How the war tab may shift agenda in Washington

Congress is likely to pay, but may trim tax cuts and prized programs.

The cost of America's involvement in Iraq is rising to the point where it appears likely to influence Washington's agenda in ways that go far beyond foreign and military policy.

Instead of a quick war paid for by a new flood of $20-a-barrel Iraqi oil, policymakers are hunkering down for a much more protracted and costly engagement. The tab - some $150 billion, including much of the $87 billion requested by President Bush this week - could affect some of the most cherished programs of both parties, including an unusually ambitious presidential agenda with another $878 billion in hoped-for tax cuts this year.

So far, the White House is casting most of this as wartime spending, which Americans have been willing to support in the past. Some 75 percent of Mr. Bush's new request is to fund military operations for the war on terror, almost entirely in Iraq.

"Almost anything that's going to cost money is going to be looked at with a much harder and more scrutinizing eye after this," says Ross Baker, a political scientist at Rutgers University. "The well-being and safety of troops engaged in combat trumps virtually everything else - social needs, subsidies - all kinds of things. It certainly does have the effect of crowding out other policy."

Indeed, even those who opposed the war in Iraq say it's unthinkable that Congress will refuse support to American troops in the field.

"The president assumes, and probably rightly so, that Congress may hem and haw, but they will give him what he wants," says Ivo Daalder, a senior fellow at the Brookings Institution.

But lawmakers are already at odds at how the rising costs will ripple through the federal budget.

Before US troops began operations in Iraq, administration spokesmen told Congress that they expected that revenue from Iraqi oil would cover much of the costs of the reconstruction. On the eve of war, Deputy Defense Secretary Paul Wolfowitz told Congress that, "We are dealing with a country that can really finance its own reconstruction and relatively soon." And administration economist Larry Lindsey said that reconstruction costs of up to $200 billion would be largely offset by an increase in reasonably priced oil from Iraq.

Since those estimates have not materialized, adjustments must be made to the size of the federal budget deficit. Even before this week's emergency request, the Office of Management and Budget had been projecting a deficit of a record $455 billion for this fiscal year ending Oct. 1, and another $475 billion for fiscal year 2004.

White House spokesmen say that deficits of this magnitude are still "manageable," even with a big bump up from the new emergency request, so long as Congress holds the line on spending in 2004 and does not back off the president's "pro-growth" tax cuts.

"It is not spending we expect would go into the base [of the permanent budget]. It is for the most part overwhelmingly one-time spending," said a senior administration official, who added that the administration is not proposing any offsets for the new spending, which they say will push the deficit past half a trillion dollars.

That could force the Bush administration to adjust its own wish list. Democrats are targeting Bush tax cuts, especially those for upper-bracket taxpayers. "If this is war and American lives are at stake, it's fair to ask: Are we going to share the sacrifice or charge the cost to the national debt and pass it on to our children?" says Rep. John Spratt (D) of South Carolina, the ranking Democrat on the House Budget Committee.

Robert Reischauer, a former director of the Congressional Budget Office, says the $87 billion addition to federal spending proposed by Bush "in and of itself is not cataclysmic. It is bearable." A resulting deficit of $550 billion in fiscal 2004 starting in October will amount to 4.7 percent of the nation's gross domestic product - its total output of goods and services. That is less than the peak of 6 percent of GDP reached in 1983 during President Reagan's first term in office. But at that time, Mr. Reischauer, now president of the Urban Institute in Washington, notes, some of the 1981 tax cuts had already been reversed.

In the long term, some economists worry, more borrowing by the government could push up interest rates for the nation at large, and harm the economy.

If "realistic assumptions" are made of congressional spending and tax actions, the deficit will grow to $700 billion to $800 billion over the next 10 years, says Reischauer. That's "even with a strong economy."

And that's without a larger military, which some experts say is warranted by the expanding US role in the world.

Lawmakers worry that a long engagement in Iraq, for instance, could push deficits even higher in the years to come by requiring more troops. Last week, the Congressional Budget Office released a new report on the ability of the US military to sustain an occupation in Iraq. It concludes that in the long term, the US can sustain a force level of only 67,000 to 106,000 military personnel, without involuntary mobilization and extended family separation. An alternative would be to create two new Army divisions, the report concludes. Reischauer says that Congress at some point soon will have to raise defense spending $50 billion to $100 billion a year to enlarge the armed forces or refurbish the equipment used in Iraq and Afghanistan.

So far, neither Democrats nor Republicans have been eager to come up with spending cuts to offset the war spending.

In fact, Democrats are using the new spending estimates in Iraq to argue for more spending on education and healthcare for Americans. Sen. Robert Byrd (D) of West Virginia is proposing an additional $6.1 billion to fully fund the money Congress authorized in the No Child Left Behind Act. "I urge my colleagues to begin reflecting on what kind of signal we will be sending to American families if we shortchange education funding by $6 billion one day and approve 10 times that amount for Iraq the next," he said, referring to a lower estimate of what the president would request.

But one of the most likely targets for cuts this fall is the prescription-drug benefit, now hung up in conference between the House and Senate. "If there is any sacrifice to be made for the $87 billion, it would be the prescription-drug bill. It's $400 billion that may well be a lot more than $400 billion over the next 10 years," says analyst Larry Sabato. "But the path of least resistance is to add to the debt. The reason they get away with it is that average people don't have a clue what the deficit is. And the number is so big, whether $100 billion or a trillion, that it makes no difference to them, yet it has tremendous impact on interest rates and for the future."

Staff writers Liz Marlantes and David R. Francis contributed to this article.

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