The Independent Center is back with another mailbag. Obviously, there has been a lot of economic and political news since our inaugural mailbag earlier this month. So much is happening that it’s really hard to keep up with all of the coverage. The big news in Washington, DC is government funding and the prospect of a shutdown. We cover that and more in this week’s edition of the mailbag.
Why does it seem like there’s always talk of the government shutting down every few months?
It seems like there’s talk of the government shutting down so often because of the gamesmanship that has come with passing appropriations bills or a continuing resolution. There are various reasons why this continues to happen, either every few months or each year. The primary cause is the hyper-partisanship that has infected Congress, which makes even the most routine of tasks, like passing a bill to fund the federal government, very difficult.
The federal government operates on annual appropriations that run from the beginning of the fiscal year on October 1 through the end of the fiscal year on September 30. There are 12 bills that Congress must pass each year to fund departments, agencies, and programs. These bills fund the discretionary activities of the federal government and make up about 26% of federal spending.
Congress is currently in the middle of FY 2025. Congress passed a continuing resolution (CR) in December to keep the federal government funded through March 14. The CR that passed the House on Tuesday and is now awaiting action in the Senate would fund the federal government through the rest of FY 2025. That CR is H.R. 1968, which is projected to cost $1.845 trillion. That’s about $2 billion less in discretionary outlays than the Congressional Budget Office projected for FY 2025 and $52.7 billion more than in FY 2024.
I know House Republicans claimed that the CR reduces spending by $7 billion. That’s in reference to budget authority, or the legal amount that the federal government is authorized to obligate. The CR reduces nondefense discretionary budget authority by $13 billion but increased defense discretionary budget authority by $6 billion. Outlays will still be higher because of various factors, including budget authority granted in previous years and spending that isn’t constrained by the spending caps established under the Fiscal Responsibility Act of 2023.
Threats of government shutdowns have become more frequent in recent years because it’s a form of brinksmanship. Congress has a proclivity to govern by crisis, so congressional leadership will put a funding bill on the floor–whether it’s a consolidated appropriations bill containing some or all appropriations bills or a CR–and dare either members of their party or the opposition party to vote against it. This usually happens from a few days to only hours before a shutdown. Members will often succumb to the pressure, particularly if their party controls one or both chambers of Congress.
It has become increasingly difficult to pass even one appropriations bill out of both chambers, let alone all 12. Since FY 2011, Congress has enacted only six of the regular appropriations bills on time, meaning before the September 30 deadline for the beginning of the next fiscal year. That’s six bills out of 180 chances. (That’s the 12 appropriations bills each fiscal year over 15 years.)
Why has it become so difficult to pass appropriations bills? There are several factors. The biggest problem is hyper-partisanship. That can take different forms, such as debates over spending levels, policy riders in appropriations bills that message to one party’s base, and messaging amendments that may be adopted. Hyper-partisanship can also happen inside a party conference or caucus, which causes problems for leadership and increases the likelihood of a consolidated appropriations bill that includes all or most of the regular appropriations bills. These consolidated appropriations bills are often packed with measures unrelated to spending to grease the skids for passage.
All of this raises the stakes, and we’re in a seemingly endless cycle of brinksmanship and gamesmanship that won’t end until the people who matter–you–tell Congress, “Enough is enough.”
Do either of the two parties benefit from government shutdowns?
Politically, sometimes, at least in the short term, but shutdowns are ultimately a race to the bottom. No one comes out unscathed. Shutdowns are a symptom of a hyper-partisan pathogen in the political system.
The polling shows that the public tends to blame Republicans for government shutdowns, even in the rare instances when it hasn’t been their fault. Of the past four government shutdowns, Republicans initiated three of them. The political consequences, though, have been limited. At the end of the day, government shutdowns hurt trust in institutions and make it harder for independent voters to see what they want the most out of Congress, which is for both parties to work together.
What are the next steps for Congress following Trump’s speech to Congress last week?
Congress has to pass a continuing resolution to keep the federal government open, finalize a budget resolution to start the process for the tax cut and border bill through budget reconciliation and pass the tax cut and border bill. The biggest challenge for Congress in the first six months of the year is how to handle the debt limit. The votes around the debt limit are the most consequential votes Congress will take this year because of what could happen if the federal government defaults on its debts.
Trump’s speech to the joint session of Congress was one of the most partisan, if not the most partisan, that I can recall. Granted, Democrats didn’t help the situation with their outbursts and protests during the speech. None of this is conducive to both sides working across the aisle to get hard things done.
First and foremost, Congress has to pass a bill to fund the federal government through FY 2025, which ends on September 30. The next thing on the agenda for Congress is finishing the budget resolution to kickstart the budget reconciliation process for Trump’s biggest domestic priorities, including the extension of the Tax Cuts and Jobs Act and border security/enforcement.
Assuming the budget resolution gets done, I expect the tax bill to be on the House floor either just before or just after the two-week recess in April. That’s just an educated guess. Republicans will have a little more wiggle room than they do right now after the special elections for the two vacant seats in Florida are filled on April 1. It’s possible that this could get kicked into May.
The biggest issue facing Congress is the debt limit. The Fiscal Responsibility Act suspended the debt limit through January 1, 2025. The Department of the Treasury has continued to finance the federal government through “extraordinary measures.” This includes suspending investments in federal retirement funds (the Civil Service Retirement and Disability, the Postal Service Retiree Health Benefits, and the Government Securities Investment Fund) and redeeming investments made by the federal government before maturation.
The expectation is that the “X date,” the day the Treasury will exhaust extraordinary measures, will be reached at some point in June, but that’s not definitive.
I want to be clear here. The debt limit is probably the biggest, most consequential test that Speaker Mike Johnson (R-LA) and Senate Majority Leader John Thune (R-SC) will face. Nothing else comes close. The general consensus is that the failure to increase the debt limit–thereby, defaulting on the debt–would have catastrophic consequences for the United States and world economies. Default could lead to higher interest rates to service the debt the federal government accumulates, which means federal spending would rise and higher interest rates for consumers on mortgages, car loans, credit cards, etc. We could see a recession as a result.
