Washington braces for a government shutdown

Proving that fiscal policy is deeply political, the US Congress has only a few days left to reach a budgeting agreement or face a government shutdown on Oct. 1. Congress’ inability to pass any major budgets for the forthcoming fiscal year reflects deep divisions within the Republican Party.

To understand the nature of US government shutdowns, some political and historical context is useful. Since the current fiscal process was laid out in the 1974 Congressional Budget Act, Congress is theoretically required to pass all appropriations bills (today, 12 bills) to fund many government agencies and activities. These budgets apply only to “discretionary” spending, which accounts for slightly more than a quarter of US federal government spending; funding for entitlement programs such as Social Security, Medicare and Medicaid is separate.

Since 1996, Congress has failed to pass all appropriations bills on time. Rather, Congress uses other procedures to keep the government running. The “continuing resolution,” known as CR, is one tool, allowing government agencies to continue operating — usually on the same budget as the previous year — until Congress can agree on new appropriations. Congress also often uses “omnibus” bills that roll multiple appropriations into one huge piece of legislation.

When Congress fails to agree on appropriations or a CR by Oct. 1, parts of the government close. A partial shutdown occurs when Congress has passed budgets for some agencies, such as the Department of Defense, but not for others; only the agencies that lack a budget close down. When Congress has not passed any appropriations or a CR, then the entire federal government technically shuts down.

A shutdown’s impact depends on multiple factors, including how much of the government shuts down and for how long

Kerry Boyd Anderson

Of course, even a full shutdown does not actually cease all government activity. Funds remain available for Social Security and other entitlement benefits, though a shutdown might cause processing delays. The US Treasury continues to make debt payments. Many government employees are designated as “essential” and continue working, while others are barred from working; either way, they do not receive pay until the shutdown ends.

A shutdown’s impact depends on multiple factors, including how much of the government shuts down and for how long. Since 1995, there have been five shutdowns, the shortest lasting a few hours and the longest 35 days. Very short shutdowns have little impact beyond temporarily complicating government planning. Longer ones threaten more serious economic and political consequences.

Several factors limit the economic impact. A government shutdown is not nearly as risky as a debt default; concerns were high earlier this year that the government might default, but Congress and the president struck a deal in May to raise the debt ceiling. Since discretionary spending determines only about a quarter of federal spending, shutdowns do not derail the majority of federal spending. As long as essential government employees continue working, the impact on the broader population is often muted. For many Americans, shutdowns result in relatively minor irritations, such as delays in processing passports and closures of national museums. The last shutdown — which was lengthy but partial — likely reduced gross domestic product for 2019 by 0.02 percent, according to a Congressional Budget Office estimate.

Hard-line Republicans are clearly responsible for the current crisis and believe that their supporters will applaud them for it

Kerry Boyd Anderson

The political impacts also depend on the extent and duration of a shutdown. Beyond federal employees, the impact on many Americans is limited. However, Congress’ inability to perform the basic role of approving a budget undermines faith in Congress and democracy. Shutdowns create many inefficiencies within government that can deteriorate the timeliness and quality of services provided to the American people far beyond the shutdown’s end. A long shutdown might drive government employees to refuse to work without pay; concerns about air traffic controllers refusing to work helped to end the last shutdown.

Shutdowns tend to carry political risks for Republicans and Democrats. However, hard-line Republicans are clearly responsible for the current crisis and believe that their supporters will applaud them for it.

Republicans hold a slim majority in the House, which allows only a few Republican members to prevent their party’s leaders from taking any steps that they oppose. This group of hard-line Republicans created tensions around raising the debt ceiling earlier this year, which eventually led to an agreement between President Joe Biden and congressional leaders to reduce spending levels in the appropriations bills. Many Republicans in the Senate, where Democrats hold a slim majority, supported that agreement, and the Senate has passed all 12 appropriations bills, with votes from both parties. More moderate Republicans in the House, including Speaker Kevin McCarthy, also supported the agreement, but a few hard-line Republicans are demanding deeper cuts than what was agreed in May, among other demands, and are blocking progress on appropriations or a CR.

The House is out of time to pass appropriations bills — which would still require passing in the Senate — and hard-line Republicans are refusing to vote for a CR. McCarthy could probably pass a CR with a mix of moderate Republican and Democratic votes, but the hard-liners have threatened to try to oust him from the leadership if he relies on bipartisanship. There is widespread speculation in Washington that McCarthy’s recent decision to launch an impeachment inquiry into Biden was an effort to gain support from the hard-liners on appropriations; if so, it appears to have failed.

Congress may yet avert a shutdown, but that looks unlikely. Even if a CR is passed, Congress still has a long and tough road ahead to agree on a budget for the fiscal year that starts on Oct. 1.

• Kerry Boyd Anderson is a writer and political risk consultant with more than 18 years of experience as a professional analyst of international security issues and Middle East political and business risk. Her previous positions include deputy director for advisory with Oxford Analytica. X: @KBAresearch