The Clinton Herald, Clinton, Iowa

October 30, 2013

Government is open again, but deadlines loom

By David Heslcher

---- — The recent events in Washington bring to mind the movie “Groundhog Day,” starring Bill Murray, of a weatherman caught in a repeating a daily cycle of recurring events.

It also brings to mind the saying of doing the same thing over and over again and expecting different results is the definition of insanity. In the past two years, the U.S. has gone through two possibilities of debt default, a threat of and an actual government shutdown, a credit downgrade and the possibility of another and continuing failure to fund government operations other than by short-term continuing resolutions.

The resolution of the most recent debate was to postpone the same debate for several months. The resolution of the October shutdown includes several deadlines for Congress to act. Members from each house of Congress will meet in a conference committee to work out a possible compromise. This committee has until Dec. 13 to work out their differences and produce a report to be voted on by both the House and Senate. This report will only go to each chamber if a majority of committee members votes to approve the report. Otherwise, a continuing resolution was approved to fund government operations until Jan. 15. Unless a budget from the compromise committee or another continuing resolution is passed, the government shuts down again. The debt ceiling was also suspended until Feb. 7. Unless the ceiling is raised by that date, the threat of default looms again. Because of the timing, the Feb. 7 date may not be a hard date for default. At that time, we will be completing, filing and paying income taxes and making deposits of estimated tax payments. This may extend the date when a default would actually occur.

The October shutdown and political disarray has other consequences and possible effects on the economy. The Federal Reserve has taken the position, for many months, that any tapering of their monthly $85 billion bond buying program would be dependent on economic data. With the shutdown, the government agencies were not compiling or publishing some of this data. The delay in creating this data will likely push out the beginning of tapering. In addition, because of the short-term arrangements for a budget and debt ceiling, growth in the labor market could be inhibited, businesses may become less likely to hire, expand or invest in new plant or equipment. Consumers may put off purchases of new homes or large ticket items. These could slow the already anemic pace of economic growth in the U.S. Some analysts have already opined that due to the shutdown, Fed tapering may not start until well into next year.

The economy is also entering the most important season for retailers and consumer spending, the holidays. Uncertainty by consumers may inhibit purchases or cause shoppers to reign in holiday purchases. Retailers will not need to add seasonal staff. If goods are not sold, they do not need to be restocked nor produced, so manufacturers and producers can scale back or not expand production or payroll. Consumer confidence measures have taken a hit during the impasse this past month. Time will tell if this uncertainty carries forward.

Recent releases from the IRS indicate that computer upgrades for the upcoming tax filing season were to occur in October. Due to the shutdown, these upgrades were delayed and may result in the IRS delaying the acceptance of electronic filings by two weeks. Many early filers are due a refund which they, in turn spend. Much like last year, with refunds delayed, spending is delayed. The ripples work their way through the rest of the economy. While the economy feels the ripples of the shutdown the rest of us can shudder at the thought of another round of fiscal policy debates.