As a government shutdown looms just hours away, legislators are racing against the clock to find a resolution.
If Congress cannot agree on a funding plan by 12:01 a.m. Saturday, the government will grind to a halt.
Funding Challenges
Every year, Congress is tasked with passing a spending bill to keep operations running, with an original deadline set for October 1.
However, after multiple continuing resolutions, the new funding deadline has shifted to this Friday, and so far, two proposed funding measures have failed to gain approval.
Economic Implications
According to EY economists, if a shutdown occurs, the repercussions for the economy could be significant.
They estimate that the cost could reach around $6 billion each week.
Gregory Daco, EY’s Chief Economist, warned that the fallout from a shutdown could snowball, especially if it extends beyond a brief period.
If the government does shut down, most agency operations—like those of the IRS—will cease.
In contrast, Transportation Security Administration (TSA) agents and active-duty military personnel will still perform their duties, although they won’t receive their paychecks on time.
Popular attractions, including National Parks and museums operated by the Smithsonian, will also close their doors, potentially disappointing holiday tourists.
Historical Context
While a very brief government shutdown might not cause widespread disruption, any prolonged standoff could have severe economic effects.
Daco noted that a one-week furlough could reduce the real GDP growth rate for the fourth quarter by about 0.1%, which translates to a $6 billion loss.
He also reminded us of the substantial uncertainty brought about by the lengthy 35-day shutdown that occurred in early 2019.
On a brighter note, some vital services will continue to function undeterred.
Services like air traffic control, food safety inspections, military operations, and postal services operate on separate budgets and will not be halted, alongside the Federal Reserve.
Historically, the U.S. has experienced 20 government shutdowns, with the most extended period lasting 35 days from late December 2018 to late January 2019.
During that time, around 375,000 federal employees were furloughed, while another 425,000 worked without pay, as per EY’s findings.
Source: Entrepreneur