How a U.S. Government Debt Default Impacts Military Members and Veterans 

The debt ceiling is an obligatory borrowing limit self-imposed by the U.S. government. In the past, it has been raised or postponed to prevent the U.S. from defaulting on its debt. 

On Jan. 19, 2023, the national debt reached the debt ceiling of $31.4 trillion. There is ongoing disagreement among members of Congress regarding policies related to the debt ceiling and federal spending, which could result in a government shutdown.

On May 1, 2023, U.S. Treasury Secretary Janet Yellen informed Congress that the Treasury Department may run out of available funds as soon as Jun. 1, 2023. The Treasury has taken “extraordinary measures” to redistribute funds and prevent the federal government from defaulting on its financial obligations.

If default occurs, what would it mean for U.S. service members and their families?  

What does a government shutdown mean?

When the federal government shuts down, nonessential offices close due to the lack of funding, usually caused by a delay in the approval of the federal budget or because the U.S. has lost the ability to borrow (by surpassing its debt ceiling). If this happens, the shutdown will remain in effect until Congress passes legislation to raise the debt ceiling. 

Historically, some agencies remain open during a government shutdown—the FBI, Drug Enforcement Agency (DEA), the Transportation Security Administration (TSA), Federal Reserve, and U.S. Post Offices. If these services were interrupted, “it would endanger the health, life, or personal safety of the public,” as laid out in the Constitution. 

How the military impacts the economy

The Department of Defense (DOD) pours billions of dollars annually into the economy by operating more than 420 military installations in the 50 states, the District of Columbia, Puerto Rico, and Guam. 

This spending sustains communities and offers employment across a range of industries. States benefit from defense contracts, while pensions and other benefits provide service members and their families with a reliable source of income. 

How a shutdown could impact the military community 

In a 2022 statement, Secretary of Defense Lloyd J. Austin III said, “If the United States defaults, it will undermine the economic strength on which our national security rests. It would also seriously harm our service members and their families.”

A shutdown could also impact various military benefits:

• Survivor Benefit Plan (SBP) Annuity Payments
• GI Bill payments
• Military Pay for Retired Veterans
• VA Disability Compensation
• Dependency and Indemnity Compensation (DIC)

In the worst-case scenario, nothing is paid until the debt ceiling is raised. The best-case scenario is that military benefits are repaid as funds become available. 

Do past shutdowns predict the future?

In 2018, the U.S. federal government shut down from Dec. 22 through Jan. 25, 2019. It was the longest government shutdown in history. During this shutdown, military servicemen and women were advised of these possible outcomes:

Military pay in a government shutdown

The government required active-duty personnel, as well as Guard and Reserve members on active-duty orders, to report to work during the 2018 shutdown. However, they would not be paid unless Congress passed legislation to exempt military wages during the shutdown. 

GI Bill benefits and VA disability pay 

During the 2018 government shutdown, GI Bill benefits and VA disability pay were not affected. Yet, the VA warned that if the shutdown were extended for more than a few weeks, checks to more than 5.1 million veterans would likely be delayed.

Medical care on- and off-base

Military hospitals, clinics, and dental offices would remain open during the shutdown, but only for emergencies. The shutdown would not impact off-base medical care. 

On-base schools and childcare

On-base child care centers considered essential would remain open to military families. Schools would also remain open, but all extracurricular activities would be canceled. 

Military troops killed in action

During the Jan. 2018 shutdown, the Pentagon’s $100,000 death gratuity paid to family members of troops killed in action would be delayed, as would military-funded travel for the transfer of their loved ones. 

Military travel and change of station moves 

Any plans for personnel and families preparing for temporary travel (TDY) or scheduled to make a permanent change of station (PCS) were put on hold until after the shutdown. Any military personnel already traveling were asked to return to their duty station until the shutdown was resolved.

How to prepare for a government shutdown 

The Treasury will likely prioritize payments to all government agencies until the debt limit is raised. Where payments to military personnel fall on that list is anyone’s guess. It’s possible that payments and benefits could be delayed for weeks. 

The Department of Veterans Affairs (VA) encourages veterans and their families to use VA services while the government discusses its plan for the federal budget. The VA compiled a list of points to consider during the 2019 shutdown that may be worth looking over in the chance a shutdown occurs.