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Money News

What’s the Big Deal About a Government Shutdown?

December 22, 2018

4 min read

The  U.S. government shut down Saturday, as President Trump and Congress failed to reach an agreement on the nation’s annual spending bill.

The president wants $5.7 billion in the upcoming federal budget for a border wall, as well as other border security measures. Neither the House nor the Senate could reconcile differences about those funds in their separate bills.

Without a spending deal, about one quarter of the government ran out of money by the end of day Friday, December 21, according to reports.

We explain why passing a spending bill everyone agrees on is all so complicated, and why shutdowns, even brief ones, are not good for the economy.

What is a government shutdown?

The federal government shuts down when Congress—which includes both the House of Representatives and the Senate—can’t come up with a budget agreement.

While the budget agreement is supposed to be about funding government operations, politics plays a big role.

What’s causing the shutdown?

Democrats and Republicans are having a hard time reconciling their differences over how much money the coming year’s budget should include for border security.

Last year, differences over undocumented immigrants, in particular a group of young adults and children called Dreamers, and health care for children shuttered the government for less than a day.

Eventually, the House and Senate aligned their spending bills and passed a budget.

What is the Federal budget for?

Politics aside though, just like your own household, the federal government depends on a budget to keep operating. Congress is also the branch of the government that’s responsible for raising money, chiefly from the collection of taxes, and setting spending for various programs and services. It’s up to Congress to raise cash and set spending levels.

Every year, Congress creates a budget that funds a wide array of vital national services, including running the military and staffing our national parks, museums, and libraries. But the federal government also operates other critical services, such as the National Institute of Health, the Center for Disease Control, as well as air traffic control at the nation’s airports, and staffing federal prisons. It funds payments for Social Security, Medicare, and Medicaid.

Additionally, although the U.S. Postal Service is self-funding, it’s also part of the government infrastructure.

How big is the federal budget?

The federal budget is quite large. In fact, the spending bill for the fiscal year 2017 was about $4 trillion.

You may not know it, but the federal government is also one of the biggest employers around, and it uses the money from its budget to pay workers. It employs close to a million people, and its funds about $500 billion in contracts to businesses that rely on it for payments for the work they do that benefits the government. That can include companies like Boeing, that build aircraft for the military, or Verizon, which builds telecommunications systems for government workers.

There are about 2 million federal workers, about 800,000 of whom will be on unpaid leave following a government shut down.

Why is everyone so worried about the shutdown?

Because the federal government is such a large employer, and since its contracts with businesses are worth hundreds of billions of dollars, a government shutdown causes significant problems.

Many services that are deemed essential to the safety and necessary functioning of the country typically continue—so Social Security checks will go out, and military members continue to get paid, and members of Congress also receive their checks as they try to hammer out a deal.

But many other places and services operated by the federal government take a hit. National parks, monuments, and museums may have curtailed hours and staffing. Similarly, research arms like the CDC, which responds to epidemics such as the current flu outbreak currently underway, may see significant staffing cuts.

What happens without a spending bill?

While shutting down a national park may not seem like a big deal, think of it this way. Not only the park misses out on important revenue opportunities from visitors who pay the entrance fees, but the closure also has important economic ripple effects: nearby businesses that serve tourists, from restaurants to gift shops and gas stations, also feel the pinch when visitors drop off and stop coming.

Similarly, when paychecks are delayed for those hundreds of thousands of workers, they pull in their belts and stop spending in their local economies.

How does the budget process work?

The federal government’s fiscal year runs from September 30 to October 1. So the fiscal year for 2019 actually began in 2018.

Typically Congress submits its budget for the upcoming year by February, and it’s negotiated and approved sometime in the summer, well before the new fiscal year begins. In the current circumstance, since members of Congress and the president may be unable to agree on a spending bill for the full fiscal year 2019,  it may manage to keep the lights on through temporary spending measures, called continuing resolutions, which have extended funding for several weeks or months at a time.

What happened during the last shutdown?

Government shutdowns are not good for the economy.

The last multi-day government shutdown, which occurred in 2013, spanned 16 days. By some estimates, it cost the economy $20 billion, and shaved 0.5% from economic growth that year. The Obama administration, in a report from the same year, estimated the shutdown also cost the economy about 120,000 jobs, as things like contracts, loans from the Small Business Administration to the nation’s smallest businesses, and grants for research were all delayed for months.

By Jeremy Quittner
Jeremy Quittner is the senior writer for Stash.

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