How Veterans Benefits Could Be Delayed in June by a US Default

Billions of dollars of veterans benefits could be imperiled if the U.S. defaults on its debts, though the full extent of the fallout is uncertain because of the unprecedented nature of a default.

About $12 billion in veterans benefits are expected to be paid out June 1 -- the same day the Treasury Department has named as the earliest day a default could happen if Congress doesn't act to avoid it.

A default would likely delay those benefits, but for exactly how long would depend on the Treasury's next move after a default, experts who spoke to Military.com said.

Read Next: Lejeune Water Link to Parkinson's Disease Affirmed in New Larger Study

"There is significant uncertainty as to what would occur because we've never been there," said Rachel Snyderman, senior associate director of business and economic policy for the Bipartisan Policy Center, the Washington, D.C., think tank that estimated how much money in veterans benefits is due to be paid in June.

At issue is what's known as the debt ceiling or debt limit, which is the amount of money the Treasury can borrow in order to pay the nation's bills. The exact timing of the "X date," or the day the Treasury runs out of cash, is a moving target since it depends on how much tax revenue comes in, but Treasury Secretary Janet Yellen has warned it could happen as soon as June 1.

Pentagon officials have sounded the alarm about how a default could affect paychecks for service members.

House Republicans are demanding spending cuts in exchange for lifting the ceiling. The White House has maintained Congress should raise the ceiling immediately to avoid even the specter of a default and that any talks about spending cuts should be handled separately, though President Joe Biden has signaled an openness to clawing back unspent COVID-19 funds as Republicans have demanded.

With the deadline fast approaching, Biden and congressional leaders met at the White House last week, and staff-level talks have continued since then. A second meeting between Biden and congressional leaders had been scheduled for Friday but was canceled. Biden and House Speaker Kevin McCarthy, R-Calif., are next scheduled to meet Tuesday, Biden said Monday.

McCarthy sounded a pessimistic note Monday, telling reporters he thinks the two sides are still "far apart" and that it "seems like [administration officials] want to default more than they want a deal."

While the Biden administration and House Republicans have been trading accusations about whether the GOP proposal to slash overall government spending would mean cuts to the Department of Veterans Affairs, less talked about has been how veterans could be affected by a default.

The Bipartisan Policy Center's estimate of payments that could be missed, including veterans benefits, is based on analysis of past Treasury reports on its daily transactions, Snyderman said. The estimate for veterans benefits covers any benefit administered by the VA, she said.

In addition to the June 1 payment, another round of veterans benefits is expected to be paid June 30.

"With each additional day that impasse continues, there could be an exponential impact on what that payment delay could look like," Snyderman said.

Experts see two possible scenarios for how the Treasury could try to pay U.S. bills after hitting the debt ceiling. In one scenario, the Treasury could choose to prioritize making certain payments before others as cash comes in. In that case, how long veterans benefits and military pay is delayed would depend on where they fall in line for priorities. Yellen has downplayed the possibility of prioritizing payments, doubting that it is technically feasible.

In another scenario, the Treasury could wait until it has enough cash in hand to make a full day's worth of payments in the order in which they came due. Then, if a default happened June 1, veterans benefits due that day might see only a short delay, but delays for later veterans benefits and other payments would grow the longer the impasse lasts.

"We've never defaulted, and we've never breached the debt limit, and because it's so unfathomable, there's no public playbook for what to do in a situation when this happens," said Marc Goldwein, senior vice president and senior policy director for the Committee for a Responsible Federal Budget.

"Some prioritization is probably possible, but it would be difficult for them to justify continuing to pay full veterans benefits and not paying other things," he added. "It's possible they would do that. Veterans are very popular. But I think we should assume that at least payments would be delayed."

A lengthy default could equate to up to 30% in cuts for non-interest government spending, Goldwein said.

In addition to potentially hitting veterans benefits, about $12 billion in military and civilian retirement pay that is expected June 1 and about $4 billion in military salaries that is scheduled for June 15 could be disrupted by a default, according to the Bipartisan Policy Center.

Defense Secretary Lloyd Austin alluded to the potential effect on military pay in congressional testimony last week.

"What it would mean realistically for us is that we won't, in some cases, be able to pay our troops with any degree of predictability," Austin said at a Senate Appropriations Committee hearing Thursday.

Administration officials issued similar warnings the last time the U.S. was close to a default in 2021. That year, Congress approved a debt limit increase with days to spare after Senate Republicans agreed not to block legislation. While Democrats controlled both chambers of Congress at the time, they didn't have the 60 votes typically needed to advance legislation in the Senate.

The negotiating dynamics are different this time because Republicans now control the House. The last debt ceiling crisis when Republicans held the House and Democrats controlled the White House and the Senate in 2011 ended with an agreement to lift the debt ceiling in exchange for steep spending cuts.

-- Rebecca Kheel can be reached at rebecca.kheel@military.com. Follow her on Twitter @reporterkheel.

Related: Troop Paychecks Could Be Delayed if US Defaults, Austin Warns