A Temporary Tax to Pay for the Wars in Iraq and Afghanistan?

September 13, 2006

Ohio Senator George Voinovich is calling for a temporary tax hike to fund the wars in Afghanistan and Iraq, making the argument that the costs of the war should not be passed on to future generations. From today’s Columbus Dispatch:

Just 56 days before crucial congressional elections, Republican Sen. George V. Voinovich yesterday repeated his call for a temporary tax increase, a position that places him at odds with Senate and House Republicans fighting for re-election.

At a Senate hearing where Homeland Security Secretary Michael Chertoff testified, Voinovich said Congress should approve “a temporary increase in our taxes” to pay for the ongoing wars in Afghanistan and Iraq and to defend the nation against terrorist attacks.

Christopher Paulitz, a Voinovich spokesman, said the senator has not introduced a bill to raise taxes and “doesn’t have anything specific in mind. What he’s trying to do is get people’s attention that we can’t keep promising everything under the sun and leave it to our grandchildren to pay for it.”

Voinovich’s call for a tax increase comes as Sen. Mike DeWine, R-Ohio, is criticizing Democratic challenger Sherrod Brown, of Avon, for opposing the federal tax cuts of 2001 and 2003 and voting for numerous tax increases.

While taxes may typically need to be raised to fund a war, holding everything else constant, the full costs of the war should never be borne in such a short time period, assuming the war will be temporary. There are two main reasons to justify borrowing to pay for a war: (1) the short-term costs could be so large, we would be better off for government to smooth the costs over time, and (2) theoretically the benefits of a war would be borne mostly by future generations – why is it unfair to tax them for that benefit?

The first reason assumes that people will not merely save today to pay for future tax hikes, which in economic circles, means we are assuming no Ricardian equivalence. If Ricardian equivlance did hold and taxpayers merely forecasted future tax hikes and thereby saved today to pay for those future tax hikes, then the full cost of the war spending would be borne today, which would make Voinovich’s concern unwarranted. However, as we have seen empirically, individuals do not have perfect foresight and tend to not care fully about the finances of their offspring, meaning the government is responsible for most of the determination of the allocation of the costs of war over time.

As for the question of how to fairly distribute the benefits and costs of war among current and future generations, Voinovich’s quote that we are “leave[ing] it to our grandchildren to pay for it” is making the normative argument that the full costs of war should be borne by today’s generation. That assumes either that there will be no benefit to future generations from the current war (which would depend upon your own view of the likelihood of success of our current conflicts), or he believes that those who pay for the costs of policies should not necessarily be those who benefit from them.


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