Posted by: Jeff | November 24, 2009

“Pay As You Fight”

Joe and I will be posting a new podcast shortly dealing with the American federal deficit and what can be done about it. One side issue we get into is the rather remarkable fact that, within American politics, military expenditures are uniquely exempt from concerns about adding to the deficit.

With the latest rumblings that Obama may be about to send as many as 35,000 additional troops to Afghanistan – at a cost of at least $35 billion more a year, none of it paid for at present – some House Democrats appear to have finally had enough.

Call it “pay as you fight.”

After months of listening to conservatives caterwaul over deficits and health care, senior House Democrats want a graduated surtax on individuals and corporations to pay for another big drain on the treasury: the Afghanistan war.

Three full committee chairmen — including the House’s top tax writer, Ways and Means Committee Chairman Charles Rangel (D-N.Y.) — are backing the initiative together with the chair of the party caucus, Rep. John Larson (D-Conn.), and close allies of Speaker Nancy Pelosi.

Rep. David Obey (D-Wis.) was the first to float the idea. The point is obviously as much philosophic as it is practical, and I wouldn’t give it very good odds of passage. Matt Yglesias does point out, however, that the support of Rangel and Larson – as well as John Murtha (D-Pa.) – puts some genuine muscle behind the proposal.

We have had, up until now, a political discourse in which it simply does not even dawn on most people to apply the same pay-as-you-go, deficit-neutrality principles to America’s war efforts as have been applied to health care reform. Even though, by any sane calculation, lack of health insurance kills far more Americans than Islamic jihadism could ever hope to. You’d think if any priority could be considered sufficiently critical to sideline deficit concerns, it would be the former rather than the latter.  So any political momentum gained by this initiative is a moral victory all by itself.

Details of the tax after the fold.

The basic structure of the surtax is to create three brackets based on the current tax liability for joint or single returns.

The first bracket, which covers joint returns with a liability of up to $22,600, roughly corresponds with households earning up to $150,000. In this case a 1 percent surtax is levied so the maximum additional cost would be $226.

The second bracket applied to tax liability between $22,600 and $36,400 or roughly equivalent to joint returns for couples earning between $150,000 to $250,000, The third bracket applies to those earning over $250,000 with a tax liability of $36,400 or higher.

The rates in the second and third brackets would vary depending on how much needs to be raised to cover the prior year’s war expenditures. But as a rule, the added surtax above $250,000 would be twice the percentage added onto taxes incurred between $150,000 and $250,000.

If the costs were $68 billion, a preliminary rough breakdown provided by Obey’s office indicates that about $8.8 billion in surtax revenues would come from the first bracket, $9.7 billion from the second, and then $28.2 billion from the third.

That amounts to an added 10 percent for the high-end income enjoyed by the very rich, and corporations would pay about $19 billion more altogether toward the surtax. That guarantees substantial resistance then, but Obey argued that the numbers are a warning of the long term economic consequences.

“I went through the Vietnam years when the cost of that damn war drained away the ability to do anything else,” he told POLITICO. “I chair the committee that has to say no to effort after effort to rebuild [the] economy.”

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