Will a Government Shutdown Actually Save Money?

With a government shutdown looking likely this weekend, one question many sane people are asking is, "Why are we doing this?"

CNN ran an article with what might be a typical response. Said one shutdown supporter: "I'm not the slightest bit worried about a government shutdown. I think we find out that there are many things government does that we really don't need to keep this country going. And a government shutdown would actually save us some money."

Seems logical, but actually, no, a shutdown would not "save us some money." It would cost extra money. Quite a bit of it, in fact.

When the government shuts down -- it's happened 16 times since 1977, most recently in 1995 and 1996 -- most nonessential services cease. Services that are vital to "military, law enforcement, or direct provision of health care activities" keep fundamental employees working and maintain operations. But roughly 800,000 employees from nonessential services -- everything from parts of the IRS, national parks, Treasury, to the Department of Education -- could be furloughed. The government gets serious about this stuff. It's a criminal offense for a furloughed federal employee to work during a shutdown. (In case you're wondering, Congress pays themselves as usual during a shutdown. They deem themselves very essential.)                                                                                    

But just because workers are furloughed doesn't mean they'll go without pay. Once the government starts up again, most furloughed works will receive back pay for their time off. Bloomberg crunched the numbers and came up with a specific tab: $174 million per day the government is shut down. And this really is a cost, not just a reimbursement. Work that needs to get done (processing tax returns, issuing passports) piles up while employees are furloughed, creating a need for massive overtime once the government starts back up.

Then there's the cost of lost receipts. Visitors spend roughly $32 million per day at national parks. Fees and tax revenue generated from this spending is lost in a shutdown. Then there's lost revenue from airline taxes, levied fines, and a host of other fee-based income that goes dark in a shutdown. According to the Government Accountability Office, a three-day shutdown in 1991 cost $363 million in lost tax revenue and fee income. Adjusted for inflation, that works out to about $200 million per day.

Add it up, and the costs aren't trivial. A six-day shutdown in 1995 ended up costing $800 million. It's easy to see how a shutdown could cost well over $1 billion today, even if it lasted for only a few days.

Some might say this is still worth it, as a negotiated budget proposal might shave tens of billions off spending plans. But this misses the point. Regardless of what Congress' spending plans are, they should have been agreed upon before the country faced a shutdown. These people take monthlong recesses. It's inexcusable to draw such a massively important issue not only down to the last minute, but beyond it.

Most understand this. Speaker of the House John Boehner warned last week: "If you shut the government down, it'll end up costing more than you'll save because you interrupt contracts -- there are a lot of problems with the idea of shutting the government down -- it is not the goal." Senate Majority Leader Harry Reid said yesterday, "We care very much about the people that this shutdown would hurt. We won't stop working to avoid a shutdown."

Yet here we are.

What do you think about a government shutdown? Sound off in the comment section below.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (15) | Recommend This Article (20)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 08, 2011, at 11:39 AM, rfaramir wrote:

    We will get by just fine with 90% of the government completely shut down. We could arguably get by without the other 10% but that's an argument for later. The mere fact that the state is 10X larger than (supposedly) necessary means we'd be a lot better off if it got 10X smaller.

    Imagine how much lower taxes could be if the budget were 370 billion instead of 3.7 trillion? We'd be freer, too. We would need to spend *some* of that on replacement services for what we currently get centrally provided, but we'd have a bunch left over since we'd buy only what we needed and wanted and from private providers, meaning they would actually be efficient. Also, they'd treat us as customers, so we'd be happier.

    Happier, richer, freer. That's what I want. Shut it down, for good!

  • Report this Comment On April 08, 2011, at 6:28 PM, ynotc wrote:

    I remember when the shutdown occurred in the 90's and your right it didn't save any money.

    These guys should quit posturing and put some proposals out thier and get one another on record.

    Let the people decide at the polls who's proposals should be rewarded and who's should be punished.

  • Report this Comment On April 08, 2011, at 6:30 PM, DJDynamicNC wrote:

    It looks like rfaramir is extremely optimistic about the results of reduced government. I encourage him to enjoy the "happier, richer, freer" lifestyle that government expenditures at 2% of GDP can bring. Somalia, for example, has an outstanding environment for entrepreneurs. Why, all you need is a gun and a boat and you can make a good buck out there, all with no government interference at all!

    Yes, it's a jolly life, I'm sure.

    Meanwhile, he can leave America to those of us willing to pay for it. Taxes are the price we pay for civlization, and it's a price I'm happy to bear.

    Back on topic - as for the shutdown, I think it's instructive to remember that at the beginning of this, the Republicans demanded 30 billion dollars in cuts. The current budget plan calls for 38 billion dollars in cuts - and now the Republicans still refuse to vote for it.

    That's not negotiating. That's hostage taking. As far as I'm concerned, they've blown whatever modicum of credibility they once had. Tanking the government because of funding for Planned Parenthood is just obscene.

  • Report this Comment On April 08, 2011, at 8:54 PM, mikeyadsfadf wrote:

    When I, or anyone else I know falls behind with their work for whatever reason, they are expected to eventually catch up without being paid overtime. apparently government workers have never had a boss who says "well, you'll just have to work harder". Time for government bureaucrats to join the real world. Shut the government down for a while if you have to, don't give back pay or overtime, and you will SAVE money. Also, Planned Parenthood isnt the only waste that should be cut. Once they cut a trillion a year, then we'll be in better shape.

  • Report this Comment On April 08, 2011, at 9:29 PM, Bert31 wrote:

    Wasn't this supposed to be done already? Can anyone explain why the government is about to shut down? Is it becaue Congress was too scared to vote on one before last NOvember's elections? Is it becaues the President will not sign a budget to keep the government operating? Sounds like his government union supporters will get a few days off from work, and then collect back pay when they have to go back. This is why people fight about taxes. Waste.

  • Report this Comment On April 08, 2011, at 9:45 PM, BruceHBi wrote:

    I don't know why we end up talking about Republicans and Democrats on an issue that seems to need more more math and less political science. Our political parties seem to be of a mind that it is he who bleeds out last, wins. Meanwhile, we all hemorrhage money.

  • Report this Comment On April 08, 2011, at 11:14 PM, xetn wrote:

    The problem is none of the politicians know anything about economics, only theft and ever more spending. But, if you are a socialist, you love it.

  • Report this Comment On April 08, 2011, at 11:18 PM, cmfhousel wrote:

    Well folks, looks like a shutdown as averted after all!

  • Report this Comment On April 08, 2011, at 11:41 PM, NoVaAmPro wrote:

    Glad to see we have a budget deal... would have been horrendous to see a shutdown with everything we've got going on (economic recovery still unfolding, assistance to Japan, North Africa, and of course operations in AfPak and Iraq), not to mention all the "non-essential" functions that people so cavalierly dismiss: national parks, research at NIH, gift shop income, tax refunds, the list goes on and on.

    DJDynamicNC - thank you for your comment - this is the point I try to make with people who think we'd be fine with anarchy (must be where ultra-lefties and ultra-righties meet).

    What are taxes, after all, but a kind of insurance, except that insurance only pays out when something catastrophic happens, while taxes are guaranteed to pay out in the form of defense, law enforcement, schools, health care, infrastructure... Would I like a bigger paycheck? Yes, of course. Am I willing to sacrifice a portion of my paycheck to secure the blessings of liberty to myself and my posterity? Absolutely.

  • Report this Comment On April 08, 2011, at 11:48 PM, depsee wrote:

    This shut down would be a fantastic thing, if it were permanent. Unfortunate its all political B.S. and the no loads will be back at it in due time.

  • Report this Comment On April 09, 2011, at 2:04 AM, Kiffit wrote:

    Paralyzing the state works in favor of those with the most radical and militant agenda. For them, the cost doesn't matter. The damage can be sheeted home to 'the enemy' in a tirade of obfuscation and ideological bluster.

    When you have nothing to lose, it is the guy who does who has to worry. The Tea Party thrives on controversy and 'debate' because noise sounds like acivespeak and stopping everything is 'doing' something.

  • Report this Comment On April 09, 2011, at 5:10 AM, Computergeeksta wrote:

    Its time we should outsource our Government. I think China would be a good place. That would save us lots of money and who knows, we might turn our deficit into a surplus. Otherwise our standard of living will continue to decline while China continues to grow...

  • Report this Comment On April 09, 2011, at 11:38 PM, rfaramir wrote:

    "Am I willing to sacrifice a portion of my paycheck to secure the blessings of liberty to myself and my posterity? Absolutely."

    You are absolutely welcome to give/sacrifice a portion of your paycheck to secure whatever you want for yourself and your posterity.

    You are NOT welcome to my paycheck. Period.

    Liberty means the freedom to do with our own what we want. It necessarily includes not interfering with others' liberty to do the same (or else ours is not real or at least not complete).

    Taxes are not insurance. The only compulsion to buy insurance comes from coercion from the state, at which point it is no longer insurance. Insurance is paying ahead of time into a pool (managed at a profit) to be paid back later if certain specified events happen to you, which you have no control over. If you control the event, it is not insurance. Insurance is voluntary. Taxes are not. That's why every tax is a threat to Liberty.

  • Report this Comment On April 10, 2011, at 8:27 PM, jrlippert138 wrote:

    I love hearing everyones comments on both sides blaming the politicans, Republicans, Democrats, and Tea Party. Who is really to blame?? . . .

    We are, the people who don't send a message to them by voting their buts out when they don't live up to promises, or forget to function as if they actually serve the best interest of the people, not Billy Joe's sister's husband who has a service and will provide a kick back for funding if they get legislation passed to aid their business.

    Legislation, theres another point, they need to make a bill and vote on that bill, and only allow changes atune to the purpose of the bill not an extra 1000 pages or so of bs fluff just to get votes on it. If they want something done, write single purpose bills. Ok im off my band wagon now, feel much better.

  • Report this Comment On April 11, 2011, at 1:04 PM, TopAustrianFool wrote:

    DJDynamicNC seems to think that if it wasn't for govt we be killing each other like Somali pirates. Wow... And makes a comment on how taxes and govt are the source of civilization. Gov't serves a purpose in arbitration and a few other things but civilization is brought to you by the Free Market not by govt. Of course govt has a part to play in the Free Market but that doesn't mean that govt can not get out of hand and start eroding the Free Market with intervention.

    A shut down doesn't cost more money, the liberties that govt abuses after it comes back on-line after the shut down is what costs more.

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