Ask An Ex-Banker: Tax Loss Harvesting

Q. We have a number of investments through Vanguard – small, mid and large cap, some real estate and bonds. All have low costs. Our advisor (from another provider) recently suggested we rebalance, moving some small and mid-cap to large-cap funds. She said we should do this via “loss harvesting.”  I have tried to read up and look at the funds online to figure what funds would be smart to sell.  But the information provided is confusing (and seems to change) and it seems somewhat complicated. Any advice on how best to proceed such as what metrics to base the decision on?

B. Dempsey, San Antonio TX

A. The goal of tax loss harvesting is, through a careful series of sales, to offset some gains you might have from selling an asset with losses you might incur in the same calendar year. Losses that offset gains can leave you with a smaller tax bill. This is especially relevant if you have highly appreciated assets, or assets that were gifted to you that were bought at a much lower price. (Having a “low basis” in investment lingo.)

That’s the theory. 

Tax loss harvesting is easiest to understand on individual stocks.  Let’s say your Google stock appreciated by $50K based on where you sold it and you owed $7,500 on the gains because of the 15% long term capital gains tax rate. And then let’s say you also sold Pepsi in the same year, and you lost $10 thousand between where you bought it and where you sold it. The $10 thousand loss on Pepsi can be netted against the $50 thousand gain on Google if the sales occur in the same year. The result: you are only taxed 15 percent on $40 thousand in capital gains, and your tax bill drops by $1,500. Which is cool. 

But frankly it isn’t probably as important a factor for your long term net worth than the decision in the first place to own, or not own, Google or Pepsi. And in what proportions, and for how long.

The biggest choice is the investment itself, not the taxes

As always when people decide to get clever about saving on taxes, my very strong instinct is to remind them that taxes are the tail, stocks are the dog. Do not let your clever tax strategy (the tail) determine your investment asset allocation (the dog).

You can do this same netting of gains and losses on short-term stock holdings as well, which usually incur a higher tax rate since short term capital gains taxes match your income tax rate. Probably something above 15 percent.

If this seems confusing so far, I think that’s a good sign you don’t want to do it on your own and you may either need to hire an advisor or deputize your existing advisor to do it for you. 

I’m usually somewhere between skeptical and opposed to introducing investment complexity and additional advisors to one’s investment life, so I’ll try to offer a bit more about the narrow set of situations you might consider this for, as well as ways to accomplish this over time.

Tax loss harvesting is something you’d only do in your taxable (non-retirement) accounts, since it’s supposed to address the potential problem of capital gains. You won’t ever pay any capital gains in your tax-deferred retirement accounts.

I think it’s also worth saying up front that the most tax-efficient strategy you can do with your taxable investment portfolio in every case is: never, ever sell. 

Under current law, assets you never sell produce no capital gains taxes at the time of your death for you or your heirs. While your advisor is suggesting you “do something” (rebalancing) and then “do another something” (tax loss harvesting) as a result, my instinct is usually to tell people to “do nothing,” especially if you want to be tax-efficient. 

If you do go ahead and reposition your portfolio anyway, it becomes relevant at the end of the year in which you might pay capital gains to think about whether other sales you can do might produce tax-offsetting losses. 

In 2023, it would not have been surprising if you had losses in your bond portfolio, for example. Individual securities that went down from the time you bought them would be other candidates for locking in losses, although I again would not advise selling something just “for the taxes.” 

As for tax loss harvesting by selling a small-cap or medium-cap mutual fund, that seems too difficult for an individual to undertake on their own. You probably need to engage with an advisor if you want to do that, and that’s going to cost you money, which will raise the issue of whether a tax loss harvesting strategy is overall worth it. (more on that below) 

Another skeptical note, from me: Does incurring taxes by selling your existing low-cost mid-cap and small-cap index funds, and then doing tax-loss harvesting after the sales, truly improve your portfolio? In most market environments indexes of different capitalization are very highly correlated, so you are getting questionable improvements while upping your tax bill and maybe upping your management fees? 

There are at least two other ways to rebalance in a more tax efficient way. One would be to direct new purchases from the bond interest payments and stock dividends into larger cap funds. It would take a longer period of time but without any capital gains taxes. Another would be to just decide any new purchases go into large caps, but without selling the existing positions. A third way is to make the reallocation through changes to your non-taxable portfolio (like within a retirement account), as that doesn’t create a tax bill. Obviously I don’t know the positions of your portfolio and I don’t know your specific financial situation. I’m just a skeptical guy asking whether this advisor is really helping, or is this advisor making suggestions that just look like they are helping?

Going slightly beyond your question, there also exists the relatively new idea in investment management of actively tax-loss harvesting your existing taxable portfolio, not for rebalancing but specifically for tax efficiency.

Brokerages offer tax-loss harvesting strategy as a service within a portfolio that can act like a mutual fund. Fidelity for example offers something that should offer the performance of the S&P500 index, but at any given time they buy and sell individual stocks in ways that minimize capital gains taxes through tax loss harvesting. Since they charge 0.2 to 0.4 percent for this service, they would need to deliver some after-tax outperformance.

Fidelity and other brokerages offer tax-managed investing. For a fee, of course.

An academic research study from 2020 suggests that a tax loss harvesting program like this could save between 0.8 and 1.08 percent per year on your portfolio.

Since tax loss harvesting adds complexity to your investment life, I think it only becomes relevant if you have a large – probably multi-million dollar – taxable portfolio. 

At that scale, paying an advisor to generate an additional estimated 0.6 per year on your taxable portfolio may make sense.

A version of this ran in the San Antonio Express News and Houston Chronicle.

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Ask An Ex-Banker – Future Mortgage Rates

Q: We moved away from San Antonio last summer. Our prior APR, with 11 years left on our mortgage, was 3.25 percent. The interest rate for our new house was 5.25 percent.  We took out a 30-year loan with plans to refinance it into a 15-year when interest rates go down.  Now I’m not sure when they will ever go down. Or, when they start to go down, how long do we wait?  Our old 3.25 percent seems like a dream now. If it gets to 4 should we jump on that? Will it get to 4 in the next year?

-Jeff J, Nashville, TN


You have many high-salience mortgage questions in a very short note! I’ll address each one. 

One of my rules is to not forecast markets. Neither stock markets nor interest rates markets. Partly that’s because I will always be wrong and I don’t like being wrong. Partly it’s because it really bothers me when finance media people pretend they can predict the future. In reality, that specific habit of forecasting by otherwise supposedly serious finance media people should earn them a fortune-teller’s cap (with all the stars and lightning bolts) to signal their likely accuracy. 

Having said all that, I still have some guideposts for you to watch for the future.

The Federal Reserve last raised the benchmark fed funds interest rate on July 26, completing its eleventh hike after more than a year of very aggressive interest rate rises. National mortgage rates changed a lot in the last 16 months as a result. While the Fed does not directly control mortgage rates, the benchmark fed funds rate plays an important anchoring role in setting 15-year and 30-year mortgage rates. All that means is that while future interest rate predictions are impossible to make, the first thing that would have to happen for mortgage rates to come down dramatically is the Federal Reserve signaling they are done raising rates. They have not yet signaled that. So you have a ways to wait still for the first guidepost. 


The next guidepost would be that the Fed intends to actually lower rates. Usually that happens because a recession has begun or some other shock to the system forces the Fed to lower rates. That hasn’t happened yet either. Once the Fed signals an intention to lower rates – or actually starts to do it – then you can sharpen your pencil to pick a target for refinancing your mortgage.

Mortgage rates as of this writing (with “no points”) are above 6 percent for 15 years and above 7 percent for 30 years, making your current 5.25 percent 30 year mortgage comparatively attractive right now. You are very much not incentivized to refinance at current rates.

“How much would interest rates have to drop to make it worthwhile to refinance?” is the logical and popular follow-up question. Mortgage lenders, because they earn fees every time you refinance, would have you refinance with a 1 percent improvement in your interest rate. To answer one of your questions directly, I probably wouldn’t bother refinancing into a 4 percent mortgage rate. Reasonable people can differ on this but for myself, I probably wouldn’t do it until I could drop my interest rate by 2 percent points from my current mortgage. There are just too many fees, “points,” and closing costs to make it financially worthwhile to refinance for a minor improvement in rates.

If you have the extra monthly cash flow required, and you prefer to be in a 15-year mortgage, I’d still look for a 2 percent interest rate improvement over your existing 30-year mortgage to make that change. In your case therefore I’d personally wait until the 15-year mortgage rate hit 3.25 to do it. That’s pretty far away from here and it seems unlikely – barring an emergency crisis or recession – that interest rates will get that low next year.

One other semi-tangential thought for you to watch over the next few years, while waiting for lower interest rates.

In the olden days of the late ‘90s and early 2000s, mortgage rates were roughly around current levels and many people found it advantageous to use floating rate mortgages – known as Adjustable Rate Mortgages (ARMs). 

ARMs got a bad name following the 2008 mortgage crisis, mostly because sub-prime ARMs were a particularly painful product that caused a lot of misery. ARMs would start out for 3 years or 5 years at an affordable fixed rate – 4 or 5 or 6 percent for example – but then adjust upward at the end up the time period into a much higher floating rate with 25 or 27 years remaining on the mortgage. For sub-prime borrowers, the rates adjusted upwards into usurious rates like 12 to 14 percent at the end of the fixed rate period. People lost their homes as a result.

But for prime borrowers, ARMs were not inherently terrible, just somewhat risky. I purchased homes with an ARM (twice!) without doing myself harm. I mention this not because you should necessarily refinance into an ARM, but rather to just remind you that these products exist, they are not inherently evil, and there could come a time when it would make sense to consider refinancing into an ARM. 

But not yet. Not to get too technical on the shape of the interest rate curve, but ARMs are generally attractive when short-term interest rates are much lower than medium to long-term interest rates. As of this writing, short-term interest rates in the US are remarkably and unusually flat-to-inverted, meaning short term interest rates are actually higher than long term rates. This makes ARMs particularly unattractive right now. So they are definitely not a solution to your problem today. 

It’s not impossible, however, that ARMs rates could become attractive before traditional 15 or 30 year mortgages do. Just something to watch out for in the next few years while you hope for improved rates for refinancing your mortgage.

A version of this ran in the San Antonio Express News and Houston Chronicle.

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Biden Tax Proposals

I am attempting to model good financial writer behavior by inserting some actual boring tax policy discussion into presidential politics. From what I can glean from media over the past year, the presidential race was declared an entirely policy-free zone. But we should care a lot about boring tax policies!

Now that Biden is heading to the Presidency 1 what the heck did he promise in terms of tax policy changes?

Biden’s proposals on two headline tax rates essentially indicate a rollback of marginal tax rates to Obama-era levels.

For individual taxpayers, Biden proposes a 39.6 percent top tax rate. That’s up from the current 37 percent. This represents a return to the top income tax rate in effect through 2017.

Biden also proposes a 28 percent corporate tax rate, an increase from the current 21 percent corporate tax rate. Still, 28 percent represents a lower corporate tax rate than the United States had on the books between 1994 and 2017.

Biden’s most common campaign slogan with respect to taxes was that people making less than $400,000 per year will not pay higher taxes. Obviously, by implication, he’s warning us (promising us?) that higher income folks will see a rise in their taxes. This rise comes most clearly from targeted changes that would affect the wealthy, and/or the more highly-compensated among us.

For individuals making more than $400,000 per year, Biden proposes a 12.4 percent payroll withholding tax specifically for Social Security. I think that’s mostly where Biden’s $400,000 claim comes from since it’s a new, and clear, tax hike. 

More subtly, but probably more importantly, Biden proposes taxing capital gains more highly in certain cases. Taxes on money made from selling appreciated assets – capital gains – are potentially more important to wealthy folks than taxes on earned income. Biden’s plan would charge higher capital gains taxes for households that make more than $1 million per year. 

Currently, capital gains tax rates are lower than earned income tax rates. Which, if you ask me, has a lot more to do with who funds political campaigns than it has to do with the moral or economic merits of taxing wealth at a lower rate than income, or any other justification for rewarding capital over labor. Biden’s proposal doesn’t upset that apple cart – this traditional tax-code preference for capital over labor. Rather, it says that if you make more than $1 million per year, you don’t get a tax break just because you make money on your wealth rather than on your labor. I’m probably wrong to think this but I feel like if you earn over a million dollars per year, you can survive (maybe, barely) paying a regular tax rate like the people who make a living through their labor. Call me a Socialist, whatever.

Also in the category of tax proposals applying to the few, but sadly not me: Biden has proposed that people worth between $50 million or more would pay a 2 percent wealth tax, rising to a 6 percent tax rate for those with a $1 billion net worth. This seems terribly unfair. Specifically, unfair in the sense that I wouldn’t get to pay that tax. I aspire to pay that tax some day. I want to be in a position to pay that tax. And, I will promise to not complain about it, when the time comes. You can hold my feet to the fire on that one.

Graphic from Vox, December 2019

Another Biden proposal affects folks who inherit wealth. This proposal is captured by the phrase “eliminating stepped-up basis,” and the meaning is that inherited assets would not continue to enjoy a massive tax break. Like the capital gains tax proposal, this is a targeted tax change that has huge implications for wealthy heirs as well as the folks who do estate planning. It has very few implications for non-wealthy people who do not inherit highly appreciated assets.

Finally, Biden has not specifically made estate tax proposals, but he did sign off on some Biden/Sanders “unity” principles in July 2020, including rolling back estate taxes to 2009 levels. Those 2009 estate tax levels were set by the Socialistic Bush/Cheney administration.

There are a few other detailed tax credits and exemptions, but that covers most of Biden’s big tax proposals.

Now, the Political Reality

After January 2021, there’s a strong chance that the Senate remains in Republican hands, making most of Biden’s tax proposals backburner issues.2

Sweeping tax reform is also not something I’ve noticed is a priority for Democrats. Between COVID emergency stimulus, health care plans, and a Green New Deal, tax reform isn’t really on-brand for the 2021 Democratic Party.  Still, we should at least understand where the incoming President’s head is at, with respect to tax reform.


A version of this post ran in the San Antonio Express News.

Please see related posts:

Let’s have an adult conversation around taxes

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  1. Barring the unlikely success of Trump’s slow attempt at a coup. Which, I don’t know, might work. But I hope it doesn’t.
  2. As of this writing two Georgia Senate run-off races will happen in January. Democratic candidates would have to win both to allow for a 50-50 split in the Senate (tie-broken by Vice President Kamala Harris). It feels like something as complex as comprehensive tax reform is unlikely to pass with this kind of squeaker of a vote majority, even in the unlikely event that Democrats win both races.

Transparency Part II – TOTAL Tax Transparency

I’ve been reading up on “tax transparency” lately and have become a convert to the idea. The idea is that the IRS could and should publish online, in a searchable database, the annual income and income taxes paid by all taxpayers.


I’ve got political, economic, and sociological reasons for my conversion.

You probably already anticipate the political. Most Democratic presidential candidates this month have rushed to release a decade’s worth of their personal tax returns. They do this in part to contrast with President Trump, who has broken with forty years of tradition by not releasing his own tax returns. His stated reason is that his returns are “under audit” with the IRS. An audit process, however, does not prevent voluntary disclosure, according to the IRS itself.

But there is a better way. You’re going to love this idea.

If you’ve ever read my columns before, you probably realize that when I say “You’re going to love this,” I actually mean that you’ll probably hate this.

Let’s not limit ourselves to begging for voluntary disclosure by a president, or presidential contenders. Let’s get it all out there. For everyone. That was the rule back in 1924.  The IRS made public the amount of taxes paid by every individual and corporation. I say we reinstitute that rule, which was unfortunately repealed in 1926.

What happens when you disclose everyone’s income and taxes paid publically?

A primary goal of income and tax transparency is to deter tax evasion, especially by powerful people. A secondary goal is to increase the amount of taxes paid. A tertiary goal is that we get to address important issues like wage inequality. 

A paper published in February 2019 by the National Bureau of Economic Research describes Pakistan’s recent experience with tax disclosure.

In Pakistan, the government began in 2012 to publish how much both elected officials and citizens earned in income and paid in taxes.

This has direct relevance to the current United States situation, since the program began as a result of press reports that elected officials had not been paying their taxes. 

What better way to ensure compliance and trust in the system than 100% exposure of all citizens’ income and taxes paid? Sunlight, as they say, is a great disinfectant.

In Pakistan, two free searchable directories are published in PDF form online each year. The first is income earned and taxes paid by all members of Parliament. The second directory has the same tax information on all taxpayers, searchable by name.

One hoped-for effect with this program is to encourage whistleblowers to come forward if they suspect someone, like a political rival or a neighbor, of not paying their fair share of taxes.

As a result of this program, among members of parliament in Pakistan, tax compliance moved from 30% to 90% within the first year of the program – an extremely dramatic jump. I feel like this kind of effect on public officials of tax transparency should be a requirement in a democracy.

For an entire society, individuals would be less likely to attempt illegal tax avoidance, or even plausibly legal but overly aggressive attempts to reduce taxes, if they knew others would be watching. Other taxpayers may enjoy the “bragging rights” afforded by high reported income and high tax compliance, possibly helping bring in additional revenue.

Norway has a strong tradition of tax transparency, dating to the 19th Century. Beginning in 2001, the central government began to publish all taxpayer wages and taxes paid online, searchable by anyone

A Norwegian study from 2014 found that business owners’ reported income increased by 3% on average following the change to total transparency, with a 0.2% bump in taxes collected. Higher reported income leads to higher taxes paid. An equivalent jump in taxes in the US would raise $3.2 billion. The effect is larger on business incomes rather than salaried incomes because of the extra wiggle room that businesses enjoy to report and pay taxes, when compared to W2-type earnings that are independently reported.

Norway: Earth Porn and Tax Porn! Photo credit : TORE MEEK/AFP/Getty Images)

Pakistan and Norway are not the only countries to experiment with tax transparency. Italy tried it in 2008, posting all tax returns from 2005 online, before taking down the information, following protests.

Greece and New Zealand use public exposure of tax evaders to encourage compliance.

This tax transparency may all sound radical, but we already have a small version of this in the United States. And life goes on. I just mean the fact that I can look up property taxes owed and paid by almost anyone who lives near me through a simple internet search of county records. 

Academic studies do acknowledge some downsides to transparency. Some consider this an invasion of privacy. We could easily imagine some embarrassment or even harassment about one’s level of income. 

Apparently in Norway, the well-known practice of “tax porn” internet searches – looking up people’s income for voyeuristic purposes – actually makes people unhappier in some instances. 


As a result, since 2013 in Norway, the subject of a tax search is informed of who is doing the searching. This has led to a drop from 16.5 million searches to 2.15 million searches in the year after implementation of the rule change, all on a population of 5 million.

When I am declared benevolent dictator of this fair land, I will look to institute tax transparency similar to what they have now in Norway and Pakistan – an easy internet search of anyone’s net worth, taxes owed, and taxes paid. A moderate charge for each search would make it a revenue generator for my government’s coffers. The moderate charge would also limit “tax porn” searches and encourage tax compliance.

One additional benefit of this proposed database would be to equalize pay. Efficient markets, including markets for work, depend on the free flow of information. Pay information, however, is often obscured and secret. A 2010 economics paper found that disclosure of income not only mattered to lower-income people, but prompted them to take action, such as look for higher paid work. Under my tax transparency regime, people would have the information to make their arguments for better pay and equality.

Finally, Joel Slemrod, the University of Michigan economist who co-authored both papers on tax transparency in Norway and Pakistan, also published a paper in 2015 with the intriguing title “Sexing Up Tax Administration.” 

Let me know if you need a synopsis of that one in an upcoming post.

Please see related post

Transparency Part I – Legislative Salaries

Transparency Part III – Salaries

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Book Review: The Pale King by David Foster Wallace

The_Pale_KingI bought this book a few years ago but delayed reading it until this Spring. Maybe I was afraid of thinking about the trauma of his suicide while reading it. I shouldn’t have worried. There are autobiographical elements in here I assume…He has a semi-absurd character with a dramatic sweating disorder, which I’m guessing from the opening line of his Kenyon graduation speech he sometimes also suffered from. But he’s not dwelling in an obvious way on suicidal ideation. On the contrary he seems to be mulling cures for depression, through a kind of learned meditative technique for life.

The recurring theme of The Pale King is boredom, and maintaining a kind of alert concentration throughout that boredom.

My guess is he picked the location of an IRS examination office in flat, empty, off-the-highway Peoria, Illinois as an extreme setting for testing his ideas, but also for testing himself. Is he a good enough writer to make even that topic (boredom) and that setting (an IRS examiner’s office) still scintillating writing? Of course he can. He’s freaking David Foster Wallace. During the week of filing another year’s worth of taxes, I recommend reading a great novel about IRS examiners.

David Foster Wallace is among my top three all time favorite authors,1 so I’m not surprised I enjoyed The Pale King  so much.

On one page Wallace plays the straight man, describing incredibly detailed inner thoughts of a character, or the minutiae of a scene in hyper-realism. And in the next page he switches it up by introducing an absurdity, like a tax reviewer who levitates right out of his chair when concentrating hard enough, or an IRS building with an entire front-entrance facade designed to look like a 1040 tax form.

David_Foster_WallaceJust like with Infinite Jest, he fractures the narrative – jumping time, location, perspective, and characters without warning. If you link Wallace’s fractal together to figure out who all the narrators and character are, that’s fine, but not necessary to enjoy this on your first read-through. A few essays ran earlier in the New Yorker and stand alone as individual chapters.

Some of his chapters are unforgettable. The nerd examiner and the unbearably pretty girl at the post-work bar, she with the tragic love story and he with the levitating powers of concentration. The absurd goody two-shoes who as a child drove everyone completely bonkers. The centerfold chapter with the never-ending “how I became an IRS examiner” childhood story of trauma and slackerism, nearly a complete novel in itself full of family psychological drama and insights. The sweating man trying to avoid triggering his sweat response. The infinite-mirror-meta-story of an IRS trainee named “David Foster Wallace” who arrives at the Peoria office, only to suffer a mixed up-identity with another more senior IRS examiner David Wallace, blended with an “author’s forward” by “David Foster Wallace” to claim all of the story is “true.” Typical post-post-post-modern DFW bullshit but totally enjoyable from my perspective, complete with diversionary and diverting footnotes as rabbit-holes.

That famous graduation speech in fact from 2005 captures some of what I think he’s trying to do in The Pale King. How do we maintain a meditative (Buddhist?) attentiveness, even while surrounded by deadening bureaucracy or deadening inputs from normal adult life?

Clearly he didn’t have answers in his own life. But he suggested a sort of path for us to try to follow. He couldn’t do it. But we can keep trying.

Please see related posts:

All Bankers Anonymous Book Review In One Place


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  1. Peter Matthiessen and Nabokov thanks for asking

Where Are The Fiscal Conservatives On War Costs?

Where is the fiscal conservative voice to cut federal defense spending?

war_costsI’m on the fiscal conservative team. By that, I mean that I believe responsible government expenditure includes a plan for paying government obligations. Sometimes that means cutting spending. Sometimes that means raising taxes.

If you’re a fiscal conservative in Congress and you voted this month to increase the federal debt by “only” $1 trillion over the next ten years through tax cuts targeted to business owners, you’re not playing for my team this year. You’re benched.

But more importantly, if you cut taxes to increase the deficit and you don’t even consider cutting our massive defense spending, then I’m sorry, you’re not a fiscal conservative. You’re off my team permanently. Hit the showers. Just leave your uniform by your locker, you won’t need it anymore.

The problem is nobody even shows up for my team anymore, Democrat or Republican.

You guys are off the team, hit the showers.

Where is the anti defense-spending wing of Congress? Does it even exist? Ever since 9/11, Democrats and Republicans have fallen all over themselves to shovel money at our military. I wrote recently about the waste, fraud, and abuse of our unending commitment to rebuilding Afghanistan. The bigger fiscal issue is our extraordinary commitment to wars since 9/11.

Here are some facts that matter for a discussion on federal fiscal responsibility.

Net federal debt stands at about $14.8 trillion.

Only 3 big areas really count when it comes to controlling federal spending. One is “discretionary,” and two are “non-discretionary,” otherwise known as “entitlements.” These two latter categories are made up largely of Social Security/Welfare and Medicare/Health Care costs.

The US spends roughly $600 billion per year directly on our Department of Defense, a larger amount than the next 8 countries combined: China, Russia, Saudi Arabia, UK, India, France, Japan, and Germany.

The Department of Defense budget makes up 54 percent of “discretionary” spending in the federal budget, meaning Congress has a choice of what to spend each year. If fiscal conservatives aren’t talking about this spending, they’re not addressing the single biggest use of resources over which Congress has control.

Some of you paying very close attention now want to talk to me about entitlements spending. Fine. Just gimme a second to finish some thoughts on defense spending and I’ll get back to entitlements in a moment. I promise.

Leaders in our discussion about the impending tax breaks like to talk about the theoretical average savings for a middle class family after tax cuts. We hear a number like $1,182 (from House Speaker Paul Ryan). While overly simple, perhaps we should understand our wars since 2001 in such basic per-household terms as well.

There’s both the narrow view and there’s the more complete view of what these wars cost each household.

The Department of Defense (DoD) takes a narrow view of accounting for the cost of spending on Iraq/Syria and Afghanistan/Pakistan – what are called Overseas Contingency Operations (OCO). This cost totals $1.75 trillion between 2001 and 2018, according to the DoD. The DoD then breaks down that $1.75 trillion into “cost per taxpayer,” at $7,740.

We don’t normally think of reducing military expenses as the way to make every taxpayer $7,740 richer, but it’s a legitimate a way to think of it, in my view.

Probably, however, the DoD’s estimates of war-cost-per-taxpayer come in way too low, according to Boston University professor Neta Crawford, author of the recently updated article “The Costs of War.”

Taking into fuller consideration the increased State, Homeland Security, and Veteran Administration’s costs, plus the increase in a baseline budget for the DoD on a war footing, Crawford estimates the Global War on Terror since 2001 has cost the country approximately $5 trillion.

As Crawford argues, this $5 trillion price tag actually skews conservative, as it does not include huge categories of costs such as state and local expenditures, many non-federal forms of veteran’s care, and costs externalized to families. Crawford’s conservative estimate means the wars since 9/11 have cost $23,386 per taxpayer. Personally, I’d like to be $23,386 richer.

I’m not mentioning the even more important human costs of war like death and injury and misery, since this is a financial column, but yes, those are even more important than the dollars and cents. I’m also not saying, obviously, that we need to eliminate the military. I’m saying that if you’re a real fiscal conservative, you have to be talking about winding down the wars and cutting military spending to a more sustainable level.

Now you want to talk about entitlements spending on Social Security, welfare, Medicare. Ok fine, let’s do that.

“Entitlements” is an apparently confusing word that sounds either moralistic, or somehow immoral, depending on if you like entitlements-spending or not. But that’s missing what the technical term means. It means instead that the federal government adopts a certain set of criteria for payments, and that it is then obligated to make those payments, regardless of budgetary decision-making by Congress. It means we essentially don’t budget for entitlements. The payments get made according to pre-set criteria and we deal with the financial consequences once payments are made.

War_costsAnd sure, we shouldn’t forget about entitlements spending either. But these issues are already part of active political debate daily: ACA repeal, Medicaid cuts, Social Security reform. As a fiscal conservative, I am quite confident that a significant group of powerful people is working to limit two of the three big expenses of government: healthcare and Social Security. Entitlements spending isn’t likely to get out of control with such hawk-eyed defenders of our financial situation. But I keep looking and I can’t find a fiscal conservative wing fighting to limit the one thing Congress can control each year – our war spending.

Can we end these wars and balance our budget? I don’t need my tax break as badly as I want my peace dividend.


Please see related post:
SIGAR and Afghanistan Waste

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