Posted by Roger Mallett Posted on 14 January 2024

The “Ghost Budget”: How America Pays for Endless War. Funding the Post-9/11 Wars

Implications for Perpetual War

The post-9/11 wars in Iraq and Afghanistan were enabled by a historically unprecedented combination of budgetary procedures and financing methods.

Unlike all previous U.S. wars, the post-9/11 wars were funded without higher taxes or non-war budget cuts, and through a separate budget.

This set of circumstances – one that I have termed the “Ghost Budget” – enabled successive administrations to prosecute the wars with limited congressional oversight and minimal transparency and public debate. I adopted the name “Ghost Budget” because the term “ghost” appeared frequently in post-9/11 government reports in reference to funds allocated to people, places, or projects that turned out to be phantoms.

The Ghost Budget was the result of an interplay between changes in the U.S. budgetary process, a more assertive military establishment, and the conditions in global capital markets. It has had far-reaching implications for the conduct and course of the post-9/11 wars and for defense policy today.

Funding the Post-9/11 Wars

The “Ghost Budget” was the biggest budgetary anomaly in U.S. history. Prior to 9/11, U.S. wars were financed through a mixture of higher taxes and budget cuts, and funded mostly through the regular defense budget. One third of the costs of World War I and half the costs of World War II were met through higher taxes. During World War II, President Franklin D. Roosevelt described paying taxes as a “patriotic duty” as he raised taxes on business, imposed a “wealth tax,” raised inheritance taxes, and expanded the number of income taxpayers to roughly 80 percent of the workforce by 1945. Wars in Korea and Vietnam largely followed a similar pattern, with President Harry Truman pledging to make the country “pay as you go” for the Korean War. War funding was also a central issue in the Vietnam War, which ended when Congress refused to appropriate money for the South Vietnamese military.

The post-9/11 war funding pattern was completely different. For the first time since the American Revolutionary War, war costs were covered almost entirely by debt. There were no wartime tax increases or cuts in spending. Quite the reverse: far from demanding sacrifices, President George W. Bush slashed federal taxes in 2001 and again in 2003, just as the United States invaded Iraq. President Donald Trump reduced taxes further in 2017. Overall, federal taxes declined from 18.8 percent of GDP in 2001 to 16.2 percent by the start of 2020. In the same period, outstanding federal debt held by the public rose from $3.5 trillion to $20 trillion. War spending contributed at least $2.2 trillion to this increase.

Not only was the financing strategy unprecedented, but the budgetary mechanism used to approve the vast post-9/11 wartime spending also diverged radically from the past. In all previous conflicts, the United States paid for wars as part of its regular defense appropriations (the defense “base budget”), after the initial period (1-2 years) of supplemental “emergency” funding bills. By contrast, for the entire decade from FY 2001 to FY 2011, Congress paid for the conflicts in Iraq and Afghanistan as “emergencies,” devoid of serious legislative or executive oversight.

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