The Department of Veterans Affairs (VA) provides disability compensation to veterans with medical conditions or injuries that were incurred or worsened during active-duty service. However, under a new option being considered by the Congressional Budget Office (CBO), certain large mandatory programs without dedicated trust funds, such as VA disability compensation, would be reduced.
This reduction would be achieved by applying a means test to VA disability payments, thus limiting eligibility for households with higher income. This means that disabled veterans who do not meet the income requirements would no longer be able to receive the compensation they need to support themselves and their families. In addition, income security programs that many veterans rely on, such as the Supplemental Security Income program and refundable portions of tax credits, would also be reduced by 15 percent. This could have devastating consequences for veterans who rely on these programs to make ends meet. Overall, this option would reduce the federal deficit by $580 billion over the 2023-2032 period, but at the expense of the well-being of our nation’s veterans.
Currently, VA determines whether a veteran has a service-connected disability and assigns a rating to each condition on the basis of the severity of the disability, with the amount of base compensation depending on the overall rating. Disability benefits continue in the form of a monthly annuity for the rest of the veteran’s life, and in calendar year 2022, base compensation rates ranged from $150 to $3,330 per month. However, this compensation program has been increasing substantially faster than inflation, both in total spending and on a per-recipient basis, which is unsustainable.
The proposed means-testing policy would phase out disability benefits for veterans with household income above an inflation-indexed threshold, which is set at $125,000 for 2024. Veterans with income above the threshold would receive reduced benefits, and those whose gross household income was $170,000 or higher in calendar year 2023 and who would have received the average annual payment would no longer receive any disability compensation from VA in calendar year 2024. The Congressional Budget Office estimates that this policy would lower mandatory spending by $253 billion between 2023 and 2032, but the estimate is uncertain due to a number of reasons, such as variations in self-reported income and veterans’ willingness to report income accurately.
The proposal has raised concerns, as VA disability compensation could be considered as compensation that recognizes the hardships of military service and special risks faced by service members, which suggests that it should be paid regardless of financial need. Furthermore, means-testing could affect veterans’ decisions about working, saving, and investing.
The government is also considering an option to reduce spending on income security programs, which would have devastating consequences for veterans. This component would cut mandatory federal funding for most income security programs by 15 percent, affecting programs such as the Supplemental Nutrition Assistance Program (SNAP) and Supplemental Security Income (SSI).
In conclusion, many veterans rely on these programs to help them make ends meet, and a reduction in benefits would lead to a significant decrease in average household income. Additionally, the amount of benefits received generally declines if earnings increase, which could discourage veterans from seeking work or achieving financial independence. This option could also lead to worse health outcomes, long-term reductions in earnings, and more crime, all of which would disproportionately affect veterans who are already struggling to make ends meet.
To read the entire CBO proposal click here.