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The U.S. Government Shutdown

Its Meaning, Impact and Future Implications

efore the end of the 2013 fiscal year for the U.S. federal government, Congress failed to agree upon a short-term funding resolution to send to President Obama and have signed into law to fund the government for fiscal year 2014. As a result, on October 1, 2013, all non-essential functions of the federal government shut down. Without the legal authorization to spend money, the government cannot operate. It cannot reopen until President Obama and Congressional leadership agree on a budget to fund the government. This is the first full government shutdown since it shut down for three weeks in 1995. This debate over the budget is the first of many major political battles over the next few weeks that will shape the U.S. economy and political landscape, including an increase to the national debt ceiling, the previously-passed health care reform and the 2014 mid-term Congressional elections. >>

Current Situation The government shutdown is a culmination of a series of budget and policy battles over the past several years between Democrats and Republicans. In each of the previous showdowns, Congressional leadership and the president agreed to last-minute, short-term compromises to temporarily prevent a government shutdown or U.S. default. However, in this latest battle a small bloc of conservative Republicansincluding the Tea Party caucusare using their leverage within the party to insist that they use their position as the majority party in the House of Representatives to defund the Affordable Care Act (ACA, also popularly known as Obamacare) as a condition for
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funding the federal government. Obamacare is President Obamas signature policy achievement and neither he nor the Democrat-controlled Senate is interested in negotiating with Republicans over its implementation. Moreover, Obama and some prominent Democratic and Republican leaders have insisted that any budget resolution must not contain ideological or politicized elements and thus be a clean resolution. The lack of serious negotiations makes it difficult to predict an outcome of the current government shutdown, which could last several days or even weeks. While some leaders are pushing for a compromise that would eliminate an unpopular tax that partially funds Obamacare in exchange for passing the budget, it is not clear whether conservative Republicans or the White House will accept any compromise. Politics Political posturing is the driving force behind the failed budget negotiations and the government shutdown. Both sides are convinced that their strategy is both good policy and good politics, and many believe the next few days will be key in shaping voters opinions. Republicans believe they can use the budget process to cripple Obamacare and to address public dissatisfaction over the deficit contributing to growing U.S. debt, while Democrats believe Republicans ideological, hardline positions are counterproductive and will cause significant damage to their reputation, forcing them to back down. Initial public polls show that the shutdown is very unpopular and voters put Republicans at fault. U.S. Debt Ceiling Though separate issues, the current budget battle is the beginning of an upcoming debate over the need to increase the U.S. debt ceiling before the United States can no longer meet its financial obligations on October 17. If an agreement on the debt ceiling is not reached, the United States would default on its loans and drastically reduce government services, causing an increase in domestic unemployment and significant consequences on the global economy since much of the global economy depends upon the full faith and credit of the United States. Historically a non-controversial measure, the debt limit authorization vote has become a more politicized issue in recent times. As in the previous debate over raising the debt ceiling in 2011, Republicans are seeking significant cuts in government spending and reform of existing entitlements in exchange for any increase in the debt ceiling. While

President Obama has indicated he will not agree to specific demands tied to the debt ceiling, he has indicated that he would be open to reducing spending in other ways. Regardless, it will be difficult to address the debt limit until the budget is resolved and the government reopens. Recent Political History While partisan fights over the size and scope of government are not newthere have been 17 partial shutdowns since Jimmy Carters presidency in the 1970sthey have sharply intensified since 2008. The polarization of American politics has created increasingly hardline political parties that are less attuned to moderates and often in no mood for compromise. Further, the 2008 economic downturn and its impact on people and businesses has had lasting effects on the perceptions of the government, creating a negative reaction in the country, particularly among fiscal and social conservatives represented by the small but powerful Tea Party movement. Bipartisan coalitions and compromise are increasingly rare and often punitive to those involved, with both political parties often working to replace compromising politicians with more hardline politicians. Next Steps Within the Republican Party, there is agreement on reducing and limiting the size and scope of government, but far less agreement about using the federal budget and debt ceiling to force the president to reduce government spending. This split between Tea Party Republicans and mainstream Republicans may encourage moderate Republicans to take the lead in their party and negotiate a budget deal with the Democrats this week or next. Similarly, disruption of government services may encourage the Democrats and the president to negotiate. At the moment, the public appears to blame Republicans for the government shutdown and the public polls suggest Democrats have the advantage. However, in this high stakes game, the publics mood can quickly change and quickly impact each sides position. Conclusion Since Senate Democrats and the President are unwilling to negotiate with Obamacare as the negotiating point and some House Republicans are unwilling to drop their policy demands, the current stalemate will persist. The two elements that will ultimately force a solution are 1) significant public pressure against Congress, the president or both and 2) the October 17 deadline to raise the debt limit, which is a far more serious issue with the potential to have a significant economic impact.

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