The Congressional Budget Office estimates that a six-week shutdown will reduce GDP by 1.5 percentage points in the fourth quarter, ultimately resulting in a net loss of about $11 billion.

Written by: Zhao Ying

Source: Wall Street Journal

According to media reports, the U.S. House of Representatives is scheduled to vote on a spending bill on Wednesday evening local time to end this record-length government shutdown.

The shutdown, which began on October 1, has lasted for 43 days, forcing hundreds of thousands of federal employees to take unpaid leave or work without pay. Flight delays, critical economic data releases have been hindered, food assistance for millions of families is at risk, and national parks and museums are closed. House Speaker Mike Johnson expressed optimism about the bill's passage, and the House Freedom Caucus has indicated support.

Senate Democrats had previously insisted that any agreement to reopen the government must include an extension of subsidies under the Affordable Care Act (ACA), but ultimately, eight Democratic members switched sides to support the Republican proposal to first reopen the government and then vote on healthcare subsidies in mid-December. House Democratic leaders have urged members to oppose the bill, citing its lack of healthcare provisions.

After the shutdown ends, the government will face a lengthy restart process. It may take several days or even more than a week for the government to return to normal operations, as the payroll system needs to be updated to pay weeks of back wages, and backlogged appropriations, loan applications, and customer calls need to be cleared. Transportation Secretary Sean Duffy stated that flight restrictions will begin to be lifted within a week after the government reopens, just in time for the Thanksgiving travel peak. The Congressional Budget Office estimates that a six-week shutdown will reduce GDP by 1.5 percentage points in the fourth quarter, ultimately resulting in a net loss of about $11 billion.

Last-Minute Controversy Did Not Hinder Progress

A provision in the bill allowing senators to claim $500,000 if federal investigators collect their phone records without their knowledge sparked backlash from both parties before the vote. This provision is believed to be designed for eight senators whose records were obtained during former special counsel Jack Smith's investigation into Trump's efforts to overturn the 2020 election.

Several Republican lawmakers indicated that they did not want to delay the government reopening by opposing this provision but planned to pass separate legislation to repeal it afterward. Johnson stated on Wednesday that Republicans would introduce a separate bill next week to repeal this provision.

The House Freedom Caucus praised this funding proposal in a memo as a "comprehensive victory for HFC, conservative leadership, and messaging." Republican Representative Victoria Spartz, who voted against the temporary funding bill in September, stated she would support this bill. The Republicans hold a slim majority in the House, and most Democrats are expected to oppose the bill, but potential defectors may include Maine Representative Jared Golden and Texas Representative Henry Cuellar.

House Minority Leader Hakeem Jeffries stated that Democrats will continue to push for legislation to extend healthcare subsidies, including a new bill to extend subsidies for three years. He said at a press conference on Wednesday that Democrats would pressure Republicans to support the proposal. "This fight is not over," he said.

Restart Process May Take Days or Even Weeks

The government can only officially begin the restart process after the appropriations bill passes Congress and is signed by President Trump. The House is expected to pass the Senate-approved legislation as early as Wednesday evening, but many agencies may not resume operations until Friday or even the following Monday, depending on the speed of the legislative process.

Federal officials warned that some restrictions related to the shutdown will persist. Transportation Secretary Duffy stated that flight restrictions will begin to be lifted within a week after the government reopens, coinciding with the Thanksgiving travel peak. Delta Air Lines CEO Ed Bastian stated on Wednesday that travel during the Thanksgiving holiday should be "fine."

While federal employees will receive back pay, agencies warned that recalculating payroll may take time. A law from 2019 requires agencies to pay employees their full wages for the shutdown period "as soon as possible" after the funding interruption ends. However, after the 2019 shutdown, air traffic controllers took about two to two and a half months to receive full compensation, according to Nick Daniels, president of the National Air Traffic Controllers Association.

Duffy promised that this time the process would be faster. He stated that controllers would receive 70% of their back pay within 24 to 48 hours after the government reopens, with the remaining amount paid about a week later.

Economic Impact Difficult to Fully Erase

Gregory Daco, chief economist at accounting firm EY, stated that this is more of a stimulus than a shock for the economy, but this stimulus is becoming increasingly significant. A government shutdown lasting more than a few weeks will leave a lasting mark on the economy, and we are just beginning to see this.

A report released by the Congressional Budget Office last month indicated that the comprehensive impact of a six-week shutdown would reduce GDP growth by 1.5 percentage points in the fourth quarter. The government reopening will reverse much of the impact, as back pay will be distributed to employees. However, it will still result in a net loss of about $11 billion in GDP. Some canceled travel plans will not be rescheduled, and some federal contractors will not be able to recoup all their losses.

The shutdown will not save the government money. A bipartisan report from the Senate in 2019 found that the shutdown cost the U.S. over $300 million in additional administrative work, lost revenue, and late fees. Additionally, while the White House laid off thousands of employees during the shutdown, legislation funding the government requires their rehire. Regardless of whether federal employees are on the job, they will receive back pay.

The Supplemental Nutrition Assistance Program (food stamps) will return to its normal payment cycle after weeks of uncertainty, during which states were forced to delay and ration benefits. However, this will not happen immediately: states have indicated they need up to a week to update beneficiary files and recharge debit cards. Due to only two major card suppliers, bottlenecks may occur when each state seeks to supplement benefits simultaneously.

The shutdown also led to the cancellation or delay of economic data releases. More importantly, no new statistics on prices and employment were collected, leaving policymakers with a potential data gap that could distort forecasts for months. Analysts estimate that each week the shutdown continues costs the economy between $10 billion and $15 billion. While back pay and suspended federal spending can be reversed, economists say that some costs of this record shutdown will never be recouped.

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