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November 13, 2013 OPTIONS FOR REDUCING THE DEFICIT: 2014 TO 2023

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Mandatory SpendingOption 9 Function 00 ! "ncome Security #$iminate %oncurrent &eceipt o' &etirement (ay and )isabi$ity %ompensation 'or )isab$ed *eterans (Billions of dolla s! 2014 %hange in Out$ays 0 2014' 201% !,1 2014' 2023 !10-

201" !9

201# !11

201$ !11

201% !11

201& !12

2020 !13

2021 !13

2022 !1+

2023 !1,

Note. /his option 0ou$d ta1e e''ect in October 201,2 Mi$itary service members 0ho retireeither 'o$$o0ing 20 or more years o' mi$itary service under the $ongevity!based retirement program or ear$y because o' a disabi$ity are e$igib$e 'or retirement annuities 'rom the )epartment o' )e'ense 3)o)42 "n addition, veterans 0ith medica$ conditions or in5uries that 0ere incurred or 0orsened during active!duty mi$itary service 3e6c$uding those resu$ting 'rom 0i$$'u$ misconduct4 are e$igib$e 'or disabi$ity compensation 'rom the )epartment o' *eterans 7''airs 3*742 8nti$ 2003, mi$itary retirees 0ho 0ere e$igib$e 'or disabi$ity compensation cou$d not receive both their 'u$$ retirement annuity and their disabi$ity compensation2 "nstead, they had to choose bet0een receiving their 'u$$ retirement annuity 'rom )o) or receiving their disabi$ity bene'it 'rom *7 and 'orgoing an e9ua$ amount o' their )o) retirement annuity: that reduction in the retirement annuity is genera$$y re'erred to as the *7 o''set2 ;ecause the retirement annuity is ta6ab$e and disabi$ity compensation is not, most retirees chose the second a$ternative2 7s a resu$t o' severa$ $a0s, starting 0ith the Nationa$ )e'ense 7uthori<ation 7ct 'or 2003, t0o c$asses o' retired mi$itary personne$ 0ho receive *7 disabi$ity compensation 3inc$uding those 0ho retired be'ore the enactment o' those $a0s4 can no0 receive payments that ma1e up 'or part or a$$ o' the *7 o''set, bene'iting 'rom 0hat is o'ten ca$$ed concurrent receipt2 Speci'ica$$y, retirees 0hose disabi$ities arose 'rom combat are e$igib$e 'or combat!re$ated specia$ compensation 3%&S%4, and veterans 0ho retire 0ith 20 or more years o' mi$itary service and 0ho receive a *7 disabi$ity rating o' +0 percent or more are e$igib$e 'or 0hat is termed concurrent retirement and disabi$ity pay 3%&)(42 %&S% is e6empt 'rom 'edera$ ta6es, but %&)( is not: some veterans 0ou$d 9ua$i'y 'or both types o' payments but must choose bet0een the t0o2 /his option 0ou$d e$iminate concurrent receipt o' retirement pay and disabi$ity compensation beginning in 201+. Mi$itary retirees current$y dra0ing %&S% or %&)( 0ou$d no $onger receive those payments, nor 0ou$d 'uture retirees2 7s a resu$t, the option 0ou$d reduce 'edera$ spending by =10- bi$$ion bet0een 201+ and 2023, the %ongressiona$ ;udget O''ice estimates2

"n 2012, o' the rough$y 2 mi$$ion mi$itary retirees, about ha$' 0ere sub5ect to the *7 o''set: about ,0 percent o' that $atter groupor ,20,000 retireesgot concurrent receipt payments tota$ing => bi$$ion2 Spending 'or concurrent receipt, 0hich 0as 5ust over =1 bi$$ion in 200+, has c$imbed sharp$y because o' both an e6pansion o' the program and an increase in the share o' mi$itary retirees receiving disabi$ity compensation2 "n particu$ar, the share o' mi$itary retirees receiving a $ongevity!based retirement annuity 0ho a$so receive disabi$ity compensation rose 'rom 33 percent in 200+ to ,+ percent in 20122 One argument 'or this option is that disab$ed veterans 0ou$d no $onger be compensated t0ice 'or their service, re'$ecting the reasoning under$ying the creation o' the *7 o''set2 ?o0ever, mi$itary retirees 0ho receive *7 disabi$ity payments 0ou$d sti$$ receive higher a'ter!ta6 payments than 0ou$d retirees 0ho are not disab$ed and 0ho have the same retirement annuity because *7 disabi$ity bene'its are not ta6ed2 7n argument against this option is that the )o) retirement system and the *7 disabi$ity program compensate 'or di''erent characteristics o' mi$itary service. re0arding $ongevity in the 'ormer case and remunerating 'or pain and su''ering in the $atter2 "n addition, a determination o' disabi$ity by *7 is a gate0ay to receiving other *7 services 3such as hea$th care or vocationa$ training4, yet many veterans consider the disabi$ity! rating process onerous2 "' 'e0er retirees app$ied 'or *7 disabi$ity compensation because concurrent receipt 0as no $onger avai$ab$e, some veterans might bypass other *7 services 'or 0hich they 0ou$d be entit$ed other0ise2 Moreover, some retirees 0ou$d 'ind the $oss o' income 'inancia$$y di''icu$t2