Political deadlock in Washington is not only disrupting governance but also inflicting measurable harm on the U.S. economy. According to a recent report by the Congressional Budget Office (CBO), commissioned at the request of House Budget Committee Chair Jodey Arrington (R-TX), the current lapse in federal funding could result in an irreversible reduction of $7 billion to $14 billion in real GDP. The economic toll increases with each passing week, compounding the long-term consequences of the impasse. Additionally, taxpayers are already facing a $4 billion liability for back pay to federal employees affected by furloughs, with costs rising by approximately $4 billion every two weeks the shutdown persists.
The root of the crisis lies in the Anti-Deficiency Act, which bars agencies from spending funds未经 congressional appropriation. With lawmakers failing to enact the annual appropriations bills before the start of Fiscal Year 2026 on October 1, a partial government closure took effect. On September 19, the House approved a temporary continuing resolution (H.R. 5371) to extend operations through November 21, 2025, allowing time for negotiations. However, Senate Democrats blocked the measure, insisting on $410 billion in additional spending to renew pandemic-era premium tax credits and $539 billion more by reversing cost-control provisions from the One Big Beautiful Bill Act. Their proposed changes would eliminate work requirements for certain Medicaid recipients, revive a fiscal maneuver enabling states to shift Medicaid expenses to the federal government, allow dual-state benefit claims, and extend coverage to undocumented immigrants.
As a result, non-essential federal operations have halted. Employees deemed critical—such as those in law enforcement, military, and aviation safety—remain on duty without immediate compensation until funding resumes. Others have been placed on furlough. Under the 2019 Government Employee Fair Treatment Act, all federal workers will eventually receive retroactive wages once the shutdown ends, regardless of whether services were delivered during the closure.
The CBO’s analysis, titled “Analysis of the Effects of the Government Shutdown on the Economy Under Three Scenarios,” outlines the potential macroeconomic impact. With the shutdown now lasting about a month, fourth-quarter 2025 GDP growth is expected to decline by approximately 1.0 percentage point. If the closure extends to six weeks, the contraction would reach 1.5 points; at eight weeks, it would widen to 2.0 points. Once funding is restored, a temporary rebound is projected, with first-quarter 2026 growth increasing by 1.4, 2.2, and 3.1 points respectively across the scenarios, driven by delayed payments and resumption of economic activity.
While much of the lost output may be recouped, the CBO estimates that between $7 billion and $14 billion (in 2025 dollars) in economic value will be permanently erased. This loss stems from disruptions in private-sector operations and productivity declines that cannot be reversed. Furthermore, retroactive compensation for roughly 650,000 furloughed workers per week is projected to cost $4 billion so far. If the shutdown continues for another four weeks, this expense could climb to $12 billion. Although such payments are justified given employees’ lack of control over the political standoff, they represent a fiscal burden for services not rendered due to legislative inaction.
To mitigate further damage, policymakers should prioritize ending the shutdown, restoring government functions, and subsequently addressing long-term fiscal sustainability.
— news from National Taxpayers Union
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The Shutdown Stalemate Threatens Billions in Economic Losses
Introduction n nGridlock in Washington isn’t just frustrating, it’s expensive. A new analysis from the Congressional Budget Office (CBO), drafted in response to a request from House Budget Committee Chairman Jodey Arrington (R-TX), projects that the ongoing government shutdown will drag down economic growth, resulting in a permanent loss of $7 billion to $14 billion in real GDP. Worse, the longer it continues, the greater the damage will be. In addition, taxpayers are already on the hook for roughly $4 billion in retroactive pay for furloughed federal workers, a cost that will rise by roughly $4 billion for every two weeks the shutdown endures. n nBehind the Government Shutdown n nThe Anti-Deficiency Act prohibits federal agencies from spending money that has not been appropriated by Congress. Lawmakers failed to pass the annual appropriations bills before Fiscal Year 2026 began on October 1. On September 19, the House of Representatives passed a short term continuing resolution (H.R. 5371) that would have kept the government open through November 21, 2025, to allow more time to negotiate a full FY 2026 funding deal. n nThat measure was blocked in the Senate by Democrats demanding $410 billion in higher spending to extend the enhanced premium tax credits that were temporarily enacted during the pandemic. They also are seeking an additional $539 billion in higher spending from repealing cost-saving reforms that were implemented as part of the One Big Beautiful Bill Act. Their efforts would roll back work requirements for able-bodied adults on Medicaid, reopen an accounting gimmick that allows states to shift more Medicaid costs to federal taxpayers, permit Medicaid enrollees to claim benefits in multiple states, and allow illegal immigrants to access Medicaid. n nThe resulting funding lapse shuttered much of the federal government. Some employees deemed “essential,” including those involved in law enforcement, military operations, and air traffic control, continue working without pay until Congress restores funding authority. Others are furloughed, though, under the Government Employee Fair Treatment Act of 2019, all federal workers must be retroactively paid once the lapse is resolved. n nCBO’s Findings n nCBO’s report, Analysis of the Effects of the Government Shutdown on the Economy Under Three Scenarios, outlines potential short- and medium-term consequences of the funding lapse. n nCBO projects that the ongoing government shutdown will slow short-term economic growth, with the magnitude depending on how long the funding lapse continues. With the shutdown now lasting about one month, real GDP growth for the fourth quarter of 2025 is projected to be reduced by roughly 1.0 percentage point. If the shutdown extends to six weeks, growth would fall by 1.5 percentage points; an eight-week lapse would reduce it by 2.0 percentage points. Once federal funding resumes, the economy is expected to experience a temporary rebound, with growth in the first quarter of 2026 rising by 1.4, 2.2, and 3.1 percentage points in the respective scenarios as delayed spending and compensation flow back into the economy. n nAlthough much of the lost output will be recovered once the shutdown ends, CBO estimates that between $7 billion and $14 billion (in 2025 dollars) in real GDP will be permanently lost—a figure that will grow the longer the government remains closed. The report explains that this unrecovered output stems from forgone private-sector activity and reduced productivity that cannot be regained once normal operations resume. n nThere will also be significant costs associated with providing retroactive pay to federal employees furloughed during the shutdown. Using agency contingency plans and data from the Office of Personnel Management, CBO estimates that, on average, roughly 650,000 employees will be furloughed each week, at a cost of about $4 billion to date. If the shutdown continues for another four weeks, that figure could rise to roughly $12 billion. While this compensation is appropriate given that these workers are essentially victims of the political stalemate, it still represents an expense for work that was never performed due to Congress’s failure to pass a budget. n nConclusion n nRather than caving to demands for trillions in new spending, Congress should end the shutdown, restore normal government operations, and then turn its focus to reining in deficit spending.