Will VA Loans Get Caught Up in the US Budget Debate?

Few people use the term “sequestration,” and, until a few weeks ago, it was a word rarely seen in print. But now it has become the word of the hour, because sequestration has the potential to hurt military households.

To understand what’s going on and how you might be affected we need a little background. This is the political season, so everything in Washington is an issue. One of the biggest issues concerns the federal budget and how to cut spending, raise revenue or both.

VA Loans Get Caught in Election Debate

One the biggest issues in Washington concerns the federal budget and how to cut spending, raise revenue or both.

Everyone talks about the budget and everyone talks about reduced spending. The problem is in the specifics.

For instance, we could reduce the federal deficit by about $96.8 billion a year if we dump the home mortgage deduction, but the political reality is that a complete end to the mortgage write-off won’t happen.

Debates about the deficit and who should pay what have been going on for a very long time, but in August, the House, the Senate and the President all agreed to the Budget Control Act of 2011. This is a piece of legislation with teeth because it uses math to reduce the budget.

Under the act, the debt ceiling was increased by $2.5 trillion, spending will be reduced by $900 billion in the coming decade and additional $1.5 trillion in cuts must be created by a special committee. The history of committees and commissions in Washington is not impressive, so the legislation also says that if the special committee cannot come up with the required cuts the budget will automatically be reduced by $1.5 trillion. This automatic process is called “sequestration.”

With automatic cuts, no elected official will be on record reducing the size of the Veterans Department or refusing to spend money on military equipment and facilities. If it happens that VA benefits are reduced or VA loans have higher costs, blame it on sequestration.

How big a deal is this? In 2011 the federal budget was about $3.6 trillion. In 2011 defense and security costs amounted to $718 billion.

As of now, sequestration is the law of the land. The process is supposed to start in January 2013.

Will sequestration really happen? The size and suddenness of the proposed cuts are so huge that it seems unlikely they will actually take place. The more likely scenario is that the process will be fudged and that budget reductions which would never have passed through the political system will now be seen as “acceptable” because, of course, they are less awful than sequestration.

And that’s how VA benefits and VA loans could be caught in the budget debate.

Photo courtesy art_es_anna