‘There’s no blueprint’: If U.S. defaults on debt, $12 billion in benefits for veterans and their families are at stake

The Treasury Department pays out $25 billion every month on the Department of Veterans Affairs’ behalf, according to VA press secretary Terrence Hayes. The money goes toward expenses like $12 billion in benefits for veterans and their families, $835 million for pharmacy costs, $4.8 billion for staff salaries, and over $4 billion for contracts to providers of veteran care, he said.

“There is no blueprint of what happens to VA if the debt limit is reached,” said Hayes, but “if the debt limit is reached, all of these payments could be curtailed or stopped.”

On Thursday, President Joe Biden and House Speaker Kevin McCarthy both said there’s been some progress in the negotiations. All sides agreed default wasn’t an option, Biden noted. Increasing funding for discretionary spending on the military and veterans is one hotly debated topic on the table.

Massive swathes of families and stock-market investors stand to lose if the U.S. defaults on its debts, projections say. A default impasse lasting at least a month would wipe $10 trillion in household wealth, and even a brief default would tip the economy into a mild recession, according to Moody’s Analytics.

But the default angst happens to coincide with Memorial Day Weekend, a holiday commemorating military service and sacrifice in a nation with 16.5 million veterans. It’s also occurring while the economy is putting more veterans under financial stress.

High inflation has been hard for veterans recovering from physical and mental injuries sustained in the line of service, especially if they are on a fixed income and without full-time work, said Wounded Warrior Project CEO Michael Linnington.

The Wounded Warrior Project serves nearly 189,500 post-9/11 veterans and 47,500 of their family members. The organization’s work includes free, direct services and help accessing VA benefits.

Veterans registered with the Wounded Warrior Project have an estimated 6.8% unemployment rate. That outpaces the jobless rate for all post-9/11 veterans — 3.1% of that demographic were jobless in 2022, according to Labor Department numbers.

Nearly half, 46%, of veterans who participated in the organization’s annual poll last year said they lived paycheck-to-paycheck, either sometimes or always.

Add to that the specter of VA-payment delays. “It creates that snowball of financial unwellness — that’s the only way I can describe it — that then exacerbates what you are already going through, trying to heal mind, body and spirit,” said Linnington, a retired U.S. Army lieutenant general.

From October 2022 through March 2023, Linnington said the Wounded Warrior Project has provided emergency financial assistance to registered veterans and their families in approximately 1,800 cases. The money is usually a couple thousand dollars to help cover bills and expenses, he said.

“If you throw on top of that veterans not getting benefit stipends at the end of every month, I can’t imagine what that number will be. I can certainly say it will be more than our ability to take care of,” he said.

From October 2021 to March 2022, the organization extended emergency help covering bills and expenses.

The military lifestyle has its costs, according to Blue Star Families, a support and research organization for military members and their families. Active duty military families have to manage relocation, travel expenses and the unreimbursed costs associated with pulling up stakes, said Kathy Roth-Douquet, CEO of Blue Star Families.

It’s tougher to relocate now in difficult housing and rental markets, she noted.

Blue Star Families research showed the average military family that moved in the past 12 months paid an unreimbursed average $8,000 out of their own pockets, Roth-Douquet said.

Relocations make it tough for many military families to have two incomes instead of one. Moving and unpredictable hours can also complicate child care, she said. Military-provided housing allowances often aren’t enough by themselves, Roth-Douquet added.

“What could happen with the debt ceiling could really be devastating for families, because they are on the edge right now,” she said.

“People simply don’t have the margin in their account to carry the federal government debt for a month or two or however long it takes,” she added.

Department of Defense spokesman Christopher Sherwood said “default would have severe consequences for the economy, financial markets, and a vast range of government programs that the American people count on.”

Despite the uncertainty about specific programs, Sherwood said “what’s clear is that without the ability for the federal government to borrow funds, there is a very real potential that any government program or payment would be halted or severely delayed.”

While negotiators work on a debt-ceiling deal, Roth-Douquet said there’s another deal in play. Service members and military families “are willing to have the backs” of the public and Congress, she said.

The relationship works both ways. For Congress, “part of having our backs is doing their job.”