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U.S. Government Shutdown Explained

October 10, 2013
by dthompson
0 Comment
We understand the recent debt ceiling debate has generated some anxiety among our clients. While we believe much of this discussion is political posturing and rhetoric, we understand your concerns. Here is a piece we think does a nice job of discussing what is happening and why. While it doesn’t give answers as to what will occur, it does inform and explain how we arrived at this point.Anytime you have uncertainty in the market, questions with regard to investment options arise. We think the best thing to do is to re-verify your risk tolerances, and revisit and recommit to your long term goals and plans. While the current disruption and volatility are unsettling, we believe you should remain calm and continue to invest based on those long term goals. If you determine that changes need to be made, we would welcome the opportunity to assist you with those needs.

U.S. Government Shutdown Explained

The shutdown is separate and distinct from another looming crisis–the debt ceiling. According to Treasury Secretary Jacob Lew, it’s anticipated the United States will run out of funds as soon as October 17, and will default on its debts, unless Congress acts to raise the debt ceiling before then. Congress failed to agree on a spending bill for the fiscal year starting October 1, 2013, resulting in the first government shutdown since 1995. According to the Congressional Research Service, this is the 18th time the federal government has shut down as a result of a failure to agree on an annual appropriations bill. Most shutdowns have lasted only a few hours or a few days. The most recent shutdown, in 1995, lasted three weeks.

What happens when the federal government shuts down?

When the government shuts down, federal agencies must generally suspend operations and furlough their employees. However, there are significant exceptions for government functions that promote national security, or protect human life and property. As a result, a shutdown doesn’t impact certain essential functions like the military, law enforcement, TSA, air traffic control, border patrol, emergency and disaster assistance, food safety, foreign embassies, prisons, and federal medical care (among others).
A shutdown also doesn’t impact federal entitlement programs (like Social Security and Medicare) that aren’t funded by discretionary annual appropriations. Funding for these programs is considered mandatory, because the legislation creating the benefit obligates the government to make payment. So benefits under these programs continue uninterrupted, and the employees who administer those benefits are generally exempt from furlough.
Finally, some agencies are funded by multiple year appropriations. Even though these agencies don’t yet have any funds appropriated for the new fiscal year, they may still have funds remaining from prior appropriations, which they can use to continue operations until those funds run out.

So what does a government shutdown mean to you?

What you can do during the shutdown:

  • Receive and send mail–the post office is an independent agency unaffected by the budget process
  • Buy insurance through one of the new health insurance Exchanges
  • Receive your Social Security and Medicare benefits, or apply for new benefits
  • Get a passport or visa–but only until the State Department’s available funding runs out (during the 1995 shutdown, 200,000 U.S. applications for passports went unprocessed)
  • Conduct business with the United States Patent and Trademark Office–but only until the USPTO’s available funding runs out
  • Receive unemployment benefits and food stamps
  • Get an FHA or VA mortgage
  • Receive medical care at a veterans hospital
  • Use the federal court system–but only for about 10 days

What you can’t do during the shutdown:

  • Stop paying taxes–the IRS will continue to process electronically submitted tax returns, but if you’re being audited, you’ll get a temporary reprieve
  • Get taxpayer assistance from the IRS
  • Get a small business loan
  • Go to a national park, zoo, or museum–if you’re already overnighting in a national park, you generally have two days to leave
  • Get a paycheck, if you’re a federal employee–unless you’re the president, a member of Congress, or in the military; however, in the past workers were paid retroactively after a new appropriations bill was passed

If you need more information, most government agencies have posted their shutdown contingency plans on their websites.

And there’s more to come…

The shutdown is separate and distinct from another looming crisis–the debt ceiling. According to Treasury Secretary Jacob Lew, it’s anticipated that the United States will run out of funds as soon as October 17, and will default on its debts, unless Congress acts to raise the debt ceiling before then. More on that crisis to follow…

The U.S. Debt Ceiling: What It Is And Why It Matters To You

The U.S. Debt Ceiling: What It Is And Why It Matters To You
“Confidentiality Statement:” The information contained in this transmission is confidential information that is legally privileged. This information is intended only for the use of the individuals or entities listed above. If you are not the intended recipient, you are hereby notified that any disclosure, copying, distribution, or action taken in reliance on the contents of these documents is strictly prohibited. If you have received this information in error, please notify the sender immediately and arrange for the return or destruction of these documents. Circular 230 Disclosure: Please note that Treasury regulations effective June 20, 2005 impose extensive requirements for a formal tax opinion. Since this communication (including any attachments) is not such a formal tax opinion, we are required to advise you that it was not intended or written to be used, and it cannot be used (i) for the purpose of avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. If you would like further information, please contact us.This communication is strictly intended for individuals residing in the state(s) of OK. No offers may be made or accepted from any resident outside the specific states referenced.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2013.
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