The United States is entering a period of rising global tension at the same time our fiscal capacity is shrinking. Military operations carry immediate costs, long-term obligations, and significant tradeoffs across the federal budget. Troops that are sent into combat deserve the full support and resources necessary to complete the mission.
Yet for more than two decades, Washington has often treated war spending as if it sits outside the normal rules that govern every other part of the budget. The result has been trillions of dollars added to the national debt with limited transparency or accountability. As the conflict with Iran unfolds, the pattern is already repeating itself.
What We Know About the Current Costs
Early estimates from Kent Smetters at the Penn Wharton Budget Model suggest that current U.S. operations in Iran could cost between $40 and $95 billion in direct military spending over just two months. He also projects negative economic effects of roughly $115 billion during that same period. The economic ripple effects are already visible:
- Shipping through the Strait of Hormuz has slowed sharply due to security concerns, disrupting a route that carries more than 20 percent of global oil.
- Gas prices have already risen as supply concerns mount. Gas prices rose 26 cents per gallon in just one week, $2.99 to $3.25
- Yields on 10‑year Treasuries increased from 3.96% to 4.13% in the week following the start of the war as investors anticipate higher inflation and greater federal borrowing.
These are early signals of the broader economic strain that accompanies military conflict.
Policymakers Keep Underestimating War Costs
Two central unknowns are whether the current air campaign will expand into a ground operation and how long the conflict will last. The Trump Administration has not ruled out using ground troops nor have they provided a definitive time line or exit strategy. History shows that once the United States enters a conflict, the fiscal consequences grow far beyond initial expectations.
The 2003 Iraq War is the clearest example. Early estimates ranged from $50 to $200 billion. Actual budgetary costs for the war reached $1.79 trillion, and when projected veterans care through 2050 is included, the total rises to $2.89 trillion. Annual spending averaged about $100 billion and peaked above $200 billion 2008.
How OCO Enabled “Off the Books” War Spending
For years, the Overseas Contingency Operations (OCO) Fund, established by the George W. Bush Administration during the Iraq war, allowed war spending to bypass the regular budget process. What began as a temporary tool evolved into a parallel defense budget. Nearly $862 billion of Iraq War spending flowed through OCO. The OCO allowed policymakers to avoid spending caps and fund routine Pentagon activities without tradeoffs. Even though OCO has been phased out, the incentives that created it remain deeply embedded in defense budgeting. The structure may have changed, but the habit of treating war spending as exceptional and exempt from scrutiny has not.
Supplemental Funding Talks Are Already Underway
Congressional leaders are already weighing an emergency defense spending package, in response to the U.S. and Israeli offensive against Iran. Speaker Mike Johnson has signaled that supplemental funding, up to $50 billion, for munitions is under consideration, depending on how long operations continue. In an interview, Johnson said he hadn’t heard yet about a specific funding level but that “we’ll pass a supplemental when it’s appropriate and get it right.”
Senate leaders, on the other hand, are uncertain whether Republicans will support a supplemental, pointing to existing Pentagon funding cushions provided in last year’s reconciliation bill. Democrats are divided, with some opposing additional war funding and others withholding judgment. The speed of these discussions shows how quickly major conflicts trigger calls for unplanned, off-budget spending.
Why Honest War Budgeting Is Essential Right Now
The United States is entering this conflict with a gross national debt at more than 120% of GDP, a level last seen at the end of World War II. By comparison, debt was 57% of GDP during the first Iraq War in the early 1990s, and in the early 2000s, at the start of the 2nd Iraq war, the federal government was operating with a balanced budget and debt at 54% of GDP.
Today the national debt is nearing $40 trillion and interest costs are rising faster than any other part of the budget. The latest CBO baseline assumes defense spending will decline as a share of the economy over the next decade, an assumption that is already being tested.
Treating war spending as separate from the rest of the budget, through supplementals or separate funds, is misleading and dangerous. Every dollar spent on conflict is a dollar not available for domestic investment, emergency response, or deficit reduction. Borrowing for war increases the interest burden future taxpayers must carry.
Responsible budgeting requires acknowledging the full cost of military action and planning for it within the regular budget process, not through ad hoc emergency bills.
The Bottom Line
The United States cannot afford another era of debt financed wars nor should we commit our troops to combat without the necessary resources to achieve success: which means being very judicious about when and where we choose to go to war. There are numerous historic examples of wars becoming the fiscal tipping point that ends empires and destroys powerful nations. Decisions about military engagement must be made with clear eyes, honest numbers, and a budget process that reflects the true cost of conflict. Anything less leaves the public in the dark, our military service members at risk, and future generations with the bill.
