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U.S. Government Shutdown Would Suspend IRS Audits, Close National Parks

The Internal Revenue Service would suspend tax audits, the Small Business Administration’s processing of loan applications would be halted and national parks would close if the federal government is forced into a partial shutdown because of the budget impasse in Congress, an administration official said.

Government programs that have an impact on the economy would be among the operations hit, including a suspension of loan guarantees by the Federal Housing Administration and Environmental Protection Agency reviews of construction projects, according to the official, who briefed reporters on condition of anonymity.

About 800,000 government workers out of 2 million total would be affected by a shutdown, the official said. Military, law enforcement, homeland security and other personnel deemed essential would remain on duty, though their paychecks would be delayed until the government reopens.

The Obama administration is preparing for the potential of a partial government shutdown that may come as soon as this weekend unless the White House and congressional Republicans can come to terms on a budget for the rest of the 2011 fiscal year. President Barack Obama met at the White House yesterday with lawmakers on the budget dispute and has called for daily negotiations to settle differences.

Economic Impact

Today in Fairless Hills, Pennsylvania, Obama said the stalemate threatens the U.S. economic recovery just as it is gaining momentum.

“Companies don’t like uncertainty, and if they start seeing that suddenly we may have a shutdown of our government, that could halt momentum right when we need to build it up,” he said. “I do not want to see Washington politics stand in the way of America’s progress.”

Joel Naroff, president of Naroff Economic Advisors in Holland, Pennsylvania, said the impact of any shutdown would be “relatively mild.”

“What we wind up with is the weaker growth this year probably will be in the second quarter, and stronger growth will be in the third quarter,” he said. “Ultimately it’s not going to be a huge impact, as long as it’s not particularly long.”

While the last government shutdown, which began in December 1995, did delay releases of economic data, it only reduced economic output by about $4.6 billion and growth by about three- tenths of a percent, said David Resler, chief economist at Nomura Securities International Inc. in New York.

“The bottom line is that it does not appear to have had a big effect,” he said.

Stocks Advance

The threat of a government shutdown didn’t impede an advance by U.S. stocks. The Standard & Poor’s 500 Index rose to 1,335.54, less than 0.6 percent below a 32-month high reached in February, and the Dow Jones Industrial Average climbed to an almost three-year high of 12,426.8.

Current spending authority for government operations is set to expire on April 8, and lawmakers remain at odds on approving a budget for the rest of the fiscal year, which ends Sept. 30. The government has been operating on a series of temporary spending measures, and Obama has said he is opposed to another extension unless a full agreement is reached by the deadline.

Still, a top Senate Democrat said he was more optimistic than earlier in the week that an accord could be reached.

“I feel better today than I did yesterday,” said Senator Dick Durbin of Illinois, the chamber’s second-ranking Democrat. “There’s a direct negotiation. There have been things put on the table that had not been discussed before, and I think that we’re moving toward closure.”

‘Some Progress’

House Speaker John Boehner, an Ohio Republican, said talks today resulted in “some progress.” He also cautioned that the negotiations weren’t finished “by a long shot.”

White House press secretary Jay Carney said the president has invited Boehner and Senate Majority Leader Harry Reid, a Nevada Democrat, to the White House tonight.

Obama had called the two men this morning to get an update on negotiations, and Carney said the president had a “good conversation” with each of them.

By late afternoon, the president “decided that not enough progress has been made” and invited Boehner and Reid to meet with him, Carney told reporters aboard Air Force One traveling with the president to New York.

Boehner told Democrats at the closed White House meeting yesterday that he wants to slice $40 billion from current spending, according to an administration official. That is $7 billion higher than the $33 billion plan lawmakers had been working to assemble.

Parks and Museums

In the event of a shutdown, national parks and the Smithsonian Institution’s museums would close, this weekend’s Cherry Blossom parade in Washington would be canceled and the National Institutes of Health couldn’t admit new patients or start new clinical trials.

While the IRS would continue electronic tax-return processing, work on paper returns would be suspended. For the 2009 tax year, the last full year for which data are available, about 69 percent of individual income tax returns were filed electronically, according to the IRS.

Employees deemed non-essential would be barred from working in the event of a shutdown, a legal distinction that dates to 1981. Furloughed employees may not volunteer to do their government jobs and Congress would have to decide if they were to receive back pay when government operations resume.

The last government shutdown occurred amid a budget dispute between Democratic President Bill Clinton and the Republican- controlled House and Senate. That resulted in two instances, a five-day stretch in November 1995 and one of 21 days from mid- December 1995 into early January 1996.

To contact the reporter on this story: Nicholas Johnston in Washington at njohnston3@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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