Troops' Next Paycheck Disappears if U.S. Defaults

The troops will get paid on Tuesday, but the check after that could come in the form of an IOU if the nation defaults on its debt obligations, Treasury Department officials said.

Default on top of the government shutdown would cancel out the hastily-crafted legislation that brought back furloughed Defense Department civilian employees and allowed for the payment of back pay, death benefits, incentive pays, re-enlistment bonuses, veterans disability benefits and survivor benefits.

All would be eliminated if Congress and the White House fail to reach agreement on raising the debt ceiling to avoid default on Oct. 17, Treasury Secretary Jack Lew said last week.

"The United States should not be put in a position of making such perilous choices for our economy and our citizens," Lew said in testimony to the Senate Finance Committee.

A military coalition of 33 veterans' service organizations representing 5.5 million members planned to hold a rally Tuesday at the National World War II Memorial to protest the looming threat of payless paydays for the troops and cutoffs of disability and survivor benefits.

"It's all because of failed elected leadership in Washington who would rather tell you who's to blame than fix the problem," William A. Thien, national commander of the Veterans of Foreign Wars, said in a statement.

Working against the Oct. 17 deadline, Senate Republicans and Democrats were reportedly close to a deal on lifting the debt ceiling and ending the government shutdown. However, there was no guarantee the compromise would be accepted by the House.

Defense budget analysts said that the immediate problems of default and the shutdown masked the long-term challenges of getting a budget for the military passed by Congress that will include planning for the spending cuts imposed by the sequestration process.

"[Under default], the first crunch will come when the Nov. 1 payroll is due," said Gordon Adams, a Stimson Center analyst and professor at American University. "The impact for anybody drawing pay [in the military] will grow increasingly severe," Adams said. "People are probably not going to get paid for a while."

A deal to resolve default and the shutdown does not resolve the underlying issue, Adams said. 

"There's a fundamental disagreement about what the budget should be," Adams said. He explained that sequester spending levels should be "everybody's least distasteful fallback position."

Under sequestration, about $500 billion in defense spending would be cut over the next 10 years on top of $500 billion in cuts already underway. In Fiscal Year 2013, the military lost about $37 billion under sequestration, and another $52 billion in defense spending is slated to be cut in Fiscal 2014, Adams said.

"We used to view sequester cuts as a floor for defense spending. Sequester is now looking more like a ceiling," said Todd Harrison, an analyst with the Center for Strategic and Budget Assessments.

During an interview with Federal News Radio Harrison characterized the dilemma under sequestration as a choice between preserving the near-term readiness of the force or cutting modernization programs.

"There's very little clarity on the budget," Harrison said, "but the first thing they've got to accept is that cuts are coming."