The Financial Effects of the US Government Shutdown

The United States government has shut down in January 2018. This shutdown happened for a small period of 3 days as opposed to a period of 16 days in the years 2013. In the past few years, US government shutdowns have become a routine affair. This is because of the inability of Republicans and Democrats to agree on government spending. The different parties also hold wildly different views when it comes to how this spending needs to be financed.

The shutdown is a temporary measure aimed at pressurizing the different parties to reach a consensus. However, the economic impacts are real and severe. The last government shutdown in 2013 had cost the US government close to $1 billion per day! While the economic impact is not so severe in 2018, it is essential that the average person be aware of the financial costs of squabbling politicians.

In this article, we will explain the true costs and impact of the United States government shutdown.

What Is A Government Shutdown?

The United States Constitution requires that every dollar spent by the federal government needs to be appropriated by the President. This means that the President and the Congress need to approve of the federal funding. However, when politicians are unable to agree which federal programs need to be funded and in what amount, the result is a government shutdown.

This is precisely what is happening in the United States now. The effects of the same are as follows.

Unpaid Leave

The Federal workers face the most immediate impact. All the Federal workers in the nation are classified into two categories viz. essential and non-essential. Military personnel and other defense workers are categorized as essential workers. On the other hand, postmen, clerks, administrative workers, etc. are considered as non-essential workers.

During the government shutdown, non-essential workers are requested to stay at home and not report to duty. This is because the government does not have the money to pay them their salary. On the other hand, the essential workers are expected to report to duty and continue serving the nation. This is despite the fact that they will not receive any pay for the same during the shutdown period.

The federal government is legally obliged to pay the essential workers after the shutdown. However, legally there is no such compulsion to pay the non-essential workers. Despite this, the government has always paid its dues to all its workers without fail.

However, a government shutdown does create a sort of panic in the government workers. The average household spending went down by 10% during that period. The federal executives were the hardest hit, and they reduced their spending by 20% on an average. It is for this reason that government shutdowns have an adverse economic impact on America.

Revenue Loss

A government shutdown also means that government owned and operated tourist centers will shut down as well. Hence all the national parks and important monuments like Statue of Liberty and Mount Rushmore will not be open to the public during this period. This obviously has a huge impact on the tourism in that area. The government will not receive its share of the tourism revenue. This obviously impacts the taxpayers who will have to cough up the shortfall. However, private businesses in and around these tourist destinations suffer as well.

GDP Decline

The Federal government shuts down all operations during this period. Hence, the government no longer sanctions money for building roads, bridges, airports, and dams, etc. The government owes money to a large number of private contractors. They will be unable to make payments till the shutdown has been resolved.

The federal government accounts for 33% of the total spending in America. If the government simply stops spending money, the economy is likely to be badly hit. This along with the fact that workers have already reduced their spends drastically makes the situation severe. Obviously, the economy of the United States is resilient and ends up surviving this downturn. However, there is no reason that squabbling politicians should have the power to negatively impact the economy.

Services Impacted

The services provided by the Federal government are also negatively impacted during this period. For instance, the 911 and other emergency services are not properly staffed. As a result, they are unable to attend to emergencies with the same degree of effectiveness. Also, other services like Internal Revenue Services aren’t working either. Hence people who have to obtain tax refunds have to wait longer. Also since the IRS is not working, they can’t verify the paperwork of mortgage applicants on time. As a result, mortgage processing takes a longer time. This causes the banking sector to be adversely affected as well.

This disrupts the cash flow planning of many small businesses. Also, visas and passports are not issued during that period. As a result, many businesses which depend upon foreign labor suffer during this time.

A lot of these negative effects cannot be reversed once the shutdown has been resolved. For instance, more people are not going to visit the national parks once they are open. The revenue lost during the days of the shutdown is simply lost forever. As a result, the GDP of the nation is permanently damaged for the period during which the shutdown is taking place.

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