Who loses in a government shutdown?

Bankrate.com

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, 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 Obama 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 1995 -- 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

Government contractors and vendors. Government spending accounts for roughly one-fifth of the U.S. gross domestic product, and much of that adds to the bottom lines of government contractors and vendors. A government shutdown likely would mean that payments to vendors and contractors would stop, Parker says.

International travelers. During the last government shutdown, the Department of State slowed the application process for new passports and visas, leading to long delays for those seeking to travel internationally.

Taxpayers expecting a refund. A government shutdown could delay the issuance of tax refund checks and the processing of tax returns, especially for those who sent in paper returns.

"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. But you still need to pay your taxes on time.

Recent retirees. If the last government shutdown is any indication, new applications for Social Security benefits would be significantly slowed, resulting in lengthy delays for new beneficiaries.

"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.

Government employees. Nearly all government workers would see their paychecks delayed by a government shutdown. Those deemed "essential," such as active military, corrections officers, firefighters and utilities, would continue working with reduced or delayed pay until things returned to normal. It is likely they'd be reimbursed their missing salary, Goldwein says. Nonessential workers would be furloughed, possibly without pay.

New Medicare and Medicaid patients. Applicants for Medicare and Medicaid benefits likely would face delays because there wouldn't be employees to process them.

Homebuyers and sellers. Those applying for loans from the Federal Housing Administration could face major delays in the processing of their loans in a shutdown, Parker says. Those delays would push back closings, hurting homebuyers and sellers. If the shutdown goes on long enough, it would "have a huge and devastating effect" on the credit system for homebuyers, Parker says.

Military veterans. If what happened in 1995 is any indication, applications for disability benefits and pensions could eventually be delayed or frozen entirely by a government shutdown.

Treasury buyers. Along with the coming fight over the federal debt ceiling, investors in federal debt may soon face some major disruptions. During the 1995 budget crisis, auctions of new Treasury issues were delayed, and the Treasury market overall was thrown into a state of turmoil as global investors worried about a U.S. government default on Treasury bonds.

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.

Investors. Many of the federal reports investors devour, such as the Department of Commerce's data on gross domestic product and housing starts, and the Labor Department's monthly report on the job market, are being delayed by a lengthy government shutdown. But more fundamental worries about political gridlock in the U.S. could spook global investors, says Goldwein.

"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. "What I do think is likely is the government shutdown will call into question whether politicians can raise the debt ceiling, and more fundamentally, whether they can deal with our long-term fiscal issues."

Bankruptcy filers. Those filing for bankruptcy may eventually face delays until a new budget is adopted. During the 1995 shutdown, bankruptcy courts temporarily closed their doors, and the same could happen this time.

Applicants for federal food stamps. If this year is anything like 1995, new applications for food stamps could be delayed by the shutdown, as workers in the U.S. Food and Nutrition Service are furloughed. That could lead to significant hardship for families in need of food assistance, Parker says.

Vacationers. National parks and museums all over the U.S. will likely be closed in a government shutdown, says Goldwein, throwing a monkey wrench in many Americans' vacation plans.

Likely to be unaffected

Current Social Security beneficiaries. It's likely the federal government will act to make sure Social Security checks continue to flow to beneficiaries.

"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.

Current Medicare and Medicaid beneficiaries. The government will likely continue making payments to providers for medical services through Medicare and Medicaid.

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.

Employees and customers of government entities not directly funded by the budget. If you're closing on a non-FHA mortgage, which would likely flow through Fannie Mae or Freddie Mac, or you just need to send a letter through the post office, don't worry. These government entities won't be affected by the shutdown. They'll continue to operate as normal.



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