5 Ways the Shutdown Pain Could Get Much Worse

Plus, Trump's plan to put pressure on Dems

Trump Will Make His Shutdown Case in Prime-Time Speech to the Nation

As the partial government shutdown heads into its 18th day with no sign of a breakthrough to end the impasse, President Trump is looking to make his case directly to the American public — and not through Twitter. Trump announced he’ll give an address to the nation in prime time on Tuesday evening, and the White House said he’ll visit the southern border on Thursday. Combined, the two announcements signal that Trump is ramping up his public relations efforts, seeking to put pressure on Democrats after bipartisan talks over the weekend yielded no significant progress.

Here’s the latest:

  • Trump has offered to build the border barrier with steel rather than concrete, a move the president and the White House have framed as a concession to Democrats who object to a wall. “They don’t like concrete, so we’ll give them steel,” Trump said Sunday. Democrats, for the most part, don’t see that as much of a carrot. The White House isn’t budging on Trump’s demand for $5.7 billion in funding, though it has also proposed “an additional $800 million to address urgent humanitarian needs.”’
  • The president on Sunday also repeated his threat to secure funding for the border barrier by declaring a national emergency and bypassing Congress’s budgetary power. Such a move would quickly result in a court battle.
  • Democrats aren’t budging either, and they’ve reportedly complained that the White House hasn’t made clear why it is seeking billions more than the administration had asked for months earlier or explained how the money would be used.
  • On the House side, Democrats plan to vote on four separate appropriations bills not directly tied to the border fight, including legislation to fund the Treasury Department and Internal Revenue Service — with the expectation that such votes will turn up the heat on Republicans. The White House said Monday that the IRS would pay tax refunds over the coming weeks, reversing past agency policy on the issue. (See more on this below.)
  • Senate Democrats, meanwhile, are increasingly coming together in support of a hardball strategy suggested by Sen. Chris Van Hollen of Maryland to block all legislation until Majority Leader Mitch McConnell agrees to bring up a House-passed package to reopen the government.

The bottom line: We’re still seeing more posturing than progress, and there’s no indication that the shutdown will end anytime soon. The White House decision that the IRS can issue tax refunds lessens the impact of the shutdown — and reduces the urgency to reach a deal.

5 Problems That Could Get Worse as the Shutdown Continues

Now in its third week, the shutdown will become the longest in history if it lasts until Saturday, and the negative effects are starting to accumulate — and could grow far more destructive in the coming days. New York’s Jonathan Chait says that the longer the shutdown lasts, the worse it gets: “The reality is that the effects of a shutdown compound over time. Government agencies can creatively stretch their budgets to mask gaps in funding, but at some point, their capacity to maintain services snaps. The relationship between the length of a shutdown and its impact is not linear. A 30-day shutdown is not ten times as damaging as a three-day shutdown. It is probably 100 times as damaging.”

Thousands of federal contractors are already feeling the pinch. According to Bloomberg’s Christopher Flavelle and Paul Murphy, contractors could see more than $200 million per day in lost or delayed revenue due to the shutdown. Not all contractors are suffering equally, though, since they vary considerably in size and include defense giants such as Boeing and General Dynamics that can more readily weather the storm.

But cash flow problems could mean layoffs at smaller contractors. Alan Chvotkin of the Professional Services Council told Bloomberg, “Now you’ve got a group of employees who are on a time-and-material contract, or a cost-reimbursement contract, and they’re not working. So now the company has to decide whether to pay those employees out of whatever revenue they might have available to them.”

Here are some of the other problems that could crop up over the next few days and weeks if the shutdown continues:

1. Missed paychecks: About 800,000 federal workers who are either furloughed or required to work as “essential” employees will not receive paychecks this Friday (January 11). Although they will likely be paid eventually, the lack of income is creating financial crises for thousands of workers. According to Zillow research, federal employees who are not being paid owe more than $438 million in rent and mortgage payments in January. In addition, thousands of federal contract employees who are not working as a result of the shutdown are unlikely to ever recover lost pay. (More at CNBC.)

2. Evictions and mortgage delays: Thousands of tenants who rely on Housing and Urban Development programs to help pay their rents are facing potential eviction due to the shutdown. HUD, where about 95 percent of employees are on furlough, sent letters to roughly 1,500 landlords last week asking them not to initiate eviction proceedings. In addition, the Federal Housing Administration is not accepting applications for some kinds of mortgage insurance, and a shortage of employees at the IRS could cause delays in income verification for borrowers applying for mortgages. (More at Curbed.)

3. Reduction in food stamps: Funding for the Department of Agriculture’s Supplemental Nutrition Assistance Program runs out at the end of January, and the program’s reserve funds are insufficient to cover all of February’s payments. About 38 million people receive SNAP benefits at a monthly cost of roughly $4.7 billion. (More at The Washington Post.)

4. Airport headaches: A higher than usual number of the 51,000 Transportation Security Administration employees who screen air passengers have reportedly been calling in sick, although the agency has denied there’s a problem. The longer the shutdowns last, the more likely staffing could become an issue for passengers. Air traffic controllers are also working without pay, although there have been no reports yet of absent workers. (More at NBC News.)

5. Tax refund delays: Although the IRS announced last year that it would not issue tax refunds in the event of a shutdown, the White House said Monday that it will send out refund checks if the shutdown continues. There is some uncertainty, however, about the administration’s legal authority to do so, which would require bringing back furloughed workers. (Only 12.5 percent of IRS’s 80,000 employees are currently working.) Politico’s Brian Faler reported Monday that the Treasury Department is still looking into whether it has the authority to issue refund checks, with an announcement expected later this week. (More at The Wall Street Journal and The Washington Post.)

House Democrats’ Budget Will Call for Raising Corporate Taxes

The new Democratic House Budget Committee chairman said Friday that the fiscal 2020 budget blueprint his chamber produces will seek to raise revenue by increasing the corporate tax rate from the current 21 percent to between 25 percent and 28 percent, Roll Call reports.

The 2017 Republican tax law cut corporate tax rates from 35 percent to 21 percent. Corporate income tax revenues for fiscal 2018 totaled $205 billion, down 31 percent from $297 billion in fiscal 2017.

The Democratic budget plan could also call for rate increases for high-earning individuals.

Rep. John Yarmuth (D-KY), the new head of the Budget Committee, said he wants to have a budget plan ready to go to the House floor in early April, though he acknowledged that there’s little chance that the Republican-controlled Senate would agree on a resolution.

In the absence of a budget resolution approved by both the House and Senate, a bipartisan agreement to again raise spending caps would be necessary to prevent limits imposed by the 2011 Budget Control Act from forcing steep cuts. “If we don’t change the caps, we’d be stuck with an 11 percent cut in defense spending and 9 percent cut in nondefense,” Yarmuth said, according to Roll Call. “I don’t think either side would want to do that.”

Paychecks Are Finally Growing Faster — but It’s Probably Not Due to the Tax Cuts

Wages for American workers are finally rising at a faster pace and the trend is likely to continue, says Bloomberg’s Barry Ritholtz. Several factors are contributing to the increased wage growth, including minimum wage hikes in 18 states and 22 cities in 2018 and a tighter job market, which is forcing employers to pay more.

One factor Ritholtz doesn’t credit with contributing to the wage growth is the 2017 tax bill — and he rejects the tax-cuts-will-raise-wages thesis in no uncertain terms:

“[L]et me beat any unreformed supply-siders to the punch on one final topic: There is little or no evidence that the Tax Cuts and Jobs Act of 2017 had much of an impact on wages — and certainly workers haven’t seen the absurd $4,000 per employee windfall President Donald Trump’s economic advisers and political allies made before the tax cut was passed by Congress. As my Bloomberg Opinion colleague Noah Smith observed, there are no signs that tax cuts are trickling down to workers’ real wages. This isn’t a surprise, since the tax cut was geared to give companies and the wealthy the most of the breaks.”

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