The partial government shutdown will inconvenience millions of Americans -- national parks and monuments will close, hotels and restaurants that depend on tourism will lose business, and tens of thousands of federal workers will be furloughed while payments to some contractors may be stopped or delayed.
But the impact of the government shutdown will be fairly limited and manageable compared to what would happen if Congress and President Barack Obama cannot agree on how to raise the government’s borrowing limit before it is finally reached in about three weeks.
For now, most Americans who rely on federal benefit payments will be unaffected.
Fifty-seven percent of all federal spending is mandatory spending on programs such as Social Security, Medicare, and benefits for retired federal employees.
Funding for mandatory programs doesn’t depend on Congress passing a specific spending bill to keep the flow of money going to, for example, older and disabled people who get Social Security benefits.
Such payments “would be untouched by the current budget battle we’re having,” said John Hudak, an expert on federal spending and a fellow in Governance Studies at the Brookings Institution, a Washington, D.C. think tank.
The numbers of Americans receiving such benefit payments is huge: nearly 57 million Americans get Social Security payments and nearly 51 million are covered by Medicare, which pays for their hospital stays, visits to the doctor’s office, and prescription drugs.
By contrast, about 9.7 million people visited one of the most popular national parks, Great Smoky Mountains National Park, last year, while another 6 million visited the Lincoln Memorial in Washington, a site administered by the National Park Service. (And of course not all those park visitors were Americans.)
A partial federal shutdown could be a learning moment for Americans about just how large a share of federal spending that mandatory spending is.
“For people who are still receiving benefits when other people are staying home from work, you learn from what you maintain in the face of a shutdown,” Hudak said. “People are going to really appreciate first, how much mandatory spending exists, and then, how big a part of government that (mandatory spending) is, when enormous sections of the federal government remain operating while substantial sections are shut down.”
He added, “The people who go without (federal employee pay or federal services) learn quite a bit about the size of government and the dependence on government and the people who continue to receive (federal benefits) will learn quite a bit about just how big mandatory spending is.”
One group in particular who’ll be able to see in a vivid way how important mandatory spending is, Hudak said, will be retirees on Social Security and Medicare whose adult children happen to work for the federal government.
The retirees will continue to get their benefits while their children will be temporarily idled and not paid, at least until Congress and the president come to terms.
The Social Security Administration announced last week that if there is a shutdown, 94 percent of its 44,000 front-line operations workers who handle benefits questions will remain on the job. Because the Social Security benefits are mandatory, the law requires enough federal workers to be kept on the job to ensure that the flow of benefits isn’t interrupted.
As Federal Reserve chairman Ben Bernanke among others has noted, the debt limit is a bigger threat than the shutdown because it would mean that the government would be unable to borrow and would be forced to rely on its cash on hand and whatever money came in each day in the form of tax receipts.
As a result, it wouldn’t be able to send out benefit payments on their normal schedule.
The Bipartisan Policy Center has explained that if the debt limit were reached, and the federal government chose to pay one set of beneficiaries and creditors (including those receiving Medicare and Social Security), then it would need to force others, such as federal workers expecting to get paid and people due to get tax refunds, to wait for their money.
After the debt limit is reached and borrowing comes to a halt, “on a day-to-day basis, handling all payments for important and popular programs (e.g., Social Security, Medicare, Medicaid, Defense, and military active duty pay) will quickly become impossible,” the Center said in its Sept. 10 report.
The Center pointed to a Treasury Department Inspector General’s report from last month which noted that the Treasury makes more than 80 million payments every month.
The IG’s report said, “Treasury officials determined that there is no fair or sensible way to pick and choose among the many bills that come due every day. Furthermore, because Congress has never provided guidance to the contrary, Treasury’s systems are designed to make each payment in the order it comes due.”
And with not enough money to promptly repay investors holding Treasury securities, the government would default on some of its debt.
The Standard & Poor’s ratings agency said Monday that failure to pass an increase in the debt limit would cause S&P to lower the federal government’s sovereign rating to "selective default" meaning the government had failed to meet its obligation to repay creditors. This could wreak havoc in financial markets since some financing deals don’t allow defaulted securities to be used as collateral for loans.
This story was originally published on Tue Oct 1, 2013 10:04 AM EDT