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Republicans just got a big tax win but there could be trouble ahead

  • by FMR
  • 3 Months ago
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Statuary Hall on Capitol Hill is empty on Oct. 2, 2013, due to a partial government shutdown. (Michael Reynolds/European Pressphoto Agency)

Republicans in Congress don’t have time to catch their breath after their tax-reform marathon. If they don’t pass a funding bill by midnight on Friday, the government could run headfirst into a shutdown.

Shutdowns are expensive. Their cost comes not only in money, such as the billions paid to employees who can’t work, but in opportunity — such as ambitious tax legislation that will be hard to implement before the new year.

Here’s what we learned from the most recent shutdown, which took place over 16 days in October 2013, as congressional Republicans attempted to defund or delay the Affordable Care Act, better known as Obamacare.

At the shutdown’s peak about 850,000 workers per day — or about 40 percent of the federal workforce — were sent home, a 2013 report from the White House Office of Management and Budget (OMB) found. Together, those workers missed 6.6 million days of work. Employees aren’t paid during a shutdown, but once it ends Congress is virtually guaranteed to offer them back pay. Which, in this case, totaled about $2.5 billion, including benefits. Paid to people who were literally locked out of their offices and forbidden to do so much as check email from home.

But if you only count those who didn’t work, you miss much of the madness. Even many of those whose work was deemed necessary were sucked into the oddly circular tasks of shuttering systems and equipment across the government, from nuclear security to marine-mammal monitoring, only to spin it all back up when the shutdown ended.

And direct federal employees are only a fraction of those who ultimately depend on the government for their paycheck. It’s difficult to get numbers on the multitudes of private contractors working in service of various agencies, but it starts in the hundreds of thousands. In 2013, contractors working with the military were eventually paid, but others could not make up for lost work or wages. In the broader economy, economist Mark Zandi of Moody’s Analytics estimated in a 2013 report that “a couple hundred thousand private sector employees, many at defense contractors, could not work because of the shutdown.”

Meanwhile, the billions of dollars of contractor payments, refunds and other bills federal employees couldn’t pay while they were locked out of their offices had to be made good, with interest, upon their return. The money “saved” during the days the government was shut down still gets spent, it just gets spent far less efficiently.

While the government was understaffed, revenue was lost and basic cogs that underpin the economy were gummed up. The OMB estimates that the National Park Service and Smithsonian lost about $11 million in revenue combined during the 2013 shutdown.

It also delayed the tax-filing cycle and pushed back tax refunds valuing about $3.7 billion, the OMB report found. The present shutdown would coincide with the beginning of 2018, and the implementation of any tax-code changes required by the Republican tax overhaul working its way through Congress. Meanwhile, the IRS would only retain 10,802 of its 80,873 employees during a shutdown, according to a contingency plan filed earlier this month. The vast majority of those would be “engaged in the protection of life and property.”

The shutdown doesn’t just hit Washington bureaucrats

I think a Government shutdown would be a great thing!! Then all the fat lazy pathetic congressman in the house & senate wouldnt get paid!!! That alone would MAGA!!

— John Spayd (@JohnSpayd) December 18, 2017

Shutdowns are particularly ineffective at punishing Congress, as members of both houses get paychecks during a shutdown, as does the president. Their pay is written into the law and doesn’t have to be budgeted each year.

[Halved paychecks force the furloughed to slash expenses and take loans, second jobs]

Nonetheless, there’s truth to the idea that the federal bureaucracy centers on the Capitol and in surrounding areas of the District of Columbia, Maryland and Virginia. But that small truth understates the breadth of the impact of a government shutdown: When the biggest employer in the country sends home almost a million workers and delays paychecks of even more, the pain is felt everywhere.

It’s hard to tease out exactly how many employees in each state will be furloughed, but according to this map from Mark Zandi at Moody’s, many of the states hit hardest in 2013 were far from the Capitol’s orbit.

Every department claims at least some employees who would be sent home, and their numbers include folks who meet nobody’s definition of bureaucrat, from civilians supporting front-line soldiers to Arctic researchers to the rangers patrolling U.S. national parks and forests.

That breadth gives every state a stake in preventing shutdown, no matter their antipathy toward Washington. In 2013, researchers found, federal employees cut down sharply on spending when the shutdown slashed their paychecks, and made up only about 80 percent of it over the next three pay periods. The remainder, which represents all the spending they would have made at coffee shops, gas stations and hair salons in the cities and towns where they lived, was presumably lost.

The shutdown’s fallout will ripple across the economy

Whether the event comes next week, next month, or never, the current march toward government shutdown may already be causing economic damage. Businesses abhor uncertainty — the primary rationale behind making corporate tax cuts permanent in the GOP plan was to give businesses a steady environment in which to engage in planning and investment.

When the future feels unpredictable, businesses respond with “reduced investment and employment” and stock prices get more volatile, researchers Scott Baker, Nicholas Bloom and Steven Davis found. And almost nothing breeds uncertainty like a government shutdown.

Updated figures from the same group look at news coverage to show the 2013 government shutdown caused more economic uncertainty than all but a handful of the biggest events of the past three decades. It’s behind only the 2011 debt ceiling dispute, the 9/11 attacks, the 2008 financial crisis, Brexit and the 2016 presidential election.

“Even if lawmakers come to terms roughly as expected, political vitriol and repeated threats to shut government or not pay its bills have weighed heavily on sentiment and meaningfully harmed economic growth,” Zandi wrote in his postmortem.

This in turn wears on the most prominent measure of the nation’s economic health, gross domestic product (GDP). In addition to being key to future growth and productivity, business investment is a large component of GDP. If it lags, it drags down quarterly GDP growth.

The government compounds the problem by sending workers home during the shutdown. When workers are locked out of the office, they can’t produce goods and services. That means government spending and investment, another major component of GDP, will be smaller than expected. Furthermore, as we’ve established, the workers won’t be spending much either, which means consumer spending, the biggest GDP component of all, will also take a hit.

If this shutdown lasts past Jan. 1, the impact on GDP would be even more pronounced, as delayed spending that would have happened in the fourth quarter of 2017 would be shifted into the following year. That will muck up GDP results for the quarter, as well as for President Trump’s first year in office.

On the plus side, shifting spending into early 2018 would make the first year of GDP growth after tax cuts look artificially rosy — though there’s no way it would be enough to outweigh the long-run drag of all that lost production, consumer confidence and business investment.

Source:: http://www.washingtonpost.com/blogs/wonkblog/wp/2017/12/20/republicans-just-got-a-big-tax-win-but-there-could-be-trouble-ahead/

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