Mandatory Spending

Function 600 - Income Security

Eliminate Concurrent Receipt of Retirement Pay and Disability Compensation for Disabled Veterans

CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.

Billions of Dollars 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2017-2021 2017-2026
Change in Outlays 0 -9 -13 -15 -15 -18 -17 -16 -18 -19 -52 -139

This option would take effect in January 2018.

Military service members who retire—either after at least 20 years of military service under the longevity-based retirement program or early because of a disability—are eligible for retirement annuities from the Department of Defense (DoD). In addition, veterans with medical conditions or injuries incurred or that worsened during active-duty military service may be eligible for disability compensation from the Department of Veterans Affairs (VA).

Until 2003, military retirees eligible for disability compensation could not receive both their full retirement annuity and their disability compensation. Instead, they had to choose between receiving their full retirement annuity from DoD or receiving their disability benefit from VA and forgoing an equal amount of their DoD retirement annuity; that reduction in the retirement annuity is typically referred to as the VA offset. Because the retirement annuity is generally taxable and disability compensation is not, most retirees chose the second alternative.

As a result of several laws, starting with the National Defense Authorization Act for 2003, two classes of retired military personnel who receive VA disability compensation (including those who retired before the enactment of those laws) can now receive payments that make up for part or all of the VA offset, benefiting from what is often called concurrent receipt. Specifically, retirees whose disabilities arose from combat are eligible for combat-related special compensation (CRSC), and veterans who retire with at least 20 years of military service and who receive a VA disability rating of at least 50 percent are eligible for what is termed concurrent retirement and disability pay (CRDP). CRSC is exempt from federal taxes, but CRDP is not; some veterans would qualify for both payments but must choose between them.

Beginning in 2018, this option would eliminate concurrent receipt of retirement pay and disability compensation: Military retirees now drawing CRSC or CRDP would no longer receive those payments, nor would future retirees. As a result, the option would reduce federal spending by $139 billion between 2018 and 2026, the Congressional Budget Office estimates.

In 2015, of the roughly 2 million military retirees, about 55 percent were subject to the VA offset; about 50 percent of that latter group—or 575,000 retirees—got concurrent receipt payments totaling $10 billion. Spending for concurrent receipt—just over $1 billion in 2005—has climbed sharply because of both an expansion in the program’s parameters and an increase in the share of military retirees receiving disability compensation. In particular, the share of military retirees receiving a longevity-based retirement annuity who also receive disability compensation rose from 33 percent in 2005 to just over 50 percent in 2015.

One argument for this option is that disabled veterans would no longer be compensated twice for their service, reflecting the reasoning underlying the creation of the VA offset. However, military retirees who receive VA disability payments would still receive higher after-tax payments than would nondisabled retirees who have the same retirement annuity because VA disability benefits are not taxed.

An argument against this option is that DoD’s retirement system and VA’s disability program compensate for different characteristics of military service: rewarding longevity in the former case and remunerating for pain and suffering in the latter. In addition, if fewer retirees applied for VA disability compensation because concurrent receipt was no longer available—since some consider the application process onerous—some veterans might bypass other VA services such as health care or vocational training. Moreover, some retirees would find the loss of income financially difficult.