Iran War Cost Now Tops $47 Billion: Reports

By Yuval Rosenberg and Michael Rainey

Defense Secretary Pete Hegseth (Reuters)

Happy Wednesday! President Trump returns to Ohio today, his third visit to the state this month as he tries to drive support for Sen. Jon Husted and gubernatorial nominee Vivek Ramaswamy. Former President Barack Obama, meanwhile, is returning to the campaign trail with a trip to Georgia to boost the candidacies of Sen. Jon Ossoff, who appears to hold a solid lead in his bid for another term, and Keisha Lance Bottoms, the former mayor of Atlanta who is in a close race for governor against Republican Rick Jackson. Just six days to go!

Iran War Cost Now Tops $47 Billion: Reports

The Iran war has cost $47.1 billion from February 28 through October 16, the Pentagon reportedly told Congress last week. That updated tally represents an increase of about $3.5 billion over the roughly six weeks since the Pentagon last provided lawmakers with a cost estimate, even as major combat operations have been halted.

As the war reaches the eight-month mark today, The New York Times reports that the latest cost estimate includes $7.6 billion in Air Force spending on the operations of dozens of fighter and bomber squadrons, while it has cost the Army $2.1 billion to keep its forces in the region and the Navy's deployment of dozens of warships has cost $1.5 billion. The military has also used $29 billion in munitions, and it has incurred $6.1 billion in expenses to replace lost equipment.

The Pentagon's numbers are seen as low, with billions of dollars in potential costs of repairing bases and equipment damaged or destroyed in Iranian attacks not included. The government's estimate also does not include the higher fuel costs for American consumers, which a Brown University tracker now says is more than $146 billion, or more than $1,100 per household.

Quote of the Day: Doubts on Trump's Defense Budget

"He can't even see Russia as our adversary ... Why do I want to fund his agenda? And I think other people feel the same way."

Republican Rep. Don Bacon of Nebraska, as quoted by Politico in an article detailing how President Trump's approach to Russia and Ukraine has raised concerns among GOP defense hawks who will be considering the administration's request for $1.5 trillion in annual defense funding.

"Trump's recent receptiveness to Russia," Politico's Connor O'Brien and Mark Satter explain, "has alarmed the very people pushing for more military spending. And they warn that his agenda won't survive if the embrace of Moscow continues."

Fed Holds Rates Steady Despite Elevated Inflation

Inflation is still higher than the Federal Reserve wants it to be, but the central bank announced Wednesday that it is holding its benchmark interest rate steady in a range between 3.75% and 4% nonetheless.

In a brief policy statement released at the conclusion of a meeting of the rate-setting Federal Open Market Committee, the bank said inflation "remains elevated." At the same time, the economic data indicate healthy conditions overall.

"Economic activity is expanding at a strong pace," the Fed said. "While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient. Productivity growth is strong, and capital investment is robust. Job gains have kept pace with the workforce, and the unemployment rate has changed little."

There were two dissenting votes among the 12 cast, one by Cleveland Fed President Beth Hammack and one by Governor Lisa Cook, both of whom wanted the FOMC to raise its benchmark rate by a quarter of a point.

Warsh announces changes: In a post-meeting press conference, Fed Chair Kevin Warsh generally sidestepped questions about why the Fed was holding rates steady rather than raising them, given the fact that inflation remains well above the central bank's 2% target. He did say, however, that he's not worried that strong economic growth is producing excessive inflationary pressure, in part because he thinks productivity is growing, making it possible to grow faster without inflation.

"Is the economy running too hot? Is the economy too strong?" he said. "That isn't the judgment of most of my colleagues."

Warsh also announced that the FOMC plans to change its meeting schedule, reducing the number of rate-setting meetings from eight to six per year. In 2027, one of the eight meetings will focus solely on long-term economic trends and "broad monetary policy strategy" while dispensing with a rate vote. In 2028, two of the eight meetings will have such a long-term focus.

What the analysts are saying: While the decision to hold rates steady was widely anticipated, some analysts are wondering why the Fed is failing to take additional steps to rein in inflation, given the pace of economic growth and the failure to reduce upward pressure on prices.

"I think the Fed should be raising interest rates, based upon the two-year Treasury being at 4.75%," prominent bond investor Jeffrey Gundlach told CNBC. "What are you waiting for? ... We're headed to 4% handle headline CPI. The commodity index is rising in a bull market, and I don't understand why the Fed is so reluctant to move."

William English, a former senior Fed economist, said he doesn't think the central bank needs to move quickly. "I think they probably have to raise rates a bit further, but I don't think they have to do it right away," English told The Wall Street Journal.

Another former Fed economist disagreed. "In terms of risk management, why the heck do you not hike in October if you have a 4% inflation print?" Riccardo Trezzi of the research firm Underlying Inflation told The Journal. "It just sounds too dovish, honestly."

The bond market responded to the Fed's decision by pushing longer-term yields modestly higher, even as short-term yields fell - an indication that traders are raising their long-term inflation expectations. "That to me is literally the market saying that you talk tough on inflation but you are not delivering on it," said George Goncalves, head of U.S. macro strategy at MUFG Securities, per The New York Times.

Many analysts remain convinced that more rate hikes are all but inevitable. "In our estimation, the Fed will need to hike at least two more times and possibly more over the next five months, resulting in a tightening of financial conditions, an abatement of inflation and a slowing economy," RSM Chief Economist Joseph Brusuelas said in a research note (see his chart below). "While Fed Chair Kevin Warsh dislikes forward guidance, the two dissents in the FOMC vote, from Fed Governor Lisa Cook and Cleveland Fed Beth Hammack, tell us that there is a growing faction on the FOMC-we think a majority-that is ready to hike rates in December and again in March to put inflation on the road back to price stability."

Chart from RSM research note

Dems Debate Tax Reforms as They Eye an Affordability Agenda

Democrats have pledged to tackle an affordability agenda if they capture control of Congress in the November midterms. But as they plan for 2027 and eye the presidential election in 2028, there's something of a split in the party when it comes to tax reforms - or at least plenty of debate about how to cut and/or raise taxes to fund their agendas.

Some lawmakers have proposed or embraced the idea of broad tax cuts for the working and middle classes along with sharply higher taxes on the wealthy. Most notably, Sens. Chris Van Hollen and Cory Booker each introduced tax-cut plans earlier this year.

The Van Hollen plan called for eliminating federal income taxes for Americans who make under $46,000 a year, or $92,000 for couples, with tax breaks for people earning up to $80,500 and a new alternative minimum tax for low- and middle-income filers. The plan also would impose a surtax on high-income filers. A Penn Wharton Budget Model analysis found that the overall effect of Van Hollen's changes would increase federal revenue by $264 billion a decade.

The Booker plan, meanwhile, centered on exempting the first $75,000 in income for joint filers by doubling the standard deduction. The Penn Wharton Budget Model estimated that Booker's plan would reduce federal revenues by up to $6.4 trillion over a decade, though a proposal to increase in the top tax rate would offset about $1.4 trillion of that.

Other Democrats considered to be contenders for the party's 2028 presidential nomination have also touted their tax-cutting bona fides as part of their current campaign efforts.

Such proposals have met with criticism from some policy wonks in the party, who have derided them as "slopulism," questioned the embrace of policies associated with Republicans and argued that the cuts would undermine federal programs that should be at the core of a Democratic agenda. "If you want to be the party of 'government can do things,' you have to make it so that the government can do things," Ben Ritz of the Progressive Policy Institute said in a podcast back in April.

In a recent Substack post, Ashley Schapitl, a longtime congressional communications and policy staffer who served as deputy assistant secretary for public affairs at the Treasury Department, takes aim at Booker's plan in particular and calls for funding tax enforcement to counter what she called a surprising progressive embrace of anti-tax talking points and a "full-blown bipartisan tax revolt."

"While Democrats have a lot of policy ideas, it's less clear how they're planning on raising the revenue necessary to pay for them," Schapitl writes. "To advance good politics, Democrats don't need to become a watered-down version of the anti-tax GOP. And to pass good policy, Democrats simply can't fund the robust social safety net Democrats say they support if the party is going to adopt the view that only high earners should pay federal income taxes. Nor should revenue from new taxes on the wealthy be directed to blunt, costly tax cuts, rather than toward expanding social programs and credits that benefit low-income Americans."

Schapitl argues that, while there are plenty of options for tax reform, Democrats should focus on restoring the IRS funding enacted under the Biden administration, especially given that the Congressional Budget Office has estimated that every $1 provided for IRS enforcement efforts can return $6 in revenue. And, Schapitl adds, Democrats "should pitch this as an effort to unrig the economy and make the rich pay their fair share. ... Not even the loudest anti-IRS member of Congress wants to defend a millionaire who didn't bother to file or a private-jet user who was claiming a bogus tax break."

Schapitl says that the tax revolt is rooted in voters' feelings that the system is unfair. "Democrats need to learn this lesson: voters aren't frustrated by the fact that they have to pay taxes; it's that they don't trust that other people are paying their fair share too," she writes.

As Democrats plan for possible tax reforms, a pair of prominent left-leaning economists earlier this month published a paper titled "$15 Trillion on the Table in 2029: Ordinary Taxes to Meet an Extraordinary Fiscal Moment." They write that the country's unsustainable fiscal trajectory needs to be addressed and that higher revenue will be required - and that the options for raising that revenue are more substantial than those for cutting spending. They detail five areas of "tried and true" tax policy that they estimate could generate nearly $15 trillion in added revenue from 2030 through 2039, including investment in the IRS; raising the corporate tax rate and strengthening the corporate and international tax systems; implementing a range of sin taxes; returning individual and pass-through rates to 1990s levels; and adjusting the tax treatment of capital income.

They estimate these reforms would altogether generate nearly $15 trillion over the 2030-2039 budget window and add that corporate taxes are the easiest tool to capture more revenue from capital income while funding the IRS would also be essential.

"We are not so naive that we think that a future Congress will legislate these revenue-raising options in full," the economists write. "Our hope is that by pointing out how much revenue sits in these buckets, we are giving policymakers viable options."

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