What happens when the Federal Government shuts down? Who gets affected and more explored amid October 1st uncertainty

The United States is nearing a potential Federal Government shutdown from October 1. Several departments of the U.S. government could face temporary closure if Congress does not approve a certain number of spending bills to fund various agencies across the government.

Each fiscal year, the U.S. Congress must issue funding to 438 government agencies, and the process ends on September 30. If legislators don’t pass the different spending bills before a new fiscal year commences, these agencies will cease to continue all non-essential work, and employees will not receive their paychecks until the shutdown gets lifted.

A Federal Government shutdown can disrupt the normal flow of many services, from trash pickup at national parks to financial oversight, and lead to a temporary suspension of thousands of federal workers without pay.

Though other employees whose service sectors are deemed essential would be able to keep their jobs, they will not get paid either. Services like law enforcement, traffic, tax collection, and mail delivery would continue. As per a law passed in 2019, some of these federal workers will receive back pay once the funding issue is resolved.

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Reason behind the potential U.S. Federal Government shutdown and its impact

Why a Federal Government shutdown is likely to hit the United States?

While speaking at the Annual Legislative Conference of the Congressional Black Caucus on Saturday, September 23, U.S. President Joe Biden held a small group of far-right Republicans accountable for a budget impasse that has put the government on a seven-day deadline from a shutdown.

Biden said he and Kevin McCarthy, the House of Representatives’ Republican Speaker, had previously agreed on government spending levels.

“Now a small group of extreme Republicans don’t want to live up to the deal so now everyone in America would be forced to pay the price,” he added.

Biden urged legislators to come up with a budget plan that could create a common ground between both chambers of Congress, leading a majority of legislators to pass the bill to be signed by him. A continuing resolution, which is a short-term spending bill, will most likely be needed to prevent numerous federal agencies from halting operations.

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Who does a government shutdown affect?

Generally, government shutdowns spanning only a few days are less likely to have a huge practical impact, especially if they take place over the weekend. However, the broader economy is prone to suffering if federal workers start missing paychecks from the third week of a shutdown.

During a Federal Government shutdown, the GDP growth can be reduced by around 0.15% per each week it lasts. But the growth will bounce back the same amount once the shutdown gets resolved.

Among federal employees, more than two million civilian workers and roughly two million military personnel nationwide would face delayed paychecks if the government shuts down. About 60% of these federal employees are stationed in the Homeland Security, Veterans Affairs, and Defense departments. Some workers would face shortened work hours during the shutdown.

Apart from the federal employees, a shutdown can also have extensive effects on government services. For example, people applying for firearm permits, passports, or clinical trials could face delays.

Businesses intertwined with the federal government, e.g., tourist services in national parks or federal contractors, could also go through downturns and disruptions. As per the U.S. Travel Association, the travel sector alone could lose around $140 million daily during a shutdown.

Lawmakers have previously warned that a government shutdown also has the potential to rattle financial markets. Goldman Sachs, a global investment banking company, has estimated that economic growth will decrease by 0.2% every week during a shutdown.

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How long will the Federal Government shutdown last?

If the U.S. Congress fails to pass a funding plan signed by the President into law, the shutdown will be effective from 12.01 am on October 1. Prediction about the duration of a shutdown is not possible.

However, the lawmakers will soon have to devise a funding plan for the government sectors with which both the House and the Senate will have to agree. Once the President signs the legislation passed by both chambers, the new law will be implemented, and the shutdown will eventually be lifted.