Trends in Spending for Military Compensation

Presentation at the Defense Manpower Roundtable
April 29, 2025
F. M. Woodward
National Security Division
Trends in Spending for
Military Compensation
The Defense Manpower Roundtable is an informal gathering of military and civilian experts and others to discuss defense issues. It is sponsored by the Institute for Defense Analyses
(www.ida.org) and RAND (www.rand.org).

1
Most of the data presented here can be found in the Atlas of Military
Compensation, 2024, available at www.cbo.gov/publication/60886.
Dollar amounts are expressed in 2025 dollars. To remove the effects of inflation,
the Congressional Budget Office adjusted dollar amounts using its projections of
the gross domestic product price index.
Notes About This Presentation

2
How much is spent on military personnel, and what are the trends in those budgets?
▪ That context is important for understanding how best to structure the total force using
military personnel, federal personnel, contractors, and capital investment.
▪ It is necessary to capture the full cost of military personnel, including costs for the
Department of Defense (DoD), the Department of Veterans Affairs (VA), and the Treasury.
What types of compensation do military personnel receive, and how do they contribute to
attracting and retaining the military workforce?
How could compensation help address DoD’s recruiting challenges?
Central Policy Questions About Compensation

3
Military compensation includes a mix of current and deferred funding in the military personnel
accounts, as well as funding for military health care and other elements of compensation in
the operation and maintenance (O&M) accounts.
In total, over $600 billion was requested for military compensation in 2025.
▪ Military compensation in DoD’s request for fiscal year 2025 was $236 billion.
– In 2025, the O&M component is about $50 billion. That comprises $40 billion for the
Military Health Service and $10 billion for in-kind benefits (such as family programs).
▪ In VA’s budget, compensation refers almost exclusively to deferred compensation, which is
in the form of cash benefits (disability compensation, for example) and noncash benefits
(such as VA-funded medical care).
– VA’s total budget request for fiscal year 2025 was $365 billion.
Military Compensation in DoD’s and VA’s Budgets

4
For more information, see Congressional Budget Office, Long-Term Implications of the 2025 Future Years Defense Program (November 2024), p. 12, www.cbo.gov/publication/60665.
This figure breaks down the operation and support category examined in that report into the subcategories of military personnel and O&M.
After Rapid Growth, Compensation Levels Off in DoD’s Budget
DoD's military compensation
budget includes
appropriations for military
personnel and portions of
the operation and
maintenance appropriation
that fund military health care
and other smaller programs.

5
Data source: Congressional Budget Office, using data from Office of Management and Budget, Budget of the U.S. Government, Fiscal Year 2025: Supplemental Materials,
Public Budget Database (accessed November 17, 2024), www.govinfo.gov/app/details/BUDGET-2025-DB/ .
VA’s Budget Continues to Grow Rapidly
VA’s budget has increased
by nearly 300 percent in real
(inflation-adjusted) terms
since 2000; it has increased
by 35 percent since 2017.
Growth in spending for
income security and medical
care has been roughly the
same. By comparison,
DoD’s budget has grown by
about 71 precent since
2000.

6
Trends in DoD’s Budget
for Military Compensation

7
Cash compensation comprises basic pay, the tax-free allowances for housing and food, and types
of special and incentive pay. About $147 billion was requested for this category in fiscal year 2025.
Noncash compensation includes health care for active-duty personnel, family programs, and
family housing. About $60 billion was requested for this category in fiscal year 2025.
Deferred compensation includes these elements:
▪ Accrual payments for retirement;
▪ Concurrent receipt, which allows some military retirees to receive both their full military
pensions and disability payments from VA;
▪ Accrual payments to cover TRICARE for Life (health care for Medicare-eligible retirees); and
▪ The full cost of health care for retirees not on Medicare.
About $53 billion was requested for this category in fiscal year 2025.
Elements of Military Compensation in DoD’s Budget Request

8
Data source: Congressional Budget Office, using data from Office of the Undersecretary of Defense (Comptroller), National Defense Budget Estimates for FY 2025 (Green Book)
(April 2024), and Military Personnel Programs (M-1): Department of Defense Budget, Fiscal Year 2025 (March 2024), https://comptroller.defense.gov/Budget-Materials/Budget2025/.
Growth of Military Compensation in DoD’s Budget Has Slowed
Funding for all three
elements of military
compensation in DoD’s
budget has grown since the
late 1990s. Funding declined
somewhat after 2010,
leveling off in recent years,
with most growth confined to
deferred compensation.

9
(July 2022), and Military Personnel Programs (M-1): Department of Defense Budget, Fiscal Year 2023 (April 2022), https://tinyurl.com/3yehrwbn.
Growth in Most Elements of Cash Compensation Remains
Relatively Flat
After growing rapidly from
2000 to 2005 and then again
in 2009 and 2010, cash
compensation returned to
2005 levels and has
remained relatively flat
since. (The 2025 amounts
reflect a requested 4.5
percent pay raise.)
This figure does not include
the additional 10.5 percent
pay raise for pay grades E-1
through E-4 and the 7
percent pay raise for E-5s
with fewer than 10 years of
service, resulting in total pay
raises of 15 percent and
11.5 percent, respectively.

10
Regular cash pay comprises basic pay and the allowances for food and housing.
The rate of growth in residential rents can be found in CBO’s historical budget and economic data, available at www.cbo.gov/data/budget-economic-data.
Rapid Growth in Housing Benefits Leveled Off After 2005
After a period of rapid
growth, coincident with
privatization of military
housing, costs of military
housing leveled off, following
inflation in residential rents.

11
“Relocation” covers pay to military personnel when they move or travel for training.
Health Care Dominates Noncash Compensation Costs
After health care costs, the
next-largest category of
noncash compensation
costs is support programs.
That category comprises
activities like commissaries,
schools for DoD
dependents, and other
family programs.
Funding for family housing
decreased beginning in the
late 1990s as most family
housing was privatized.

12
Data source: Congressional Budget Office, Long-Term Implications of the 2025 Future Years Defense Program (November 2024), p. 12, www.cbo.gov/publication/60665.
The amounts shown here do not include spending for the Military Health System in accounts other than military personnel and operation and maintenance.
FYDP = Future Years Defense Program.
Funding for the Military Health System Has Leveled Off
After a period of little or no
growth, the costs of military
health care are projected to
rise at the same rates as
medical costs in the U.S.
economy after 2027.

13
New Benefits Have Driven Increases in Deferred Compensation
Growth in retirement accrual
charges has been the
largest contributor to
increases in deferred
compensation. Concurrent
receipt for retirement pay
and disability compensation
has also contributed to
growth in deferred
compensation in recent
years. (Concurrent receipt is
a category of mandatory
spending in DoD’s budget.)

14
Cost of a Service Member’s
Compensation

15
Data source: Congressional Budget Office, Atlas of Military Compensation, 2024 (January 2025), www.cbo.gov/publication/60886. Updated values reflect the 2025 President’s Budget.
“Other noncash” includes schools for dependent children; childcare and youth programs; family programs; morale, welfare, and recreation programs; education programs; and
commissaries.
Distribution of Annual Compensation Costs
For an active-duty E-4 with
dependents, median
compensation is about
$115,000 per year. Roughly
$71,000 (or 62 percent) of
that total is in the category of
cash compensation (or what
DoD refers to as Regular
Military Compensation, or
RMC).

16
Data source: Congressional Budget Office, Atlas of Military Compensation, 2024 (January 2025), www.cbo.gov/publication/60886. Updated values reflect DoD’s Military
Compensation Greenbook (January 2024), https://militarypay.defense.gov/References/Greenbooks/, and 2023 Current Population Survey data, www.census.gov/programs-
surveys/cps.html.
RMC includes basic pay, tax-free allowances for housing and food, and the tax benefit of those allowances.
Compensation for Enlisted Personnel Generally Exceeds That of
Their Civilian Peers
On average, RMC for
enlisted personnel is greater
than the cash earnings of
the 90th percentile of male
civilian workers with
comparable years of
experience and some
college education.
DoD’s goal for RMC is set at
the 70th percentile to attract
and maintain a quality
workforce.
Military RMC omits the
noncash ($21,000 per year)
and deferred ($23,000 per
year) elements of
compensation.

17
Impressions About Military
Compensation and Recruiting

18
Possible effects of increasing cash compensation for first-term enlisted personnel:
▪ Even though data indicate that military cash compensation is already competitive with
civilian wages, providing a one-time cash bonus in lieu of large increases in compensation
could incentivize recruitment at a lower long-term cost.
Possible effects of increasing deferred compensation for all personnel:
▪ New enlistees typically value cash compensation over noncash or deferred compensation,
so increases in components of compensation such as TSP matching contributions or
expansion of concurrent receipt are likely to have little impact on recruiting.
▪ Increases in deferred benefits are more effective at improving retention—which is already
high in the military.
Structure of the military’s compensation package may understate its competitiveness:
▪ The focus on basic pay (the most identifiable element) understates compensation by
excluding other elements of cash, noncash, and deferred compensation (such as the GI Bill).
▪ A more comprehensive effort to highlight total compensation (and information that accurately
portrays the work and living conditions that most service members enjoy) could help address
negative narratives in the media that focus on isolated incidents or anecdotes.
The Potential Role of Compensation in DoD’s Recruiting Challenges

20
Data source: Congressional Budget Office, using data from Office of Management and Budget, Budget of the U.S. Government, Fiscal Year 2025: Supplemental Materials,
Public Budget Database (accessed November 17, 2024), www.govinfo.gov/app/details/BUDGET-2025-DB/ .
Income security, which is mostly disability compensation but also includes
pensions and other income security programs.
– About $193 billion was requested for this category in 2025.
Medical care, which includes in-house care, private-sector care, nursing homes,
and research.
Other benefits, which are mostly education and vocational programs but also
include cemetery plots, housing guarantees, and administration.
Total: $365 billion in 2025 (about 1.5 times DoD’s military compensation costs)
Categories of Compensation in VA’s Budget Request

21
Data sources: Jonathan Vespa, Those Who Served: America's Veterans From World War II to the War on Terror (Census Bureau Report ACS-43, June 2020),
www.census.gov/library/publications/2020/demo/acs-43.html; and Department of Veterans Affairs, National Center for Veterans Analysis and Statistics,
Table 1L: VETPOP2023 LIVING VETERANS BY AGE GROUP, GENDER, 2023-2053.
The Population of Veterans Shrinks as the VA’s Budget Grows
Those trends, which began
around 2000, are projected
to persist. Given the nation’s
current fiscal trajectory, is
that pattern sustainable?

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