Last night at 12:01 a.m., the federal government shut down due to a partisan impasse. This means that thousands of government employees will be furloughed and many government services will be unavailable until a funding bill is passed. If that wasn’t bad enough, a few days earlier, up to 150,000 federal employees submitted their resignations as part of a large-scale reduction in force program. What will this mean for the federal government?
The federal government shut down last night because it failed to pass an appropriation bill that would fund the government. While the Senate is controlled by the Republicans, the bill requires 60 votes, which means seven Democratic senators must vote along with the Republicans. Only three Democratic senators support the Republican bill. Democrats are demanding an enhancement and extension of health care subsidies under the Affordable Care Act. Otherwise, Americans receiving subsidies could see their health insurance premiums rise substantially.
How long the shutdown will last is uncertain. Shutdowns have been threatened but most were resolved at the last minute. Since 1976, the government has shut down 20 times. Most of the time, it only lasted a few days. The last government shutdown happened in 2018-2019 and lasted a record 35 days.
Also, around this time, between 100,000 to 150,000 federal employees have resigned under the Deferred Resignation Program. Soon after the results of the 2024 election, President Trump teamed up with Elon Musk to establish the Department of Government Efficiency (DOGE). Musk’s goal with DOGE was to identify and cut unnecessary government staff, similar to how he cut the number of Twitter’s staff soon after he acquired that company.
Federal employees who signed on to the Deferred Resignation Program would continue to receive pay and benefits until the end of September. Otherwise, they could be subject to layoffs in the future.
People with jobs that are considered essential will continue to work, although in some cases will not be paid until a spending bill is passed, at which point back pay will be disbursed. Essential positions generally involve the military, aviation, and courts, to name a few. This means that ICE agents will still be around to conduct immigration raids and antagonize protestors even though they will not be paid during the shutdown. Hopefully they got their $50,000 sign-up bonuses up front.
One interesting note is that the Office of Personnel Management has clarified that agencies can let employees working on “reduction-in-force” (RIF) activities continue doing their jobs, with no lapses, throughout a government shutdown. RIF activities are basically plans for large-scale layoffs — something that was planned when DOGE was initially set up. Courts have invalidated some of the mass terminations. Also, Musk and Trump apparently had a falling out which led to Musk leaving DOGE and later disparaging Trump on Twitter/X, including an accusation that he is in the Epstein files.
Some agencies may have contingency plans in case of a shutdown. For example, at the IRS, funding has been reserved to pay for an additional five business days. What happens after is uncertain. But in 2023 when a government shutdown was likely, the IRS plan was to furlough two-thirds of its staff.
The short term effects of the shutdown and resignations are likely to be profound. A shutdown can mean temporarily stopping unnecessary government services. According to Rep. Ami Bera, during the 2018-2019 partial shutdown, the Food and Drug Administration suspended routine inspections, increasing public health risks. The National Park Service stopped trash collection and road repairs, creating unsanitary conditions and unsafe roads, while some national parks and museums closed entirely.
Resignations could increase the unemployment rate. It could also result in a brain drain as some of them could get a job in the private sector. Unfortunately, some may turn to working for rogue countries.
Sadly, in the future, shutdowns may be more frequent due to stubborn politicians, and escalation in rhetoric. Perhaps a bipartisan task force should be established to discuss procedures that would encourage negotiations and penalize shutdowns. This can include withholding pay for legislators with no reimbursement, eliminating fringe benefits, stiff campaign finance limitations, or possibly even denial of security personnel.
Chances are the shutdown will not last long based on history. But the resignations will stick unless a court invalidates the Deferred Resignation Program or the president rescinds it. But the large drop in federal employees from various sectors will have a negative effect on the federal government’s operations in the short term. Whether the government will act more efficiently in the long run is anyone’s guess.
Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at stevenchungatl@gmail.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.
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