How Many Billions Did the Shutdown Cost?

Plus, is Washington too worried about debt?

The High Cost of the Shutdown — and What Happens Next

Federal employees affected by the 35-day partial government shutdown returned to work Monday — though it will likely be awhile before they can say their lives have returned to normal. Some federal workers told The New York Times that the longest shutdown ever “had left deep scars on their families and finances and undermined their faith in elected leaders, and in the careers they had chosen.”

Here’s what you need to know about the effects of the shutdown and what happens next:

The shutdown cost billions: The five-week shutdown cost the economy $11 billion, though about $8 billion of that will be recovered through a temporary bounce in economic activity over the coming quarters, the Congressional Budget Office estimated in a report released Monday. The $3 billion that will not be recovered represents 0.02 percent of projected gross domestic product for all of 2019. But CBO noted that, “Underlying those effects on the overall economy are much more significant effects on individuals businesses and workers.” CBO said its estimates are uncertain and do not include other, indirect effects of the shutdown. Credit ratings agency Standard & Poor’s estimated last week that the economy lost at least $6 billion due to the shutdown.

When will federal workers get their back pay? It should be by the end of the week, depending on the payroll provider. “Some of them could be early this week. Some of them may be later this week, but we hope that by the end of this week all of the back pay will be made up and of course the next payroll will go out on time,” Mick Mulvaney, acting White House chief of staff, said in an interview Sunday on CBS’s “Face the Nation.”

Will there be another shutdown in February? It’s possible — but unlikely. President Trump, in agreeing to end the shutdown and allow a bipartisan group of 17 lawmakers until February 15 to negotiate a border security deal, warned that he could shut down the government again, or declare a national emergency on the southern border, if they can’t reach an agreement he likes. In an interview with The Wall Street Journal, Trump said he thinks the odds of the congressional negotiators succeeding are “less than 50-50, but you have a lot of very good people on that board.” Trump also said he doubted whether he would accept less than $5.7 billion for a border wall. "I have to do it right," he said.

Still, even if the lawmakers fail to hash out a deal or meet Trump’s funding demand, another shutdown seems unlikely because of the brutal political toll involved. “President Trump has to hold out the prospect of another shutdown because the right wing has proclaimed he's a wimp – but another shutdown has virtually no support in Congress,” analyst Greg Valliere of Horizon Investments says. The Washington Post’s Jennifer Rubin, a Trump critic, was more blunt about Trump’s lack of leverage, and lack of support among Senate Republicans now: “He can huff and puff, but not even Republicans in Congress think they can get away with demanding ‘a wall or else!’ There is no ‘else,’ and everyone but Trump seems to have gotten the message.”

The Washington Post’s Robert Costa and Felicia Sonmez reported Sunday night that Trump may be looking to escalate his wall fight by declaring a national emergency, despite strong opposition from some Republicans: “Inside the West Wing over the weekend, Trump told advisers that declaring a national emergency may be his best option as he scrambles to assert himself in a divided government and secure wall funding, according to four people involved in the discussions who were not authorized to speak publicly.”

Who’s negotiating the border security deal? The 17 members of the conference committee are all on the House or Senate Appropriations Committees. “None of the lawmakers are bomb-throwers likely to buck their party’s leaders, who will retain control over the biggest decisions, including the final price tag and whether anything resembling a wall will be funded,” the Journal says.

  • Six House Democrats: The group will be led by the House Appropriations Committee chair, Nita Lowey (D-NY), and will also include Lucille Roybal-Allard (CA), David Price (NC) Barbara Lee (CA), Henry Cuellar (TX) and Pete Aguilar (CA).
  • Four House Republicans: Kay Granger (TX), Chuck Fleischmann (TN), Tom Graves (GA) and Steven Palazzo (MS).
  • Four Senate Republicans: Richard Shelby of Alabama, the Senate Appropriations Committee chair, Shelley Moore Capito (WV), John Hoeven (ND) and Roy Blunt (MO).
  • Three Senate Democrats: Dick Durbin (IL), Patrick Leahy (VT) and Jon Tester (MT).

IRS Says It Will Take a Year or Longer to Recover from the Shutdown: The National Taxpayer Advocate, a government watchdog overseeing the IRS, told House staffers that it will likely take 12 to 18 months for the agency to return to normal operations, The Washington Post reported over the weekend. That timeline assumes the government does not shut down again next month. The IRS has a backlog of 5 million unanswered pieces of taxpayer mail, is weeks behind in training employees on how to implement changes resulting from the 2017 GOP tax law and needs to hire thousands of new employees for the tax season that started Monday.

Deficit Rising, but Won’t Hit $1 Trillion Until 2022, CBO Projects

In new budget and economic projections released Monday, the Congressional Budget Office said annual deficits are expected to rise above $1 trillion in 2022, two years later than previous estimates, thanks in large part to lower projected spending on disaster relief and lower interest rates.

Despite the delay, however, the overall fiscal story is much the same as in previous outlooks, with deficits and debt rising for years to come. Here’s an overview of the CBO outlook:

  • The deficit is expected to total $897 billion in 2019, $118 billion higher than in 2018. It will rise to about $1.2 trillion by 2025 and $1.4 trillion by 2028. Deficits will average 4.4 percent of GDP over the next 10 years, well above the average of 2.9 percent over the past 50 years, CBO said.
  • The national debt will continue to grow, with federal debt held by the public reaching 93 percent of GDP in 2029, which the CBO says is the highest level since just after World War II. CBO projects that the U.S. will add $12 trillion in public debt from 2020 through 2029. Assuming we stick to the current trajectory, the debt would equal about 150 percent of GDP by 2049.
  • Revenues are projected to rise from 16.5 percent of GDP in 2019 to 18.3 percent a decade later, although the projected increase assumes the individual tax cuts in the 2017 tax bill expire as scheduled at the end of 2025.
  • Spending is projected to rise from 20.8 percent of GDP this year to 23.0 percent in 2029. “The aging of the population and the rising cost of health care contribute significantly to the growth in spending for major benefit programs, such as Social Security and Medicare,” CBO said. “And rising debt and higher interest rates drive up the federal government’s net interest costs.”
  • GDP growth is projected to hit 2.3 percent on an annual basis in 2019, before falling into an average of 1.7 percent through 2023, and 1.8 percent in the five years following. CBO cited slow growth in the labor force as a primary driver of relatively weak economic growth.

The projections do not include effects generated by the partial government shutdown, which likely reduced economic growth in 2019. Under an “alternative fiscal scenario” in which the tax cuts now set to expire get extended — a scenario many experts say is likely — the long-term debt and deficit numbers are worse, with debt rising to 105 percent of GDP in 2029.

Number of the Day: $1.4 Trillion

The Treasury Department is set to borrow well over $1 trillion for a second straight year, Bloomberg News reported Monday: “Treasury’s total net new issuance in 2018 amounted to $1.34 trillion, more than double the 2017 level of about $550 billion. In 2019, it will be $1.4 trillion … according to forecasts from Steven Zeng of Deutsche Bank. Annual new issuance will range from $1.25 trillion to $1.4 trillion over the next four years, he says.”

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‘Greatest Threat’ to the US? Two Top Democratic Economists Aren’t So Worried About the Debt

Starbucks founder Howard Schultz told “60 Minutes” Sunday that he is considering a run for president in 2020, possibly as a “centrist independent,” and one of his top issues is the growing national debt.

"I look at both parties. We see extremes on both sides. Well, we are sitting today with approximately $21.5 trillion of debt, which is a reckless example, not only of Republicans, but of Democrats, as well, as a reckless failure of their constitutional responsibility," Schultz said.

In an interview with CNBC Monday, Schultz returned to the theme, saying, "I think the greatest threat domestically to the country is this $21 trillion debt hanging over the cloud of America and future generations.” Asked about the possibility of raising taxes to address the debt, Schultz said that, “the only way we’re going to get out of that is we’ve got to grow the economy, in my view, 4 percent or greater, and then we have to go after entitlements.”

Schultz, a billionaire who describes himself as a lifelong Democrat, was critical last year of the Republican tax cuts, calling them “fool’s gold” that won’t help the people who need it most. But Schultz has distanced himself from the Democratic Party as he moves toward what he sees as the center, telling CNBC’s Andrew Ross Sorkin that, “so many voices within the Democratic Party are going so far to the left, and I ask myself, how are we going to pay for all these things, in terms of things like single-payer, or people espousing the fact that the government is going to give everyone a job. I don’t think that’s realistic, and I think we’ve got to get away from all of these falsehoods and start talking about the truth and not false promises.”

Schultz’s comments — and his potential presidential run as an independent — quickly drew criticism from Democrats, some of whom warned that he risked handing President Trump an easy reelection if he splits the opposition vote. (Trump appears to be no fan, either, tweeting that Schultz "doesn't have the 'guts' to run for President!")

But Schultz could also meet resistance for his position on the national debt, which has become less of a focus even for establishment Democrats. Writing in Foreign Affairs, Democratic insiders Jason Furman, who served as President Obama’s chair of the Council of Economic Advisers, and Lawrence H. Summers, who served as Treasury Secretary in the Clinton administration and director of the National Economic Council under Obama, argue that politicians in Washington should stop worrying so much about the national debt.

While noting that the U.S debt will be about the same size as the economy within the next decade — a debt level “unprecedented for the United States during a time of economic prosperity” — Furman and Summers say that “deficit fundamentalists” need to start listening to the “deficit dismissers” who believe there are more important problems that need to be addressed first.

The authors summarize the deficit dismisser argument as follows:

“Long-term structural declines in interest rates mean that policymakers should reconsider the traditional fiscal approach that has often wrong-headedly limited worthwhile investments in such areas as education, health care, and infrastructure. Yet many remain fixated on cutting spending, especially on entitlement programs such as Social Security and Medicaid. That is a mistake. Politicians and policymakers should focus on urgent social problems, not deficits.”

Furman and Summers say they recognize that fiscal constraints are real and can’t be ignored forever. But they counsel a middle way of sorts, in which policymakers avoid adding to deficits when the economy is strong, and add to the debt only during downturns, when the economy needs fiscal stimulus. In good times, new social spending should be paid for, but no effort should be made to reduce the overall debt. “This middle course would tolerate large and growing deficits without making a major effort to reduce them—at least for the foreseeable future,” the authors write. If the debt does become a real financial problem, alarm bells will ring in the markets in the form of higher interest rates, giving policymakers a clear signal to change course.

At the same time, Furman and Summers say that policymakers across the political spectrum need to recognize that the federal government needs higher revenues to maintain public investments and pay for rising entitlement spending. The country “has more of a revenue problem than an entitlement problem,” they write. “U.S. spending on social programs ranks among the lowest in 35 advanced economies, yet the country has the highest deficit relative to its GDP in the group. That is because the United States brings in the fifth-lowest total revenue as a share of GDP among those 35 countries.”

The bottom line: The “economics of deficits have changed,” Furman and Summers say, which means that policymakers should move “away from many of the old deficit and entitlement-focused orthodoxies—but not to wholesale abandonment of fiscal constraints.”

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