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Lawmakers will begin returning to Washington on Monday in just 11 days to avoid a partial government shutdown.
The upcoming showdown between Republicans and Democrats over government spending is a variation of the 2023 battles (one over the debt ceiling and two over a potential government shutdown) that were averted with a last-minute deal. It’s a sequel.
But this latest confrontation could be the most complex yet. Emotional issues from the southern border to abortion to Ukraine are all likely to influence complex and overlapping talks.
White House Budget Director Shalanda Young summed up the mood of many on Friday: “It’s a tough situation, to say the least.” “Don’t assume I’m optimistic this morning,” she added.
The next matchup will also be played with fewer off-ramps ready. House Speaker Mike Johnson has repeatedly promised no more short-term continuing resolutions, citing the types of bills that averted government shutdowns in October and November.
This is likely to lead to another long battle, one that has already begun to take a financial toll as government agencies spend money preparing for a possible shutdown and have less freedom to launch new initiatives.
“This is definitely an issue and a drag,” Michael Linden, a former Biden budget official, said in an interview about the already obvious costs.
Impact on the broader economy
Linden, who worked in the Biden administration’s Office of Management and Budget and helped negotiate the 2023 debt ceiling increase deal, said past conflicts were avoided thanks to a last-minute recognition that the pain could be severe. claim that it was done. However, it remains to be seen whether the same logic will hold true this time.
The biggest threat could be a prolonged outage, he added.
“Over time, breakage will occur,” he points out. “There will be damage that is difficult to predict. It’s very difficult to know exactly how that will happen.”
There are similar concerns among those involved in the financial industry.
Isaac Boltanski, director of policy research at BTIG, recently told Yahoo Finance Live that he advises clients to “keep DC noise out of their investment thought process” for now, but that could change. he said.
“When you think about a government shutdown, the only thing you worry about is if it lasts a long time,” he added.
The most expensive government shutdown in history was a five-week partial shutdown in 2019 that permanently cost the United States about $3 billion, according to estimates from the Congressional Budget Office.
Government shutdowns delay the flow of billions of dollars more in government spending into the economy, but the difference is typically made up after the government reopens.
In addition to the direct economic costs, perhaps the greater economic threat this time comes from the world of credit ratings.
S&P decided to downgrade the US credit rating in 2011. Last August, Fitch followed up with its own downgrade, citing government dysfunction as the main reason. Moody’s took its own action in November, turning negative toward the United States, but not downgrading it.
White House Budget Director Young said in remarks Friday that the main concern in the upcoming battle is that a new wave of dysfunction in Washington “will continue to weigh heavily on the minds of the credit agencies that continue to examine America’s creditworthiness.” The question is whether to continue or not,” he added.
Many also pointed out that planning to furlough more than 1 million federal employees would require extensive preparations and have costs to consider, whether or not it actually happens. There is.
“The last shutdown took a lot of time and effort and energy and money just to prepare,” Transportation Secretary Pete Buttigieg said in a recent live appearance on Yahoo Finance.
“The nearly 55,000 men and women in this department would rather spend all day worrying about keeping America’s traffic safe than worrying about whether they’ll get a paycheck in two weeks.”
Issues pending in negotiations
Some government departments, from the Food and Drug Administration to the Departments of Energy and Transportation, are currently only funded through January 19, 2024. Without action from Congress, the government would be shut down that day.
Washington’s remaining discretionary spending authorizations are scheduled to expire in just two weeks, on February 2.
One factor that will likely make the coming weeks difficult to track is the wide range of developments that may not be formally part of government shutdown talks but are almost certain to play some role. This is a wide range of issues and discussions.
First and foremost is immigration. House Speaker Johnson visited the border with his Republican colleagues last week and appeared to emphasize the potential role the talks could play in raising government funding.
“Shut the borders or shut down the government” was a question many in Johnson’s caucus didn’t say. Just Friday, House Speaker Johnson’s team released a new memo attacking Biden for using “debunked” talking points regarding border security.
The House could even begin impeachment proceedings in the coming days against Homeland Security Secretary Alejandro Mayorkas over his handling of the issue.
But Greg Barriere, chief U.S. policy strategist at AGF Investments, recently wrote that Johnson’s “real weapon is the threat of a government shutdown.”
And the focus isn’t just on immigration.
The formal spending process already includes fierce battles over social issues such as abortion, LGBTQ rights, and gender-affirming care. These clashes are expected to continue and come after House Republicans inserted provisions on these issues into their proposal for how government funds should be spent over the next year.
Aid to Ukraine and Israel is also included in the talks. President Biden recently requested nearly $106 billion in aid to Ukraine and Israel, as well as funds to fight China and border measures.
Republicans have so far blocked the request, arguing that they need policy changes at the border, not just money, before considering additional funding.
If closures are not avoided, various industries will be affected immediately. The airline industry could be the first to turn around, with air traffic controllers potentially facing pay cuts on January 19th (but still required to continue on the job), followed by TSA officers in February. You may face a similar situation.
The closure could also come as the annual tax filing season begins and the IRS could face furloughs of its own.
At this point, economic observers are beginning to warn that some form of shutdown is becoming more likely.
Brian Gardner, Stifel’s chief Washington policy strategist, calls a shutdown “our base case,” while HSBC’s Jose Lasco recently said the possibility of a smaller shutdown is “probably higher than we’re comfortable with.” It’s also expensive.”
Ben Werschkul is Yahoo Finance’s Washington correspondent.
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