The economic toll on the US continues to grow as the government shutdown persists. The standoff, according to a new analysis from the Congressional Budget Office (CBO), could result in a decline in national economic output of between $7 billion and $14 billion.
The economic damage will only grow the longer the stalemate over funding drags out, according to a report by the CBO released on Wednesday. The partial shutdown has left hundreds of thousands of federal workers without pay and idled many vital services.
Although the administration has stated that it will ensure members of the military, border patrol officers, and employees at other law enforcement agencies are compensated for their lost pay during the shutdown, many civilians remain in a sort of no-man’s land. Small companies that depend on government work have already faced disruptions to cash flow, and federal contractors are feeling the hardest pinch.
The economic effect primarily arises from the delay in federal spending, which includes paying the salaries of government employees, purchasing goods and services, or distributing food stamp benefits to low-income Americans.
The delays seep into local economies, curbing consumer spending and business activity. CBO Director Phillip Swagel said in a letter to House Budget Committee Chairman Jodey Arrington that although most of the economic decline would likely be recovered in the coming years, between $7 billion and $14 billion in real output was expected to be lost permanently.
Lawmakers deadlocked as losses mount
And in Washington, lawmakers are mired in a partisan standoff. Senate Republicans were seeking a stopgap spending measure to reopen federal agencies through Nov. 21, in hopes of buying themselves several more weeks of bargaining room. But Democrats are cautioning that any deal also needs to extend the critical Affordable Care Act tax credits for those who can’t afford health insurance.
The impasse is a symptom of deeper political polarization over what the government should and shouldn’t spend money on, how it should deliver social programs — a divide that nativists in Trump’s camp have used to sabotage budget negotiations for years.
The White House is urging Congress to send it a “clean” continuing resolution, one free of policy riders, despite lawmakers’ deep divisions over the nation’s air travel safety and other issues. The White House explains that further gridlock would not only harm workers but also potentially damage the broader economy.
The longer the shutdown continues, the more lasting its effects will be, the CBO said. Even if the shutdown were to be resolved immediately, the economy would suffer an estimated loss of around $7 billion in GDP. A six-week shutdown would increase the cumulative deficit to $11 billion, and an impasse lasting eight weeks would raise total losses to $14 billion, with the majority of these losses being permanent.
Ripple effects spreading beyond Washington
The impacts are national, not just in terms of numbers. Federal loan programs designed to help small farmers, students, and businesses have been placed on hold. Federal money for scientific research is frozen. Meanwhile, at airports across the country, longer lines are fraying travelers’ nerves, and warnings of security disruption have heightened tensions as unpaid workers with the Transportation Security Administration (TSA) call out sick.
Each side has stated that it is willing to return to the table, but little compromise is in sight. Mike Johnson, the Speaker of the House, has insisted that spending cuts and reforms be included in any new allocation. Yet Democratic leaders argue that the government should not be held hostage to political wars.
Kevin Hassett, former economic advisor to Donald Trump, said Monday that the government shutdown is “likely to end sometime this week.” Speaking to CNBC, he added that “there’s a shot that this week, things will come together, and very quickly,” as the shutdown enters its third week without a deal.
Speaking on Squawk Box, Kevin said the Trump White House is already preparing backup plans in case the standoff drags on. “If it doesn’t,” he warned, “the White House is going to have to look very closely, along with [budget chief Russell] Vought, at stronger measures that we could take to bring them to the table.”
Still, pressure is mounting from business leaders, economists, and ordinary Americans for a solution, as the holiday season approaches and no end in sight.
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Source: https://www.cryptopolitan.com/us-faces-14b-economic-hit/
