US Congress must reach an agreement before October 1st.

The US Congress needs to pass a short-term spending bill. They have days left before the government will have to shut down if they fail.

Even the so-called continuing resolution would allow the financing of the government only until 17 November. But it would give enough time for the House and the Senate to vote on the 12 spending bills that sum up the rules of spending some $6 trillion in the next fiscal year.

Using this recurring moment for their political benefit is a tradition for Democrats and Republicans in the US, let’s see what is at stake now. 

Why is the US government heading towards a federal shutdown?

As the past 20 or so times it happened -and the many other times it was on the verge of happening – US lawmakers, both in the House of Representatives and in the Senate, cannot pass a common legislation needed to fund the federal government and its various agencies (Defense, Homeland Security…).

It mostly comes down to partisan disagreements, with Republicans and Democrats not able, or not willing, to compromise.

The House’s majority is Republican, while Democrats have the Senate.

This time, Kevin McCarthy, the House speaker, is trying to push for a measure that hardline Republicans have been demanding for a while: steep federal spending cuts (about 8%), coupled with stronger border security measures.

Democrats refuse to vote for the package, and even some Republican lawmakers deem it too extreme. McCarthy is struggling to please the hard-right lawmakers of his party.

In the Senate, a bipartisan package is in the pipeline to temporarily fund the government. It would maintain funding at current levels and includes a national $6 billion relief funding, and the same amount to aid Ukraine in its war effort.

Many Republicans have been vocal in their refusal to keep on supporting Ukraine, arguing that such amounts would be better spent if they directly benefited American taxpayers. Their stance highlights troubles ahead on the question of Ukraine, when a federal budget is ultimately and necessarily adopted.

A few months ago, McCarthy and President Joe Biden reached a bipartisan deal that narrowly avoided a budgetary crisis similar to the one that seems to be imminent.

Hardline Republicans that were displeased by the deal refuse to compromise this time. Former President Donald Trump has urged them to stand their ground, or “shut it down”.

What now?

Time is running out, and it’s likely that by Friday evening lawmakers will warn those who will be impacted to get ready for a government shutdown.

There are hopes for a continuing resolution, a temporary measure that would extend the deadline to mid-November. That would buy time, but the major points of disagreement would remain. Republicans and Democrats will eventually need to compromise, including among their own ranks, to keep the government funded and open.

Behind every budget negotiation lies the issue of the national debt that casts a giant shadow on the debates.

The US gross debt accounts for more than 120% of the country’s GDP, according to the International Monetary Fund (IMF). As a comparison, the average government debt in the European Union is 84%.

US debt has more than doubled in the past 30 years and is expected to also double in the next three decades. Broken down to each US citizen, it almost amounts to $100,000 (€95,000). Given the average salary, Americans would need to work for about a year and a half for free to reimburse the government’s debt -which would likely increase in the meantime. 

Who will be impacted by the looming shutdown?

The recurring situation will not find the US without preparation, the Federal government has its own shutdown plans which they dust off each time the country is on the brink of a shutdown.

Although it’s the role of Congress to fund the government, lawmakers do not stop being paid when they fail to deliver.

On the other hand, a remaining four million federal employees face uncertainty, including the military. Their pay will be suspended, and some of them will be furloughed for the duration of the shutdown. Others, who are deemed essential will still have to report to work, such as police officers. None will be paid during the impasse.

For many of them, it could potentially dry out their finances just like happened during the record 35-day funding lapse in 2018-2019.

No paychecks mean missed mortgage payments and credit card debts and consumption kept on the minimum level. Even the world’s strongest economy could feel the impact.

A shutdown could threaten crucial federal programs such as loans to small businesses, help to low-income tenants, child nutrition and student aid programs.

The last shutdown cost billions to the overall US economy. The Congressional Budget Office (CBO) estimated that the 35-day partial government shutdown in 2018-2019 reduced economic output by $11 billion (€9.5 billion) in the six months that followed.