How much could a government shutdown cost the economy and taxpayers?

The ongoing government shutdown in Washington is not only causing political turmoil, but it is also taking a toll on the economy. According to an estimate by EY-Parthenon chief economist Gregory Daco, each week of the shutdown could cost the economy $7 billion and reduce GDP growth by 0.1 percentage points. This is due to reduced pay for federal employees, delayed government procurement of goods, and a decline in demand.

While some of the economic costs may be reversed once the government reopens, not everything is reversible. The last shutdown, which lasted 34 days during President Trump’s first term, cost the U.S. economy about $11 billion. The Congressional Budget Office estimated that real GDP took a $3 billion hit in the fourth quarter of 2018 and an $8 billion hit in the first quarter of 2019.

The shutdown also affects Americans’ faith in the economy, as evidenced by the sharp drop in the University of Michigan’s Consumer Sentiment Index during the 2019 shutdown. Administrative efforts to create contingency plans during a shutdown and higher premiums in federal contracting also contribute to the overall costs.

Currently, federal law mandates that furloughed federal workers be paid at their regular rate once the government reopens, costing the federal government an estimated $400 million a day. A report from a Senate Committee estimated that the last three government shutdowns cost taxpayers nearly $4 billion in back pay to furloughed workers and associated costs.

In the current shutdown, President Trump, Vice President JD Vance, and OMB Director Russell Vought are warning of impending layoffs if the shutdown continues. Vought has already begun freezing or slashing federal funding for projects, particularly in blue states, and has threatened Reduction in Force cuts. President Trump has suggested using the shutdown to permanently cut federal workers and programs disliked by the administration.

As the shutdown continues, the economic and political ramifications are becoming more apparent. It is crucial for policymakers to find a resolution to avoid further damage to the economy and public perception.