Jan 3, 2019

10 Things to Know about the Shutdown (and How It Might End)

Andrea O'Sullivan Feature Writer , Christian McGuire Communications Associate

It’s that time of year again! Not just the new year; it’s also time for another shutdown showdown over a contentious spending bill. In the midst of a political brawl over border wall funding, Congress and the President have been unable to pass a new spending bill. That means that several government agencies have been shut down for the last 12 days.  

Congressional dysfunction and inability to pass normal spending bills are now so commonplace as to be cliché—Congress has only managed to pass all the needed discretionary spending bills for four fiscal years since the budget process was established in 1974. Still, this round of budgetary brinkmanship is marked by a few political peculiarities. Here’s what you need to know about the shutdown and a new spending deal that could end it.

1.  Much of this is theater

Both sides have used the shutdown in an attempt to gain leverage, but the reality is that most of the government is not shut down. As Veronique de Rugy visualized back in 2013, shutdowns only affect a small fraction of overall government spending. Nondiscretionary spending on items like Social Security and Medicare continue during a shutdown, and specific discretionary items, like the military, are generally exempt as well. While public-facing but non-essential services like national parks and museums could be noticeably closed, critical expenditures on things like security and the postal service will continue. Most people are not really affected when the government does shut down.

2. The shutdown won’t save money

One would think that closing the government would at least save taxpayers the expense of funding certain programs for a little while. Remarkably, the opposite is generally true. As Matthew Mitchell has written, evidence from state government shutdowns is clear—government tends to cost more, not less, when shutdowns occur. The Congressional Research Service has found similar effects on the federal level: shutdowns have historically cost federal agencies billions of dollars in total.

3. We don’t have to worry about disaster relief funding

People who have lived through a natural disaster have enough to worry about. They should take comfort that disaster relief spending will not be cut off during a government shutdown. Many people were worried that relief for regions targeted by storms, floods, and fires would be cut off during the looming shutdown since DHS was at the center of the budget fight, and it also houses FEMA. DHS appropriations are no longer an issue. Even if they were, and a government shutdown affected DHS, disaster spending would continue. It is true that a small portion of “nonessential” DHS employees would be furloughed in the event of a shutdown, as detailed by the agency’s appropriations contingency plan. But most FEMA staff would continue operating, and the “Disaster Relief Fund” which fuels many FEMA operations would not be affected by a government shutdown.

4. A new spending bill could have a lot of waste (like a new NFL stadium in DC)

Spending bills often contain wasteful handouts to special interests. One key example: a campaign by Washington Redskins owners and government officials to sneak a provision giving the District of Columbia greater control of federal land where they want to build a subsidized stadium. There’s a lot of local controversy over the proposed new stadium, and for good reason. Many neighborhood residents prefer improved public services to corporate stadium handouts. Research by Michael Farren and Anne Philpot finds that stadium subsidies distort local economic development and waste resources that would be better spent elsewhere. This is before considering the injustice of forcing the public to subsidize a local (and wealthy) sports franchise.

5. The last omnibus bill was “swamp spending 101”

The last major spending bill in March of this year was a case study in irresponsible economics, as Veronique de Rugy pointed out. The  $1.3 trillion omnibus package passed to avoid a potential spring shutdown funded the government until last month. The bill was full of wasteful boondoggles and political pet projects. It also pushed the dire US fiscal position into even worse territory than originally projected: the resulting $800 billion deficit was $230 billion above what the Congressional Budget Office (CBO) expected in July of 2017.

6. Expect a lot of handouts

Shutdowns put pressure on politicians to wrap up the fiscal fiasco as soon as possible, which creates conditions for budgetary malfeasance that might otherwise be challenged. This means that the leadership may offer earmarks and other goodies to keep potentially wayward legislators in line. One example is last year’s omnibus bill, which included items like $6.9 billion for telephone infrastructure loans and $1.2 billion in nuclear research and development subsidies, as Tad DeHaven pointed out at the time. While this may achieve short-term political goals, it is bad public finance and another example of government privilege.

7. We won’t address our primary fiscal problem

According to the CBO’s recent projections, the US budget deficit will reach nearly a trillion dollars in 2019. That figure is more than double the 2015 deficit, a mere four years ago. As Scott Sumner recently noted, this is the first time that deficits have dramatically increased during a time of relative peace and prosperity. These deficits are driven by a massive, long-term increase in per capita federal spending, as Veronique de Rugy documented earlier this year. Unfortunately, a new spending bill will almost certainly continue this irresponsible trend. This would add to our eye-popping federal debt, which will soon reach $22 trillion. As de Rugy told us, “Uncle Sam has accumulated more debt in 11 years than it had in its entire history.” That is something that policymakers cannot afford to ignore.

8. A spending deal will probably make tax cuts more unsustainable

The president and Republican lawmakers tout last year’s tax reform bill as a major victory. Although Republicans may extol the tax cuts as a pro-growth and jobs-creating measure, their tax reform will actually be harmful in the long run if not accompanied by serious cuts in spending.  The reason? The eye-popping federal debt mentioned above continues to compound, meaning that major tax hikes and spending cuts are a near certainty down the road, as Veronique de Rugy has written.

9. Keep an eye out for tax extenders

One sneaky way that Congress doles out favors is by including “tax extenders” in spending bills. A tax extender is a way to retroactively reauthorize narrow tax provisions, like the deduction of mortgage interest. This means someone will receive a tax benefit after the fact as if it was in effect the whole time. As Veronique de Rugy recently pointed out, tax extenders “were last authorized as part of [March’s] Bipartisan Budget Act of 2018, which retroactively extended them through the end of 2017.” Congress may find itself tempted to again extend these costly subsidies.

10. Taxpayers might have to bail out multiemployer pension plans

A few weeks ago, news broke that legislators are considering a massive bailout for multiemployer pension plans. These plans are defined-benefit pensions that are usually cosponsored by several employers from the same industry. Right now, pensions with this structure are in crisis, with $600 billion in underfunding. It’s possible that the final spending bill might use public funds to “solve” this problem. However, as Charles Blahous has argued, a taxpayer bailout won’t rectify the fundamental problems that these pensions are facing. He lays out a better road to reform in his recent paper, “Averting the Multiemployer Pension Solvency Crisis.”

Photo credit: Tasos Katopodis/Getty Images

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