WASHINGTON — A sweeping new entitlement program to provide medical care to millions of veterans who may have been exposed to trash burn pits on U.S. military bases around the world may increase federal spending on veterans by at least $400 billion and as much as $789 billion over a decade, according to the official budgetary scorekeepers in Congress.
In an outlook on the nation’s debt released on Wednesday, the Congressional Budget Office, a nonpartisan federal agency, reported that deficits would increase by $1.5 trillion because of legislative changes made since May, attributing more than half of that sum to costs associated with veterans’ benefits from the Honoring Our PACT Act.
That deficit projection is likely too high because of a quirk in how the budget office projects government spending. By the budget office’s logic, it could be double-counting as much as $390 billion in spending in the overall price tag of the veterans’ law. Even so, the analysis indicates that the new program is likely to cost at least $400 billion over the next 10 years.
The veterans’ measure, which passed in August with widespread support and is considered one of the largest expansions of veterans benefits in history, authorized about $280 billion over a decade and created a new dedicated funding stream — not subject to the annual appropriations process in Congress — to pay for the treatment of veterans exposed to toxins.
While the law passed with bipartisan support, some Republican lawmakers warned at the time that the new fund would swell the deficit. According to the report, that is precisely what congressional officials expect to happen.
Understand the U.S. Debt Ceiling
What is the debt ceiling? The debt ceiling, also called the debt limit, is a cap on the total amount of money that the federal government is authorized to borrow via U.S. Treasury securities, such as bills and savings bonds, to fulfill its financial obligations. Because the United States runs budget deficits, it must borrow huge sums of money to pay its bills.
The limit has been hit. What now? America hit its technical debt limit on Jan. 19. The Treasury Department will now begin using “extraordinary measures” to continue paying the government’s obligations. These measures are essentially fiscal accounting tools that curb certain government investments so that the bills continue to be paid. Those options could be exhausted by June.
What is at stake? Once the government exhausts its extraordinary measures and runs out of cash, it would be unable to issue new debt and pay its bills. The government could wind up defaulting on its debt if it is unable to make required payments to its bondholders. Such a scenario would be economically devastating and could plunge the globe into a financial crisis.
Can the government do anything to forestall disaster? There is no official playbook for what Washington can do. But options do exist. The Treasury could try to prioritize payments, such as paying bondholders first. If the United States does default on its debt, which would rattle the markets, the Federal Reserve could theoretically step in to buy some of those Treasury bonds.
Why is there a limit on U.S. borrowing? According to the Constitution, Congress must authorize borrowing. The debt limit was instituted in the early 20th century so that the Treasury would not need to ask for permission each time it had to issue debt to pay bills.
The budget office projection could feed into the partisan battle over spending as the government approaches its debt limit and Republicans resist voting to raise it.
Here’s how the costs add up.
The law provides broad eligibility for the new benefits.
Open-air burn pits lit by jet fuel were common on American military bases in Afghanistan and Iraq that were unequipped for disposal and sanitation services.
The new law effectively presumes that any American service member stationed in a combat zone for the last 32 years could have been exposed to toxic substances, expanding health care eligibility to an estimated 3.5 million veterans, according to an analysis by the House Veterans Affairs Committee.
Claim approvals have skyrocketed since the law came into effect.
Between 2007 and 2020, fewer than a quarter of the claims submitted by veterans about conditions related to burn pit exposure were granted.
According to data provided by the Department of Veterans Affairs, the agency has received more than 309,000 PACT Act claims since it was signed into law. Since the start of the year, the department has approved almost 60,000 of the nearly 70,000 claims that it has processed.
Initial estimates didn’t account for the full cost of the program.
When Congress was considering the legislation, a CBO report estimated that it would cost $667 billion over 10 years beginning in 2022. But the budget office estimated the measure would increase the deficit by only $277 billion since the remainder was already set aside in the federal budget for veterans.
The latest CBO report, however, estimated that the measure would add about $789 billion to the deficit between 2023 and 2032, adding about $400 billion more to what veterans’ programs had been projected to cost during that period before the new law passed.
Accounting for another year added to the total.
The discrepancy is partly about timing — specifically, analysts accounting for another year of spending from the new programs. In this week’s report, budget office officials analyzed the impact of the law over a full decade after it was enacted. The report that was prepared when the measure was under consideration only looked at nine years of spending, because it also included the 2022 fiscal year, which had nearly ended by the time the bill was signed into law.
More on the Debt Limit
- A Federal Showdown: The United States government is engaged in a high-stakes political battle over paying its debts — again. How did we get here?
- Risks for the Economy: If Congress fails to increase the government’s borrowing limit in time, it could cause a shock to the economy and financial markets. Here are some of the possible ramifications.
- A Fiscal Blame Game: As the Treasury Department takes “extraordinary measures” to avoid a default, both Republicans and Democrats are intent on painting their opponents as culpable.
- Joe Manchin’s Role: The West Virginia Democrat, who faces re-election in 2024, has made it clear that he believes he can help forge a deal to raise the debt limit.
By accounting for 2032, the cost of the law grew by more than $100 billion.
The real cost of the program could end up being lower.
The law may not add the whole $789 billion to the deficit; it might add about half that much, depending on what Congress chooses to do with veterans’ spending over the next decade.
The law changes how the government pays for veterans’ health care. In the past, much of that spending was approved by Congress in annual spending bills that also fund education, environmental protection and other federal programs, known as discretionary spending. The new law moved a portion of that into mandatory spending, which also includes Social Security and Medicare. That funding essentially runs on autopilot and does not need to be refilled by annual spending bills.
The $789 billion estimate includes new money for veterans’ care and some of the discretionary spending that Congress had already been expected to devote to veterans. That means some of the cost of the bill might not be “new” money at all. In June, the budget office estimated that existing discretionary spending on veterans was about $390 billion. Since that estimate did not include 2032, the 10-year estimate is likely higher.
Why does this matter? Because many observers, including some White House officials, expect Congress to reduce discretionary spending on veterans to offset the amounts that the burn pits law shifted onto autopilot. If that were the case, the actual deficit impact of the new law would be about half of what it was projected to be this week.
But cutting spending on veterans is a politically tricky exercise, and the budget office did not appear to assume that would happen in its new forecast.
