President Donald Trump has again threatened to bring about a partial government shutdown unless Congress provides money for a wall at the Mexican border.
This clash has occurred before without resulting in a markets-shaking shutdown, but budget experts have said a closure isn’t out of the question.
They have been highlighting services that could be halted, given the seven appropriations bills that are needed to cover areas such as the Department of the Interior and the Department of Homeland Security, as well as financial services and transportation. The deadline for the spending measures is Dec. 21, after a possible shutdown on Dec. 7 was avoided by a two-week funding extension.
“Most services will continue, but national parks may be shut down, safety inspections (for example, for hazardous waste and drinking water) could be halted, and the IRS may not be able to process taxes and refunds,” said Marc Goldwein, senior vice president and senior policy director for the Committee for a Responsible Federal Budget, in an email to MarketWatch. During the government shutdown in 2013, some $2.2 billion in Internal Revenue Service refunds to individual taxpayers were delayed.
But closures of national parks during the 2013 shutdown sparked outrage, so those attractions could be allowed to stay open for business during the next shutdown. Ahead of a three-day shutdown in January, White House budget chief Mick Mulvaney promised to keep the parks and monuments open, said budget expert Stan Collender.
“The president has the absolute right to determine whether something is essential or not,” said Collender, known for his Budget Guy blog.
Even if a service has been essential in the past and stayed in operation, that doesn’t mean it will be in the future, he cautioned. For example, Trump could decide against having Transportation Security Administration agents or air-traffic controllers continue working; in that case, business travel and package deliveries would be held up, the spending expert said.
“If the president wanted to play real hardball, he’d shut down the air-traffic-control system, and within seconds bring the U.S. economy to a halt,” Collender said.
But Goldwein from the Committee for a Responsible Federal Budget said TSA agents are likely to keep working, along with FBI agents and other law-enforcement officers, regardless of whether there is an appropriations bill for the Homeland Security Department. That’s even as many other federal employees from departments caught in the standoff would be furloughed.
The Departments of Defense, Health and Human Services, Labor, Education, and Veterans Affairs are funded until October 2019 and do not need action in an appropriations bill. Among the seven bills still needed, those for agriculture, financial services and general government, interior and the environment, and transportation, housing and urban development look easiest to pass, while bills covering commerce, justice and science as well as homeland security “are the political land mines, with the Mueller investigation related to the former and the [Mexico] wall with the latter,” Goldwein said.
Lawmakers don’t necessarily have to pass the seven appropriations bill and get them signed into law by Trump by Dec. 21 in order to avoid the partial shutdown. Instead, Congress could again avoid a partial closure with a temporary fix — that is, a continuing resolution, or “CR” — that ensures all parts of the federal budget remain funded.
Big impact if a shutdown lasts beyond a week
If a shutdown is limited to a few days or a week, most Americans would just notice “the sheer spectacle of it,” Collender said.
But if it went on for more than two or three weeks, it would “start to have an impact on most people,” he told MarketWatch. Government contractors would have to cope with unpaid invoices, as well as proposals that aren’t considered.
“If it goes on more than about 10 days, then those contractors start laying off people,” Collender said. “And then the Starbucks SBUX, +1.14% across the street from a government building reduces its hours, because a major group of customers isn’t there anymore.”
Short-term shutdown seems likely
Trump on Tuesday threatened to shut down the government if he didn’t get funding for his border wall, saying during a televised clash with House Minority Leader Nancy Pelosi and Senate Minority Leader Chuck Schumer that he would be “proud” to shut the government if it meant border security was improved. Those comments echo his wall-linked warnings about potential shutdowns that came two weeks ago and a month ago, as well as in April, July and more than a year ago.
Following Tuesday’s heated meeting, “it appears unlikely that a solution to stave off at least a short-term shutdown will be reached,” said Clayton Allen, a Height Capital Markets analyst, in a note Wednesday.
“However, the impact of a shutdown right now is limited to agencies that do not have finalized appropriations — and those agencies represent less than [a quarter] of total government spending,” Allen wrote. “In addition, this shutdown would almost assuredly be limited in duration as both sides seek to claim a win.”
Trump has backed down after prior shutdown threats, though he is unpredictable, said Collender. The Budget Guy blogger also said: “I’m not sure he wants the wall as much as he wants the issue of the wall.”
And the hitch could come from the other side. Democrats in the Senate might make their votes contingent on something Trump would refuse to give them, like a measure protecting special counsel Robert Mueller’s investigation into Russian electoral interference.
“That’s not a substantive budget issue. That’s a highly emotional issue, which is what most shutdowns turn on,” Collender said. “If it gets to something like that, then the chances of a shutdown become much greater.”
Immigration-related shutdown wouldn’t slam immigration services
A shutdown wouldn’t affect naturalization interviews, citizenship ceremonies and most of the other day-to-day work done by U.S. Citizenship and Immigration Services, according to an analysis from the New Americans Campaign, a national group focused on immigration.
That’s because that agency, part of the Homeland Security Department, gets funding through fees rather than annual appropriations. One key exception would be the E-Verify program, which does depend on those appropriations. It helps employers check on the eligibility of employees to work in the U.S.
Only three real shutdowns in recent decades
Since the early 1980s, there have been three “true” shutdowns in which government operations were affected for more than three days, according to the Committee for a Responsible Federal Budget, a nonpartisan organization that tracks the impact of fiscal policy. One was in 2013, and two occurred in the winter of 1995-96.
Shutdowns in recent decades typically haven’t corresponded with significant stock-market drops, according to data from LPL Financial. The S&P 500 SPX, +1.18% has fallen 0.4% on average during the period of a closure.
This is an updated version of a story first published on Nov. 28, 2018.