Who Wins and Who Loses If the Government Shuts Down

Unless Republicans in Congress and President Obama can agree on budget legislation to keep the federal government running, a shutdown at midnight Friday looms. But given the relatively tiny sum separating the Republicans and Democrats, the whole shebang is a silly sideshow to the real issue – getting America's millions of unemployed back to work.

Ostensibly, the two sides are now just $7 billion apart -- a mere 0.5% of 2011's $1.5 trillion budget deficit. The New York Times reports that the Democratic side had comprised, agreeing to a $33 billion budget cut, while the Republicans surprised their opponents Tuesday with a demand for $40 billion in cuts.

The good news is that a government shutdown is not a sure thing. The New York Times reported that Thursday the Republican House would vote on a measure to keep the government going for another week and fund the Pentagon through the end of September while cutting the budget by $12 billion. However, Democratic lawmakers consider that a measure a non-starter.

So if all this budgetary brinkmanship and political theater does lead to a shutdown, what will happen next? Results from a recent poll and the details of a review of the government's shutdown plan suggest that a shutdown will produce a few clear winners, some who break even, and a lot more losers.

The Winners

  • The Koch Brothers, billionaire owners of the privately-held chemical conglomerate Koch Industries: Through their Americans for Prosperity Foundation, they provided at least $45 million to finance the Tea Party, according to The New Yorker, and they must be thrilled with the power of their money to morph Washington into a machine that can't say no to their agenda. However, given the growing unpopularity of the Tea Party, this may be the Kochs' last hurrah. (As former eBay (EBAY) CEO Meg Whitman learned after spending $142 million of her own money to lose the California governor's race, a willingness to spend vast quantities of your own money is not a guarantee of electoral success.)

  • People getting audited by the IRS: They will enjoy a delay in that painful scrutiny, because the IRS will suspend auditing people's returns.

The Break-Evens

Some things will keep going if the government is shut down. Among those are the following, according to the New York Times:

  • The Post Office

  • Social Security and Medicare beneficiaries

  • Air traffic controllers

  • Lawmakers

  • The Federal Reserve (it doesn't get its funding from Congress)

The Losers

There will be plenty of losers if the government shuts down, among them:

  • The Troops: Members of the military will continue to defend our country and fight its battles, and the government will incur an obligation to pay them -- but they won't get their checks until after a budget is signed;

  • Civilian federal workers: Between 800,000 and 1.9 million government employees will be furloughed;

  • American investors: It will be open season for anyone wanting to defy the Securities and Exchange Commission, because it will be mostly shut down;

  • Tourists: If you are on vacation and want to visit a national park or museum, you won't be able to get through the locked gates; and

  • Old-fashioned tax filers waiting for refunds: If you file a paper return and are expecting a refund -- sorry, you'll have to wait. For electronic filers; however, payments will still be forthcoming.

  • Consumer-oriented businesses: Companies large and small that rely on average consumers to buy their products and services will see sales slow down as millions of government workers stop drawing salaries and start tightening their belts to ride out the shutdown.

Some of the politicians in Washington may not seem to care much about the repercussions of a shutdown. But they do care about themselves -- and more specifically, how all this will affect their chances of being reelected. In that vein, a new Wall Street Journal/NBC News poll has some interesting results. It suggests that Republicans -- particularly those in the so-called Tea Party wing of the party -- are taking a hit in popularity thanks to the budget battles.

  • 44% of the 1,000 Americans polled had a negative attitude towards the Tea Party, and since January, the percent with very negative feelings about it had jumped from 24% to 30%;

  • The Tea Party has lost ground among its base. The percentage of those saying they support it has fallen from 30% last November to 25% now; and

  • A record 67% of those polled said they don't support the Tea Party.

Why do we have government anyway? It does a good job of running the military, and it has managed to keep payment systems going -- although not as smoothly as I would like. It is also a fairly good protector of consumers from the risks of businesses that might otherwise deliver dangerous products in pursuit of profit. Whether government programs are the best way to pay for health care or retirement expenses isn't clear to me.

But one thing isn't unclear at all: If a government shutdown occurs, it will be a political stunt focused on affecting the 2012 election results. The numbers being battled over will have virtually no impact on reducing America's budget deficit. And if a shutdown lasts for any length of time, it could hurt prospects for solving the biggest problem we face -- getting 13.5 million unemployed Americans back to work.

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