Government Shutdown Definition Economic Impact Us Timeline

Government Shutdown Definition

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Even though the government put in place shutdowns to save money, they are an expense of their own. This is because the charges or fees collected during the period stop. Similarly, the contingency plans involve costs and several federal employees become jobless. Moreover, they have an impact on the gross domestic product.

Key Takeaways

A government shutdown occurs when federal government financing legislation is not approved by the legislature and made law.All non-essential operations by federal organizations halt until a new financing bill is passed. This is major to cut down government expenses.Each federal department develops a shutdown plan that details which government operations are suspended and how many employees must take a temporary leave of absence without pay, or “furlough,” during the shutdown.It invariably affects various government departments, but the country’s citizens bear the major brunt.

Government Shutdown Explained

Government shutdowns occur when the legislature fails to pass a funding bill. Many federal government agencies and programs run from the funding allocated by Congress. Therefore, Congress must pass annual budget legislation for the upcoming fiscal year. If they fail, the government calls for shutdowns to save costs for a government to operate.

In such situations, federal agencies shut down all non-essential functions until the passing of new legislation and signed into law for funding. However, programs that require mandatory spending and essential services continue regardless. Every federal agency customizes a plan and decides what to shut down with the help of guidelines from previous shutdowns, and the Office of Management and Budget (OMB) coordinates it.

Programs that require mandatory spending do not need funding allocations every year. They may have initially received an allocation for the necessary amounts for years together. However, the discretionary components of the funding may face impacts. For example, the Federal government shutdowns of 1996 and 2013 saw the cut of certain facilities to provide social security cards. As a result, even though the authorities gave out social security checks, services such as new enrollment, verifying benefits, change of address, etc., faced furlough. Moreover, no one could predict what services would be affected and when.

Similarly, government agencies such as environmental and food inspections had to halt those inspections. They had to close national parks; even if they were open, there were no visitor services. There was trash buildup in many places. The airlines were affected. As a result, checkpoints were closed, and travelers were inconvenienced. Health and human services also suffered. There were restrictions on new patient admissions and grant application processing at the National Institutes of Health (NIH). The Internal Revenue Service also received a hit. There were mortgage delays, loan approval delays, and billions of tax refunds.

Economic Impact

Senate bill government shutdown causes major economic losses. According to the Congressional Budget Office (CBO), the 2018–2019 closure decreased GDP by a total of $11 billion, $3 billion of which the government could never recover. In addition, reduced demand postponed government spending and lost output by federal personnel.

Additionally, the CBO points out that extended shutdowns negatively impact hiring and investment decisions in the private sector because companies cannot access federal loans or apply for permits and certifications from the government. According to a 2019 Senate report, the three Federal government shutdowns in 2013, 2018, and 2019 cost taxpayers around $4 billion. Some possible federal government shutdown indirect effects, such as the suspension of certain federal permits and restricted access to loans, were not part of the analysis.

The analysis predicted that the fourth quarter of 2018’s economic activity would decline by $3 billion, or 0.1 percent. The impact cost $8 billion, or 0.2 percent of GDP, during the first quarter of 2019. The sum of indirect and direct costs in 2013 reached up to $24 billion, or 0.6 percent of quarterly GDP. These data clearly show that shutdowns indeed hurt the economy. According to Goldman Sachs (2018), the quarterly GDP growth can reduce by about 0.2% every week a Senate bill government shutdown lasts.

Government Shutdown In the U.S. (Year-wise Timelines)

The United States has seen many shutdowns, and let’s check out some of the more recent ones:

1990

The congress government shutdown happened under the presidency of George H.W. Bush. It was a result of Disagreement over several of his proposals for the 1991 appropriations bill, which included significant tax hikes despite Bush’s campaign commitment against any new taxes and substantial reductions in funding for benefit programs, including Medicare, to fight deficit reduction. The House attempted to override his veto but was unsuccessful, leading to a shutdown resulting in millions of workers’ furloughing.

1995

The congress government shutdown was under the presidency of Bill Clinton. Clinton rejected a republican-sponsored continuing resolution, resulting in a shutdown. The resolution mandated a budget balance within seven years and increased Medicare costs. It also revoked environmental regulations. Clinton did, however, promise to balance the budget following the shutdown in seven years.

1995-1996

The longest shutdown lasted from 16 December 1995 to 9 January 1996. The reason was the debate over which economic predictions to use to assess if the White House’s budget proposal will balance the Congressional Budget Office’s or the Office of Management and Budget’s. Clinton then devised a plan that the CBO determined would balance the budget.

2013

Shut down was under the presidency of Barack Obama. Republicans pressured the White House to agree to decrease discretionary spending caps. At the same time, conservatives insisted that any funding legislation postpone the Affordable Care Act (ACA) adoption by a year. After the shutdown, they later passed a spending plan that most rejected and which did not defund the Affordable Care Act (ACA)

2018

Both shutdowns were under the presidency of Donald Trump. After the Trump administration chose to cancel the DACA program, which prevented the deportation of undocumented immigrants who entered the U.S. as children, democrats, encouraged by outside activists, hoped to compel the Trump administration and Congress to safeguard beneficiaries of the program. However, they immediately abandoned it afterward and agreed to support the government (as well as the Children’s Health Insurance Program).

The second one in February lasted a few hours. Some of the republicans were unhappy about budget caps exceeding what part of the 2011 fiscal cliff deal was. As a result, the bill faced a delay before passing, which caused it to be brief and avoid any possible federal government shutdown.

2019

Two merged appropriations bills the government passed at the start of FY2019 were already in place in five of the 12 regular appropriations bills. As a result, two Continuing Resolutions (C.R.s) paid the remaining seven regular appropriations measures. Unfortunately, these seven regular appropriations acts’ financial gaps forced the closure of several federal programs and initiatives. As a result, a 34-day funding gap occurred (the longest).