May 1, 2017 in Smart Money

Who loses in a government shutdown?

After approving a stopgap measure to keep the government funded for another week, lawmakers will have until Friday at midnight to negotiate a larger spending package.

The thought of a government shutdown makes many U.S. consumers cringe, especially if they depend on the federal government for medical care, retirement benefits and other critical services.

But even without a budget in place, the federal government never fully shuts down.

“In a government shutdown, there is some discretion for the government to protect the vital agencies — those related to national security — so it’s not like they’re going to bring all the soldiers home,” says Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget in Washington, D.C. “But most government functions that we are used to will stop during a shutdown.”

The hard part for consumers is it’s difficult to predict which operations will be deemed essential and which will be halted. It’s mostly up to the discretion of the Trump administration.

“It all depends on what the president prioritizes and what federal unions are willing to cooperate with,” says Richard Parker, a senior fellow and lecturer at Harvard’s Kennedy School of Government.

Past government shutdowns — the most recent was in 2013 — can shed some light on how the federal government will proceed. But there’s no way to know for sure what will be considered a priority.

Injecting further uncertainty is the question of when a new budget will be passed to get the government up and running again.

“The longer it goes, the more damaging it becomes because of the accumulation of unpaid bills and more people being affected by not being paid,” Parker says.

Here’s a rundown of who would likely suffer most from a government shutdown, and who would escape relatively unscathed.

Biggest losers in a government shutdown

“The (Internal Revenue Service) would basically shut down, so there would be no one there to process your taxes or send you your refunds,” Goldwein says.

“There will be no employees on the job to process the applications, which require more intense handling than just simply the mailing of checks, which is fairly automated,” Parker says.

While it’s hard to know how the Treasury market will respond to a new crisis, Parker says there’s likely to be volatility as global investors decide what to do.

“I don’t think there’s a huge direct cost of the shutdown to the economy. I don’t think we’re going to see GDP numbers fall or stock markets sink or anything like that,” he says.

Likely to be unaffected

“There’s a little bit of ambiguity in this area, but during the last shutdown, Social Security checks did continue to go out,” Goldwein says.

Even if it doesn’t, it’s possible Medicare providers will continue to offer services with the expectations they’ll be paid once the crisis passes, Goldwein says.