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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. The government’s fiscal year 2024 begins on October 1. A shutdown will occur if lawmakers are unable to complete the appropriations process in time. 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.
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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. A shutdown only 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. This can cause serious household problems. Workers deemed not essential would be furloughed while those deemed essential would continue to work. Mark Zandi said that contractors hired by the federal government would also be at risk of not getting paid for services — and these businesses may start laying off or furloughing workers. 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. Sprick says that SNAP benefits would also be at risk if a shutdown persists for a couple of weeks. 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.
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. Zandi explained that while air traffic controllers, Transportation Security Administration employees, and other essential personnel are usually considered to be necessary, they may not continue to come to work after several weeks. This can make it difficult to pass through airport security, for instance. That occurred during the last shutdown in 2018-19.
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 have to forgo pay could also reduce their spending. 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 continues for more than three weeks, it could be a major headwind. “
And a recession affects everyone, he said.
Additionally, federal agencies that issue economic data — on inflation and the labor market, for example — won’t do so during a shutdown. Zandi explained that the Federal Reserve uses such data to determine how it will proceed with its rate policy, increasing the chances of a Fed mistake.