The United States reached its federal debt limit of 31.4 trillion dollars on Thursday, Jan. 17, 2023. The Treasury Department has taken “extraordinary measures” to prevent the federal government from defaulting on its financial responsibilities. Congress and President Joe Biden are engaged in ongoing efforts to reach a consensus about how to raise the federal debt ceiling.
If Congress does not agree on a federal budget, the government will default on its national debt and shut down as early as June. 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,” according to Secretary of Defense Lloyd Austin. “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 policymakers do not address the debt limit, the Treasury will not have enough funds to fulfill all of its financial obligations sometime between early June and early August 2023, referred to as the “X Date”.
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 $12 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.
- 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 could be delayed in the event of a government debt default.