Bloomberg Creative | Bloomberg Creative Photos | Getty Images
What is a government shutdown?
During a shutdown, the federal government ceases operations that are deemed nonessential.
Every year Congress must pass legislation to fund the federal government for the coming fiscal year. A shutdown occurs if legislators can’t finish this appropriations process on time.
The government’s 2024 fiscal year starts on Oct. 1. If Congress is unable to pass the necessary spending bills — or a continuing resolution that offers stopgap funding — then a shutdown will commence on Sunday morning.
Speaker of the House Kevin McCarthy, R-Calif.
Win Mcnamee | Getty Images News | Getty Images
It’s poised to occur this year as hard-right conservatives in the Republican-controlled House are using a possible shutdown as leverage to force deep cuts in federal spending.
There have been 14 shutdowns since 1980, according to the Bipartisan Policy Center. The most recent was a partial shutdown in 2018-19; it was also the longest, lasting 34 days, according to the Congressional Research Service.
A shutdown affects “discretionary” spending. “Mandatory” spending, like Social Security and Medicare, is spared because it doesn’t require annual congressional approval.
Discretionary spending accounted for about 27% of the $6 trillion federal budget in fiscal year 2022, according to the Congressional Budget Office.
How would a shutdown hit your wallet?
Every shutdown is “unique,” which makes gauging its exact impact difficult, Sprick said.
Here’s how it’s likely to play out.
Among the most immediate and direct results: More than 2 million civilian federal employees will either be furloughed or keep working without pay until the shutdown resolves.
“Losing out on income for one, two or three pay periods can be the difference between paying rent or a mortgage,” Sprick said. “That can pose really significant household issues.”
Workers deemed nonessential would be furloughed, while those considered essential would keep working. It’s likely to be about a 50-50 split of employees, said Mark Zandi, chief economist of Moody’s Analytics.
In addition, military personnel on active duty — about 1.3 million people — would stay on the job without pay. Contractors hired by the federal government would also be at risk of not getting paid for services — and those businesses may start laying off or furloughing workers, Zandi said.
Millions may also lose certain federal benefits, with that threat increasing with the length of a shutdown, experts said.
For example, about 7 million people would likely see aid delayed from the Special Supplemental Nutrition Program for Women, Infants and Children program, according to the White House. Known as WIC, the program provides federal funds to low-income women, infants and children up to age 5 who are considered to be at nutritional risk.
Food assistance through the Supplemental Nutrition Assistance, or SNAP, program is “on better footing” than WICs, which would likely be affected within days of a shutdown, Sprick said. But SNAP benefits would also be at risk if a shutdown persists for a couple weeks, he said.
Section 8 housing vouchers, which are used by families with low incomes, seniors and people with disabilities, would also be at risk, Sprick said.
Some veterans benefits — such as disability compensation and transition assistance — might be delayed, as might certain loans for farmers.
Loans secured through the Small Business Administration might be delayed to business owners, Zandi said. Closing on a home that requires federal flood insurance would also likely be delayed, he said.
Loan servicing, taxes and travel to be affected
Customer service would be impaired across government functions due to reduced staff, experts said.
If past experiences are a guide, absenteeism may also become an issue among essential workers if the shutdown persists, since they wouldn’t be getting paychecks, they said.
Significantly, 90% of staff at the U.S. Department of Education may be furloughed just as federal student loan payments are poised to restart Oct. 1. Borrowers who call the Education Department with questions about their bills will have “a really tough time getting those answers,” Sprick said.
How long it lasts has a real impact on American households, to a greater extent than just if it happens or not.
Emerson Sprick
senior economic analyst at the Bipartisan Policy Center
Service snafus will vary by agency, depending on their respective contingency plans. For example, taxpayers might see delayed service at the IRS, as might people trying to get certain help from the Social Security Administration.
Travelers may also see plans disrupted. Personnel like air traffic controllers and Transportation Security Administration workers are generally considered essential but may not keep coming to work after a few weeks — making it painful to get through airport security lines, for example, Zandi said. That occurred during the last shutdown in 2018-19.
National parks and certain museums may also be closed or limit services, Zandi added.
Inflation and the U.S. economy
These disruptions can have a big impact on the U.S. economy over time.
For example, if the U.S. stops purchasing typical goods and services — things like computer equipment, paper clips, office furniture — less money is pumped into the economy. Federal employees who are forgoing pay may cut back their spending, too. Consumers more broadly might get anxious and cut back if they lose confidence, and investors may get jittery and stock market volatility may increase.
That may all coincide with other economic headwinds like the end of the student loan pause, the United Auto Workers strikes, and higher oil and gasoline prices, Zandi said.
“I think if it’s a two-, three-week shutdown it’s a nuisance for some but not a significant problem for most,” he said. “If it goes on for more than a month or longer, that may be a headwind that blows so hard it pushes the economy over.”
And everyone is affected by a recession, he said.
Additionally, federal agencies that issue economic data — on inflation and the labor market, for example — won’t do so during a shutdown. The Federal Reserve relies on such data points as it weighs how to proceed with its interest rate policy — increasing the odds that the Fed makes a mistake, Zandi said.
