5 Ways the Government Shutdown Will Impact Every American

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Day four of the partial shutdown of the U.S. government and policymakers appear to have made only superficial progress toward passing a continuing resolution. A coalition of bipartisan Representatives are lobbying for a stopgap funding measure that would turn the lights back on but would also repeal a 2.3 percent medical devices tax, but the measure is unlikely to actually gain enough support: it does not go far enough for the GOP, and it is too much for the Democrats.

Democrats in the House of Representatives need just 17 Republican votes in order to pass a clean CR through to the Senate. Bloomberg reports that as many as 18 House republicans would be willing to vote in favor of one of these options, but Speaker of the House John Boehner (R-Ohio) would have to allow the vote.

On that front, Speaker Boehner has been unwilling to waver. He and much of the GOP are looking for Democrats to cede real change to Obamacare, while on the other side of the aisle President Barack Obama and the Democratic party have refused to negotiate, arguing that they would be setting precedent for future policymakers to use essential funding bills as bargaining chips in debates about unrelated legislation. Meanwhile, as the shutdown drags on, ordinary Americans are being left in the lurch. While many argue that the consequences will be modest, here are some ways in which the shutdown is affecting millions of Americans all across the country.

1. Economic Uncertainty

The government shut down has broadcast to the entire world the fact that our fiscal house is not in order. Worse than simply being in disrepair, it is has made clear that Congress is occupied by the political equivalents of the Hatfields and McCoys — policymakers appear to be just as divided and are turning the word Congress into a metonym for dysfunction.

This idea — that policymakers are unable to get anything done in a reasonable way — fuels uncertainty about the stability of the fiscal situation in the U.S. With the shutdown lingering, the debt ceiling looming, and the strategy of policymakers entirely unclear, Congress has effectively handicapped the private sector with uncertainty. As Honeywell (NYSE:HON) CEO David Cote told Bloomberg Television, in the event of a prolonged shutdown, “everyone will get more conservative and pull back on hiring and investing.”

Uncertainty is also anathema to confidence in the economy. As measured by Gallup’s Economic Confidence Index, economic confidence has plummeted over the past few days, falling from an already-low -20 to -32 for the two-day period ended October 2. When consumer confidence falls, so does consumer spending, which drives as much as two-thirds of economic activity. In effect, this uncertainty, caused by what many consider to be incompetent policy making, evaporates the fuel that runs America’s economic engine.

ECI

Source: Gallup

2. Cost to Taxpayers

Taxpayers are the primary financiers of the U.S. government, which means that any costs incurred as a result of the shutdown will ultimately fall on the shoulders of ordinary citizens. Preparing for, executing, and recovering from a shutdown requires an enormous amount of work — well above and beyond the costs associated with lost productivity due to furloughs. The Committee for a Responsible Federal Budget suggests that, “While estimates vary widely, evidence suggests that shutdowns tend to cost, not save, money.”

The Office of Management and Budget calculated that the 1995-96 shutdown cost taxpayers $1.4 billion — or $2.0 billion in 2013, adjusted for inflation — with other estimates ranging higher.

There is a good chance that federal employees will be paid retroactively for work missed during the shutdown, but this is a blessing in disguise. While it is intolerable that federal workers lose income because of what may best be described as political ineptitude, it becomes the responsibility of the taxpayer to compensate the furloughed employees. This means that for the same cost of labor less work was done, and taxpayers are forced to eat the difference.

3. Impact to Tourism

The U.S. government operates 401 National Park Service sites that collectively average about 715,000 visitors each day this time of year, all of them will be closed for the duration of the shutdown. Many national museums and galleries, as well as the National Zoo, will also close.

While at a glance these closures may only seem like an inconvenience to would-be tourists, the systemic impact of lost businesses could be tremendous — and, as with most other consequences of the shutdown, will only increase with time. Millions of dollars will evaporate from the local economies that depend on tourism for income.

More than simply stimulating local economies, tourism brings foreign money in to the U.S. The tourism industry employes 7.5 million Americans and generated nearly $1.4 trillion in economic output in 2011. The U.S. Department of Commerce estimates that one out of every 18 Americans works either directly or indirectly in a travel or tourism-related industry. Tourism is so important to the U.S. economy that in 2011 Congress approved a $200 million marketing campaign to try to draw more foreigners to the country.

4. Reduced Economic Activity

For the uninitiated, among the many useful things that Economics 101 describes is the basic, intuitive fact that one person’s spending is another person’s income. This basic transaction of spending and earning is the fundamental mechanism that drives economic activity, and it stands to reason that when one declines due to some external force, so must the other.

These reductions feed in to each other in a systemic and destructive way. As spending declines (perhaps as the result of falling consumer confidence), incomes decline. Those who are earning less naturally spend less, and the cycle repeats, each time reducing overall economic activity.

As the shutdown persists, not only will reduced economic confidence impact total spending, but the 800,000 federal employees who have been furloughed and are receiving no income will be forced to reduce spending as well, adding a slowing force to the already anemic recovery. The government is also an enormous consumer of both goods and services. The shutdown means that those who do business with the government are left in the lurch.

5. Social Programs

To be clear, most major social assistance programs will not be impacted by the shutdown. Social Security and Security Income payments, unemployment insurance, food stamps, and Medicare and Medicare should remain largely unaffected.

But other programs, such as the TANF welfare program, have been cut off from federal assistance and must rely on state funds. In most cases, these programs could only last for a few weeks before being forced to shut down. The TANF welfare program supports approximately 4.4 million Americans.

If the shutdown persists, a federal assistance program called WIC, which provides nutritional meals for pregnant women or those with young children who have an income below 185 percent of the federal poverty level, will have to shut down. The program currently serves about 9 million people, and provides assistance to almost half of all  newborns in the U.S. Most states have funding to last just a few weeks without appropriations.

Don’t Miss: 5 Vital Steps to Protect Your Finances from Government Shutdowns.

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