THE Iraq war is set to overtake Korea and Vietnam as the second most expensive overseas military operation in US history, with spending expected to top the $500 billion mark by the end of the decade.

According to a new report from the Congressional Budget Office (CBO), $291 billion (£109 billion) has been allocated for the war, the equivalent of $1,000 for every man, woman and child in the US.

The figures were published amid intense debate in Washington over when — and how fast — the US can begin to pull out of Iraq. The CBO examined two alternative spending projections. Under the first, more optimistic scenario, the US would maintain troop levels in Iraq at 140,000 next year but quickly begin bringing servicemen home thereafter, with almost all forces out by the end of 2009. This would still cost the taxpayer another $184 billion from 2007 to 2010.

The alternative scenario is a slower drawdown and a US military presence of 40,000 over the long term. This would cost a further $406 billion over the next decade, leaving total costs approaching $700 billion.

Regardless of future costs, operations in Iraq have far exceeded early estimates. Lawrence Lindsey, a former White House economic adviser, was dismissed after predicting that the war could cost between $100 billion and $200 billion.

Congress has approved $437 billion for military operations and other costs related to the War on Terror since the September 11, 2001, attacks. The combined costs of fighting terrorism “could reach $808 billion by 2016”, the report said. An alternative analysis from the Congressional Research Service, which looked at how much money had been spent rather than merely authorised since the invasion began, put the tally for Iraq at $319 billion, with the war in Afghanistan costing a further $88 billion.

The figures may dampen some of the enthusiasm generated by President Bush this week when he seized on newly reduced federal budget projections as proof that his tax cuts were working. He said that his pledge to slash the deficit in half by 2009 was being fulfilled ahead of schedule.

Democrats have pointed out that the new projected $296 billion deficit for the current fiscal year would still be the fourth-highest so far. But Mr Bush has already blamed the continuing deficit on the military campaigns in Iraq and Afghanistan.

“Fighting a War on Terror and defending the homeland imposes great costs, and those costs have helped create budget deficits,” he said.

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