US federal government shutdown cost the economy $11 billion, CBO estimates

By Alexander Joe

Calculator and DollarsThe five-week US federal government shutdown cost the economy $11 billion, according to a new analysis from the nonpartisan Congressional Budget Office (CBO).

The CBO examined the effects of the US government shutdown that started on December 22, 2018, and ended on January 25, 2019.

The report estimated that gross domestic product (GDP) in the fourth quarter of 2018 was cut by $3 billion, or 0.1 percent, compared to what it would have been otherwise.

The CBO expects GDP in the first quarter of 2019 to be $8 billion, or 0.2 percent, less than it would have been had the shutdown not occurred.

“Among those who experienced the largest and most direct negative effects are federal workers who faced delayed compensation and private-sector entities that lost business,” the report said. “Some of those private-sector entities will never recoup that lost income.”

The CBO said that in subsequent quarters, GDP will be “temporarily higher than it would have been in the absence of a shutdown.”

Even though most of the real GDP lost during the fourth quarter of 2018 and the first quarter of 2019 will eventually be recovered, the CBO estimates that about $3 billion will not be.

The Internal Revenue Service (IRS) was one of many agencies that did not receive funding during the shutdown and had to reduce activities that ensure taxpayers’ compliance with tax law. The CBO estimates tax revenue will be about $2 billion lower in fiscal 2019, adding that “much of the lost revenue … will not be recouped.”

It should be noted that the CBO said the estimated effect of the government shutdown on the US economy is “subject to considerable uncertainty.”

Democratic Reps. John Yarmuth of Kentucky, chairman of the budget committee, said in a statement:

“I am hopeful that we have finally reached a turning point with these mindless shutdowns, but this CBO estimate serves as a stark warning to President Trump on the consequences of using American workers as a bargaining chip,”

National Economic Council Director Larry Kudlow was asked whether he agrees with the CBO’s estimate. He said “We frequently disagree with CBO, with all due respect. They’re doing the best job they can I get that. No — I won’t get into all that.”