Closing the government costs more than keeping it open
Lost fees, extra interest, pay reimbursements add up
A federal government shutdown might seem like a great way to save money: When agencies aren’t open, they aren’t spending tax dollars. But history shows us that closing the government actually costs more than keeping it open.
Shuttered parks can’t collect entrance fees. Furloughed workers will ultimately get paid for not showing up to work. And the government will wind up having to pay interest on missed payments to some contractors.
“There’s nothing good about this shutdown, from a fiscal or a budgetary standpoint,” said Michael A. Peterson, chairman of the Peter G. Peterson Foundation, which advocates fiscal prudence and federal debt reduction. “We’re absolutely not celebrating not spending money.”
Here are some ways that the shutdown raises costs for the federal government.
Federal employees will eventually get their salaries — for work they weren’t allowed to perform.
As a general rule, when the government spends money on something, it’s better to get something in return. Paying someone to empty trash bins in parks is better than paying that same person to sit at home, while the trash piles up, and then paying more, later, to actually empty the trash.
That’s what the government is currently doing with hundreds of thousands of workers. They’re furloughed, which
means they’re not allowed to go into work. They’re not getting paid for that time, but Congress voted last week to give them back pay. The White House has not indicated if President Donald Trump would sign it.
“They’re all going to get the money and I think they’re going to be happy,” Trump said when asked if he had a message for furloughed workers.
(No such luck for the thousands of government contract workers who are currently out of work, however, as they are unlikely to get back pay.)
Paying employees for work they were not allowed to perform was the highest cost identified in a report the Obama administration commissioned that estimated the price of a 2013 government shutdown. Then-President Barack Obama’s Office of Management and Budget estimated total compensation costs — pay and benefits — for workers affected by that shutdown at $2.5 billion. It lasted 16 days, which is shorter than the current shutdown.
♦ Some taxes and fees won’t be collected.
Americans still need to file their income taxes by April 15, whether or not the government is open. But the IRS has furloughed employees in charge of collecting back taxes. That will deprive the government of revenue.
The National Park Service said it lost about $7 million in revenue in the 2013 shutdown. The Smithsonian Institution, whose museums and other entities are closed, lost about $4 million.
♦ The government will owe other payments, with interest.
Laws called the Prompt Payment Act and the Cash Management Improvement Act require the federal government to pay interest on contracts, grants and other obligations that it is unable to fund during the shutdown. If, for example, NASA is unable to pay a contracting company on time during a shutdown, it will still have to pay that money once operations resume — plus some extra. The Prompt Payment interest rate for the first half of this year is 3.625 percent, according to the Treasury Department.
In past shutdowns, many contracting companies declined to pass along back pay to their employees.
♦ The economy will take a hit (and so will tax revenues).
It’s generally accepted among economic forecasters — including Kevin Hassett, chairman of Trump’s Council of Economic Advisers — that the longer shutdowns last, the more they drag on the economy, and with it, federal revenues.
When 800,000 federal workers don’t get paid, the economy loses some consumer spending power. Those workers eat at fewer restaurants. They buy fewer cars. They sometimes miss rent or mortgage payments. The same goes for federal contractors, from cafeteria workers to technology specialists, whose livelihood depends on getting paid by the federal government. Businesses and landlords grow uncertain about how much money they will earn in the near future, which could lead them to holding off on investment.
The longer the shutdown lasts, the faster the economy could fall. If the government stops issuing nutrition assistance for low-income families, if agencies can’t process federally backed home loans, if unpaid airport security workers call out sick en masse and air travel is strangled — that could add up to a major economic disruption.
Slower growth would likely lead to lower tax revenues, adding to a federal budget deficit that is on pace to top $1 trillion for this fiscal year. The payments on that debt are getting more expensive thanks to higher interest rates. If and when a shutdown ends, lawmakers will find themselves with a budget that is even further in the red than they anticipated.
TOP: President Donald Trump holds a discussion of border security policy at the White House.
MIDDLE: House Speaker Nancy Pelosi, D-Calif., has vowed not to fund Trump’s wall.
BOTTOM: A TSA worker does his job at Concourse G at Miami International Airport. The terminal closed this weekend because so many screeners called in sick.