U.S. Government: Back in Business?

By: Killoran Long

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After a thirty-five-day partial shutdown, the U.S. government is finally getting back to business. What started on December 22, 2018, as a disagreement over border security funding, became a shutdown, showdown between President Trump and Congress that finally came to an end on January 25, 2019. The thirty-five-day shutdown became the longest shutdown in modern history, surpassing the previous shutdown record of twenty-one-days that was set in the mid-nineties. 

During the partial shutdown, 380,000 federal workers were furloughed, another 420,000 federal workers were required to show up to work without pay, and a likely two million federal contractors did not receive payment or paychecks from the government. Though they are expected to receive back pay, the Congressional Budget Office (CBO) also estimates federal workers lost over $9 billion in compensation during this time. 

But what now? Unfortunately, the end to the shutdown may only be temporary. The January 25 agreement was a short-term deal that, yes, would end the shutdown and re-open the government, but only for the next three weeks. Now, Congress and the White House have until February 15 to reach an agreement that will both keep the government running and address a longer-term fix to border security. As everyone from federal employees to the public at large watch the days go by, insiders and watchdog groups are still assessing the damage brought on by the still fresh, five-week closure.

Experts estimate the damages to the U.S. economy in the billions, and the CBO assessed in a post-shutdown report a loss of “$3 billion in forgone economic activity” and “an overall $11 billion in losses.”

The Internal Revenue Service (IRS) is one government agency that took a particularly hard hit during the shutdown and will continue to struggle as the agency tries to recover in the midst of tax season. In addition to a backlog of over five million letters from taxpayers, a delay in the hiring and training of employees for tax season, and implementing changes to the tax code from 2017, this tax season was already slated to be a busy one for the IRS. The CBO’s report guesses that the IRS will collect $2 billion less in tax revenues in 2019 because of the shutdown. Echoing the IRSs concerns, government watchdog group the National Taxpayer Advocate has also said it will take “at least a year for the IRS to return to normal operations,” with “the recovery [taking] between 12 and 18 months,” assuming that the government does not shut down again on February 15.

Private industries and companies also felt the effects of the shutdown. The travel and tourism industries took a notable hit with Delta Air Lines Inc. reporting a $25 million loss in revenue due to federal workers not traveling during the shutdown, while Southwest Airlines Co. estimated a $15 million loss in January. Similarly, hotel occupancy in Washington, D.C. dropped 20% due to canceled and postponed trips, and exactly zero people visited any of the Smithsonian Museums in the first weeks of the new year.

The damage goes beyond the quantifiable numbers. The CBO’s report also identified a number of other, indirect negative effects that were not incorporated into monetary estimations due to difficulties calculating exact fiscal impacts. The report included examples like businesses being unable to obtain federal permits and certifications, interrupted access to federal loans and subsidies, gaps in funding to help minimize risk, and damage to the government’s credibility as an employer and contracting party. The CBO ended the report by saying that “[a]lthough their precise effects on economic output were uncertain, those factors would have had increasingly negative effects if the partial shutdown had extended beyond five weeks.”

Killoran Long is a second-year law student at Wake Forest University School of Law and is the Business Law Program Fellow for the 2018-2019 school year. She is a graduate of the University of South Carolina where she earned her degree in Political Science. Before returning to law school, she spent over five years working in government relations in Washington. D.C.