A countdown is underway in the USA. If Congress cannot agree on a budget within the next two days, there is a risk of a government shutdown – with serious consequences. An overview.
The clock is ticking in Washington. The US Congress only has two days left to pass a new budget for 2024 in both chambers. If Republicans and Democrats on Capitol Hill do not come to an agreement by Saturday midnight, there is a risk of a so-called shutdown. The consequences would be enormous: A large proportion of federal authorities would have to cease operations, hundreds of thousands of state employees would be sent on unpaid leave and numerous museums and national parks would have to close.
While the Senate presented a bipartisan interim solution at the last minute, the fronts in the Republican-led House of Representatives have continued to harden. In order to be prepared for the worst case scenario, the White House has now instructed the authorities to develop emergency plans.
The most important questions and answers about the impending shutdown at a glance:
Why is the USA threatened with a government shutdown?
Under the anti-deficit law, American federal agencies are not allowed to spend or borrow money without a budget passed by Congress. If the Senate and House of Representatives fail to pass twelve thematically separate spending bills by the end of September, the government will come to a standstill. If only some, but not all, plans are approved before the deadline, this is called a partial shutdown.
Every year, Democrats and Republicans engage in bitter arguments over funding issues. Congress usually makes do with an interim budget that was passed shortly beforehand, only to struggle again a few months later over how to finance government operations. But even agreement on an emergency solution is up in the air in the divided Congress. While the Democratic-led Senate was able to agree on a cross-party compromise on Tuesday, the situation in the Republican-dominated Chamber of Deputies is more confused than ever. Every vote that the conservative chamber speaker Kevin McCarthy has put forward in the past few days has been consistently rejected by the far right wing.
McCarthy is faced with a choice: Either he continues to haggle with the right-wing hardliners who are pushing for massive spending cuts – or he makes a compromise with the Democrats that could mean his own political end (Read more here).
What are the points of contention among the Republicans?
After several failed votes, nerves in the Republican group are on edge. While the members of the right-wing Freedom Caucus argue that they are standing up for “traditional Republican values” by withdrawing their votes, the majority accuse them of blockade tactics that are damaging to the party. Some moderate conservatives are therefore calling on Speaker McCarthy to enter into negotiations directly with the Democrats in the Senate and thus bypass the hardliners.
But for McCarthy personally, the consequences could be fatal. It was less than nine months ago that he had to struggle through 15 rounds of voting because of the right wing before they gave him the speaker’s post. The concessions – including that a single MP is enough to trigger a vote of no confidence against him – are now falling on his feet. A threat that was expressed openly with a view to a Democratic deal. While McCarthy is running out of time, the right wing is now openly welcoming the impending government shutdown as a negotiating tactic to get its way.
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What happens during a shutdown?
If Congress fails to agree on a budget, the White House will send an order to all government agencies on October 1st: the shutdown will begin. Since 1976, there have been a total of 21 shutdowns, which have resulted in varying degrees of disruption to government business. The last and longest was in 2018, where around half of state employees were unable to work for 34 days.
The good news: Not everything would come to a standstill immediately. The White House now has relatively large discretion to keep employees on staff or send them home. The most important trades, such as the military and law enforcement agencies, would continue their work. Many employees in the Ministry of the Interior would also continue to come to work, while most employees in the Ministry of Commerce would be asked to stay at home.
The bad news: wages fall flat for everyone. Regardless of whether they are working or furloughed, none of the approximately 4.5 million state employees will be paid during a shutdown. Although they receive additional salary payments as soon as the budget is in place, for many it means having to dip into reserves.
Which areas would specifically be affected?
In the first few days, most Americans would hardly notice a difference. Many important government services continue to run during the shutdown. Loan payments on government debt would be made and Social Security checks would be delivered. Just like the post office.
But the longer a shutdown lasts, the more visible the consequences become in citizens’ everyday lives. Social benefits such as food stamps and extended daycare for low-income families or veterans could be temporarily suspended. Students would no longer be able to rely on their student loans arriving on time, while small businesses would have to wait in vain for loans to be approved.
There would be significant delays in travel, especially at airports, due to the lack of staff. Travelers would have to prepare for longer waiting times and canceled flights. Some smaller airports were completely closed last time. If the shutdown lasts longer than a few days, numerous public facilities such as national parks and museums would have to close or limit their operations. Government aid programs would also no longer be able to provide urgently needed support – such as for the victims of the deadly forest fires on the Hawaiian island of Maui.
What does a shutdown mean for the economy?
The same applies here: the longer, the worse.
Government spending accounts for about a quarter of U.S. gross domestic product, so a sudden slowdown in that spending could have tangible economic consequences. Analysts at Goldman Sachs expect a shutdown would reduce GDP growth by 0.2 percentage points per week. By comparison, after a five-week partial shutdown in 2019, the Congressional Budget Office estimated that the U.S. lost about $11 billion, of which $3 billion could not be recovered.
However, a shutdown this year could result in larger losses because it would affect more federal agencies. In addition, the economy is already facing a number of uncertainties this fall: high interest rates, a historic strike in the automotive industry (Read more here) and student loan repayments that resumed under the Biden administration.
What consequences would a standstill have for President Biden?
For US President Joe Biden, who is currently fighting for a second term in the White House, a shutdown would be politically fatal. On the one hand, a budget freeze would put many of his hard-won projects – such as the Inflation Reduction Act – on hold for the time being. On the other hand, his already weak popularity ratings are likely to deteriorate even further. More than half of Americans say they would be personally affected by a shutdown, according to a recent survey. 68 percent say the looming shutdown reduces their trust in the government.
Biden’s biggest competitor in the election campaign – former President Donald Trump – is also inciting his party against the president. “The Republicans suffered a major defeat on the debt ceiling, got nothing, and are now worried they will be blamed for the budget freeze. Wrong!!! Whoever is president will be blamed,” Trump fumed on “Truth Social” and demanded: “If you don’t get everything, switch off [die Regierung] away.”
“Everyone in America has to pay the price,” countered Biden. The whole truth is probably: he himself too.
Is there still hope for an interim solution?
Yes, but it is dwindling hour by hour.
The senators voted 77 to 19 on Tuesday for the draft of a short-term interim budget. This would guarantee the funding of the federal authorities at least until November 17th. But the proposal, which still has to be voted on in the Senate, also contains six billion dollars (around 5.7 billion euros) in additional aid for Ukraine – a no-go for the right-wing Republican wing in the House of Representatives.
In a first sign of whose side Speaker McCarthy is on, he declared late Tuesday evening that he would not provide any funding for Kiev. “They are putting Ukraine above the Americans,” he said, calling instead for money to fight illegal immigration to the United States. It is “the wrong priority” to focus on Ukraine instead of the southern US border, said McCarthy.
One thing is certain: as hardened as the Republican fronts are at the moment, an agreement would border on a small miracle. However, a look at the past shows that when compromises have been reached on Capitol Hill, they have almost always been at the last minute.
Sources: “CNN“, “Washington Post“, “WSJ“, “NY Times“, “Brookings Institute“, “Axios poll“, with Reuters and AFP footage.