US economy

Spectre of US government shutdown looms again

Republicans and Democrats in Congress have just over a week to pass a dozen spending bills to fund the US federal government and avoid another shutdown.

It is a familiar pre-Christmas ritual in recent years. While the fiscal year begins on October 1, it has become common for the two political parties to wrangle over how funds are allocated for months afterwards. But this year’s debate takes place against an even more highly partisan backdrop than usual, with the House of Representatives expected to vote to impeach President Donald Trump next week, ahead of a Senate trial in January.

With less than a year to go until the 2020 presidential election, Democrats and Republicans alike are keen to strike a deal, though the two parties remain deeply divided over issues such as funding for Mr Trump’s border wall and other immigration-related programmes, including migrant detention centres.

“The one thing that remains a certainty with the appropriations process is that it always comes down to the last minute, pretty much without exception,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center.

A failure to reach a full agreement last December led to a 35-day partial government shutdown, the longest in US history. The shutdown began on December 22 and ended on January 25 this year, after Mr Trump and lawmakers agreed to a deal to reopen the federal government for three weeks. A subsequent deal averted a second shutdown, after Mr Trump gave up on his demands for $5.7bn to build a wall on the US-Mexico border.

The last shutdown damaged Mr Trump’s approval ratings and cost the US economy billions of dollars, as hundreds of thousands of federal employees, including in the military were furloughed, meaning they did not get paid. Large numbers of government contractors also lost out on work.

Bar chart of Longest shutdowns in US history (days) showing Both parties want to avoid a repeat of the shutdown a year ago

Government shutdowns can also hit broader consumer and business confidence, as individuals and companies face difficulties accessing government services. For example, flights can be disrupted due to air traffic controller shortages, and initial public offerings can be delayed due to the closure of the Securities and Exchange Commission.

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Nancy Pelosi, the Democratic House speaker, on Tuesday dismissed suggestions that last year’s events would be repeated, saying: “The budget bill, the appropriations bill, must be done to keep government open . . . We are not going to have a shutdown.”

Ms Pelosi was speaking before a meeting with Treasury secretary Steven Mnuchin, House appropriations committee chair Nita Lowey, a Democrat, and Senate appropriations committee chair Richard Shelby, a Republican. After the meeting, Mr Mnuchin, who is acting for the White House in the negotiations, struck an optimistic tone, telling reporters: “I think we’re all working towards trying to get this done quickly.”

Mr Mnuchin and the lawmakers are expected to meet again on Thursday.

Democrats and Republicans have already compromised on government spending in recent months. Over the summer, Congress and the White House sealed a two-year budget deal that suspended the US “debt ceiling” until 2021 and included a $320bn increase in annual spending.

The appropriations process, which allocates the federal funding agreed in the budget, remains incomplete, however. Last month, the president signed a “continuing resolution”, or short-term spending measure, to fund federal agencies up until December 20, but it is unclear if he would consider another to delay the need for a resolution until after an expected impeachment trial.

Steven Mnuchin, U.S. Treasury secretary, exits after a House Financial Services Committee hearing in Washington, D.C., U.S., on Thursday, Dec. 5, 2019. Mnuchin said he and the Federal Reserve Chairman dont expect the U.S. to create a digital currency. Photographer: Andrew Harrer/Bloomberg
Steven Mnuchin, Treasury secretary, above, is due to meet lawmakers again on Thursday © Bloomberg

With a deadline fast approaching and a packed legislative calendar before Christmas, some on Capitol Hill are sceptical all 12 of the required appropriations bills can be passed by the end of the year.

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“There really is a risk of a political shutdown, and it has nothing to do with budgeting,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “There is clearly the risk that passing a budget gets sucked into the vortex of the high-stakes political issues that are playing out right now . . . We are in unprecedented territory.”

Ms MacGuineas, whose group advocates for deficit reduction, added she was concerned lawmakers would use any budget deal to push through additional costly spending measures.

“It is just becoming that typical Christmas tree in Washington, where everybody tries to stick their goody on it,” she said, in a reference to how members of Congress often seek to tack their own unrelated amendments on legislation.

Others remain optimistic that a deal can get done, especially after bipartisan agreements were reached this week on the National Defense Authorization Act and USMCA, the trade pact to replace Nafta.

Pointing to USMCA, Mr Akabas said: “Maybe there is some hope that constructive bipartisanship can reign at this stage in impeachment.”


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