When Congress fails to pass appropriations bills and the federal government shuts down, the political theater dominates headlines. But behind the partisan standoff lies a critical economic question that affects every American taxpayer: Does the government actually save money during a shutdown, or does it end up costing us more?
The answer might surprise you. While shutdowns may appear to reduce government spending by sending workers home, the reality is far more complex—and expensive. According to comprehensive analyses from the Congressional Budget Office and leading financial institutions, government shutdowns don’t save taxpayers money. Instead, they create a fiscal paradox where the government pays more to accomplish less.
The Expensive Reality of “Saving Money”
What the Numbers Actually Tell Us
The most thoroughly studied government shutdown in American history—the 35-day partial shutdown from December 2018 to January 2019—provides sobering evidence about the true costs of these political impasses. The Congressional Budget Office conducted a detailed analysis revealing that this shutdown cost the U.S. economy $11 billion across two quarters, with $3 billion in economic output permanently lost and never recovered.
To put this in perspective, the shutdown delayed approximately $18 billion in federal discretionary spending for compensation and purchases of goods and services. Real gross domestic product dropped by $3 billion in the fourth quarter of 2018 and $8 billion in the first quarter of 2019. This represents a 0.2 percent reduction in GDP—a significant economic contraction caused entirely by political dysfunction.
Goldman Sachs research confirms these findings, estimating that a government-wide shutdown directly reduces economic growth by approximately 0.15 percentage points for each week it lasts, or about 0.2 percentage points per week when private sector ripple effects are included. This means even short shutdowns carry substantial economic consequences that extend far beyond federal workers’ paychecks.
The Back Pay Paradox: Paying Twice for Work Not Done
One of the most counterintuitive aspects of government shutdowns is the back pay guarantee. Federal law requires that furloughed government employees receive full compensation for the time they were sent home—even though they performed no work during that period. This creates an absurd financial situation where taxpayers pay federal workers their full salaries while receiving zero government services in return.
The Joint Economic Committee found that the last three government shutdowns led to 56,940 years’ worth of lost productivity from furloughed federal workers. These lost work hours deprived Americans of essential public services while simultaneously costing the government at least $338 million in additional administrative processing costs and late fees just to manage the shutdown logistics.
Think about this: during a shutdown, the government continues accruing salary obligations that must be paid retroactively, but the public receives no benefit from that expenditure. It’s essentially paying workers to stay home, then restarting operations from scratch when funding resumes—a spectacularly inefficient use of taxpayer dollars.
Where the Money Actually Goes (and Doesn’t)
Mandatory vs. Discretionary Spending
Understanding what shuts down—and what doesn’t—is crucial to grasping the limited potential for actual savings. Only discretionary spending is affected by appropriations lapses, which represents roughly one quarter of total federal outlays. Mandatory spending programs like Social Security, Medicare, and Medicaid continue running automatically according to rules Congress has previously established, regardless of shutdown status.
This means approximately 75 percent of federal spending continues uninterrupted during a shutdown. The departments and programs that do shut down are typically those providing day-to-day services—the very functions that citizens interact with most directly.
Furthermore, approximately 65 percent of federal employees continue working during shutdowns because their services are deemed essential to national security, public safety, or other critical functions. These “essential” employees work without pay during the shutdown but are guaranteed back pay once funding resumes, creating yet another layer of inefficiency in the system.
The Hidden Costs That Keep Accumulating
While furloughed workers sit idle and essential employees work without paychecks, the government continues incurring costs that make shutdowns extraordinarily expensive. These hidden expenses include:
Administrative Overhead: Agencies must spend significant time and resources planning for shutdowns, notifying employees, securing facilities, shutting down systems, and then reversing all these processes when funding resumes. A 2013 analysis found the administrative cost of stopping and restarting government programs from that shutdown totaled at least $2 billion in lost work-hours alone.
Delayed Revenue Collection: During shutdowns, certain revenue-generating activities cease. The IRS processes fewer tax returns, reducing cash flow to the Treasury. Federal permitting and licensing fees go uncollected. These delays in revenue collection compound the fiscal damage.
Interest and Late Fees: When the government can’t process payments on time due to shutdown-related delays, it incurs late fees and additional interest charges. These penalties accumulate quickly across the vast federal payment system.
Contract Complications: The federal government awards an average of $13 billion per week in contracts to businesses nationwide, with nearly $3 billion going to small businesses. During shutdowns, these contracts face funding barriers, requiring costly modifications, extensions, or cancellations that increase overall project costs.
The Ripple Effect: Private Sector Losses
Government shutdowns don’t just cost the federal government money—they inflict substantial damage on the private sector economy, ultimately reducing tax revenues and exacerbating fiscal challenges.
Small Business Disruptions
Small businesses face particularly severe impacts during government shutdowns. Moody’s Analytics estimated that the 2018-2019 shutdown delayed over $2 billion in loans to small businesses because the Small Business Administration couldn’t approve new lending. For businesses operating on thin margins or facing time-sensitive opportunities, these delays can prove catastrophic.
During the 2013 shutdown, mortgage applications dropped 7 percent in the second week alone as consumer confidence fell and federal mortgage processing systems went offline. Applying this pattern to today’s housing market would mean approximately 9,000 fewer mortgage applications each week—representing lost business for lenders, real estate professionals, and the entire housing industry ecosystem.
Trade and Export Stagnation
International trade grinds to a halt during shutdowns as federal agencies cannot process export licenses or certifications. The 2013 shutdown stalled the certification of over 2 million liters of American-made alcohol for export and blocked approximately $3 billion in approvals for loans, guarantees, and insurance supporting U.S. exports. American businesses lose international market opportunities to foreign competitors who can fulfill orders more reliably.
Data Blackouts Harm Economic Decision-Making
Perhaps one of the most underappreciated costs of shutdowns is the loss of federal economic data that businesses rely on for critical decisions. When agencies like the Bureau of Labor Statistics, Bureau of Economic Analysis, and Department of Agriculture stop releasing employment figures, GDP reports, trade data, and agricultural trends, private companies lose essential information for planning investments, hiring, and operations.
The Economic and Statistics Administration reported that federal government data helps private industry generate between $24 billion and $221 billion annually in economic value. During shutdowns, this information flow stops, forcing businesses to make decisions in the dark and potentially leading to costly mistakes or missed opportunities.
Consumer Confidence and Long-Term Economic Damage
Beyond the immediate fiscal impacts, government shutdowns erode consumer confidence and create economic uncertainty that persists long after normal operations resume. During the 2013 shutdown, consumer confidence indices fell sharply, threatening the economic recovery following the Great Recession. This confidence collapse affects spending patterns, investment decisions, and overall economic activity in ways that are difficult to quantify but nonetheless real.
The uncertainty surrounding shutdowns also impacts financial markets and America’s fiscal reputation. Fitch Ratings cited government dysfunction, including shutdown threats, as a factor in its 2023 decision to downgrade U.S. Treasury debt from AAA to AA+. While markets have historically shown resilience during actual shutdowns, the repeated pattern of near-misses and political brinkmanship gradually undermines confidence in U.S. fiscal management.
The Federal Workforce: Nationwide Economic Impact
A common misconception is that most federal workers live and work in the Washington D.C. area, limiting shutdown impacts to one region. In reality, over 80 percent of federal employees live and work outside the D.C. metropolitan area. This means shutdown-induced income disruptions affect local economies across every state.
When federal workers miss paychecks, they reduce spending in their communities. They delay major purchases, miss bill payments, and cut back on discretionary spending. This creates cascading effects through local businesses—restaurants, retailers, service providers—that depend on stable consumer spending. States identified as most vulnerable to shutdown impacts include New Mexico, Hawaii, Alaska, West Virginia, Mississippi, Alabama, and Arizona, where federal employment represents a significant portion of the workforce.
For individual workers, even the guarantee of eventual back pay doesn’t prevent real financial hardship. Workers must find ways to cover rent, mortgages, car payments, and groceries while waiting for paychecks that may not arrive for weeks. Many turn to credit cards, short-term loans, or emergency savings, incurring interest charges and depleting financial buffers meant for genuine emergencies.
The Permanent Economic Loss
While much of the economic activity lost during a shutdown eventually returns once the government reopens, not all of it does. The Congressional Budget Office’s analysis of the 2018-2019 shutdown concluded that approximately $3 billion in economic output—representing 0.02 percent of annual GDP—was permanently lost.
This permanent loss occurs because some economic activity cannot simply be deferred. A small business denied a timely loan may lose a time-sensitive opportunity to a competitor. A federal contractor may lose clients who cannot tolerate the uncertainty of government funding. An American exporter may lose international market share to foreign competitors who capitalized on U.S. trade processing delays.
These opportunity costs represent real economic damage that accumulates with each shutdown, slowly degrading America’s economic potential and competitiveness. While 0.02 percent may sound small, in a $30+ trillion economy, that’s billions in economic activity—and the associated tax revenue—that simply vanishes.
Current Perspectives: What Experts Say About Shutdown Economics
Recent analyses from major financial institutions reinforce the conclusion that shutdowns are economically counterproductive. J.P. Morgan’s Chief Economist Michael Feroli notes that each week of government shutdown subtracts about one-tenth of a percent from annualized GDP growth through reduced government activity alone, before accounting for sentiment and confidence effects that amplify the damage.
The White House Council of Economic Advisers, applying historical shutdown impact patterns to current GDP levels, estimates that a government shutdown would cost the economy approximately $15 billion per week. This estimate accounts for both direct federal spending reductions and the broader economic effects that ripple through private sector activity.
However, some economists argue that short shutdowns have minimal lasting economic impact. As one PBS analysis noted, economic costs are “normally minimal unless they last for several weeks.” The key factor is duration—brief shutdowns of a few days create relatively contained damage, while extended shutdowns of multiple weeks or months impose increasingly severe and lasting economic harm.
Why Shutdowns Keep Happening Despite the Costs
Given the overwhelming evidence that government shutdowns cost taxpayers money rather than saving it, why do they keep occurring? The answer lies in the nature of political incentives and budget negotiations.
Shutdowns typically result from disagreements over spending priorities, policy riders attached to funding bills, or broader ideological disputes about the size and role of government. Because the economic costs are diffuse—spread across the entire economy rather than concentrated in ways that create immediate political pressure—and because mandatory spending continues regardless, politicians sometimes calculate that the political benefits of holding firm in negotiations outweigh the economic costs.
Additionally, the lag time between shutdown costs and their full recognition means the political calculus often focuses on immediate positioning rather than long-term fiscal consequences. The permanent economic losses and degraded government efficiency don’t appear in headline numbers during the shutdown itself, making them easy to discount in the heat of political battle.
The Bottom Line: Shutdowns Cost Money, Period
The comprehensive evidence from the Congressional Budget Office, Joint Economic Committee, Goldman Sachs, J.P. Morgan, and other authoritative sources tells a consistent story: government shutdowns do not save taxpayers money. Instead, they create a fiscal lose-lose scenario where the government spends money without providing services, the economy suffers immediate and permanent damage, private businesses face disruptions, and American competitiveness erodes.
The 2018-2019 shutdown alone cost $11 billion in economic output, with $3 billion permanently lost. Administrative costs, processing fees, and lost productivity added at least $338 million more. These figures don’t even account for the broader economic damage—lost business opportunities, eroded consumer confidence, delayed investments, and reduced tax revenues that flow from economic contraction.
For policymakers and citizens concerned about fiscal responsibility, the math is clear: every government shutdown makes the budget situation worse, not better. The government pays federal employees their full salaries for time spent idle, incurs substantial administrative costs to shut down and restart operations, loses revenue from delayed collections, and damages the broader economy in ways that reduce future tax receipts.
If the goal is to save taxpayers money and promote fiscal responsibility, government shutdowns are precisely the wrong tool. They represent expensive political theater that enriches no one, solves no problems, and leaves the nation poorer for the experience. The only fiscally responsible approach is to keep the government funded and functioning while conducting necessary budget debates through normal legislative processes rather than manufactured crises.