a rise in inequality in a country in which the income inequality gap is already heading for record territory.