How a Federal Debt Default Would Impact Military Members

The effects of a debt default and subsequent government shutdown would be far-reaching. Here's how a government shutdown would affect the military community.
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How the government shutdown affects military members

The United States reached its federal debt limit of 31.4 trillion dollars on Thursday, Jan. 17, 2023. “Extraordinary measures” will be made, meaning the Treasury Department will need to move money around to make interest payments. This will buy Congress and President Joe Biden some time to come to an agreement about how to raise the federal debt ceiling.

If Congress does not agree on a federal budget by June, the government will default on its national debt and shut down. A government shutdown could impact military pay.

What is a Debt Default? 

A debt default occurs when a borrower does not make payments on a loan or meet financial obligations. 

Extending the debt ceiling does not authorize new spending. Instead approval allows the treasury department to pay obligations Congress has already approved. 

“If the United States defaults, it would undermine the economic strength on which our national security rests,” Secretary of Defense Lloyd Austin said on Wednesday. “It would also seriously harm our service members and their families because, as Secretary, I would have no authority or ability to ensure that our service members, civilians, or contractors would be paid in full or on time.”

His warning joined a chorus of policy experts opposed to what would amount to an unprecedented and historic Congressional financial failure.

According to the Bipartisan Policy Center (BPC), if the United States government ran out of money, the Treasury Department would only be able to meet 40% of U.S. debt obligations.

The effects of a default and subsequent government shutdown would be far-reaching. Moody’s Analytics estimates a default could cost six million jobs and erase $15 trillion in household wealth. 

What Happens to the Military and Veterans During a Government Shutdown?

  • Active Service Pay: It’s a real possibility that active military personnel would see their paychecks delayed until a debt ceiling agreement is reached, according to Austin.
  • Military Pensions: A debt default would risk benefits for 2.4 million military members and retirees and 400,000 survivors of fallen service members, According to the Secretary of Defense. However, the Treasury Department did just make an annual “large” payment to the Military Retirement Trust Fund, according to the Bipartisan Policy Center (BPC).  
  • Defense Contractors: The vast network of military contractors that support the military with services, technology and equipment could have payments delayed, Austin said. The ripple impact of such a delay could increase the U.S. unemployment rate and jeopardize business viability.
  • Military Bases/Construction: It’s likely that capital improvement projects for base construction would slow or halt, depending on the finances of the contractors conducting the work, according to former Pentagon Comptroller Bob Hale. Hale said that the government may prioritize social welfare payments – like Social Security checks for seniors – over base capital spending.   
  • Veterans and Active Military  Benefits: Military benefits such as tuition reimbursement, tuition assistance and disability payments would be delayed in the event of a government debt default. 

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