Why the US government could shut down this week and what would happen

Government shutdown
  • The government is funded through Thursday, and lawmakers are at an impasse to vote on a solution.
  • If they don’t vote to keep it funded, it may shut down, which could create economic chaos.
  • GOP senators say they plan to torpedo a measure to “pause” the debt-ceiling debate for two months.
  • See more stories on Insider’s business page.

It’s shaping up to be a wild week in the halls of Congress as a new infrastructure package is on the line and a government shutdown looms.

Thursday is the end of the fiscal year – and the last day for which the federal government has funding. That means that lawmakers need to step in and pass what’s called a “continuing-resolution” measure that would temporarily fund the government. If they can’t pass that, the government risks a shutdown, which could cause government-employee furloughs and a ripple effect throughout the entire economy.

The House has passed the continuing resolution that would fund the government for two more months. Crucially, that resolution also contains a measure that would suspend the debt ceiling through December 2022 – delaying this decision until after the midterm elections.

Senate Minority Leader Mitch McConnell has made it clear that the House bill with the debt-ceiling suspension will not make it past the Senate. Instead, Republicans are saying the measure should pass through the party-line reconciliation Democrats are gearing up for. While Republicans have not made any demands in exchange for an approval of the debt-ceiling suspension, they’ve instead made the suspension an issue of partisanship.

According to The Washington Post, McConnell told Punchbowl News that “Democratic leaders have every tool and procedure they need to handle the debt limit on a partisan basis, just like they are choosing to handle everything else.” But Democrats have said that there’s not enough time to address it in reconciliation.

“The debt ceiling will be raised as it always should be, but it will be raised by the Democrats,” McConnell said in a press conference on September 21.

During a government shutdown, many nonessential government services are paused, which affects everything from mortgage approvals to national-park visits. That’s because some government employees are furloughed when agencies temporarily close. In 2019, amid the most recent shutdown, Insider’s Bob Bryan reported that 800,000 federal employees received paychecks for $US0 ($AU0).

At the time, the workers not receiving paychecks owed over $US400 ($AU551) million in rent and mortgage payments, according to the real-estate firm Zillow. Some of those workers turned to GoFundMe campaigns for help paying off their bills, Insider’s Mariana Alfaro reported.

30 years of government shutdowns

Treasury Secretary Janet Yellen told Congress earlier this month that the country’s ability to pay its bills would likely run out sooner than planned. After Congress missed a July 30 deadline to raise or suspend the debt ceiling, the US Treasury employed “extraordinary measures” to allow the government to continue paying its bills, but Yellen said those measures would likely run out in October because of financial uncertainty caused by the pandemic.

Insider’s Ben Winck and Joseph Zeballos-Roig previously reported the debt ceiling was introduced in 1917 and had since been raised 57 times to prevent the government from defaulting. And while the US has always managed to avoid a default to prevent a lapse in critical benefits and an economic recession, raising the limit has become more of a bargaining chip than a financial threshold.

The first debt-ceiling-related government shutdown took place in 1995, when then-House Speaker Newt Gingrich demanded President Bill Clinton implement the Republicans’ proposal for a balanced budget, and ultimately caused the government to shut down for 21 days.

And similar political battles continued in following years. For example, in 2013, under President Barack Obama, the GOP refused to raise the debt ceiling unless the Affordable Care Act was defunded, which caused the government to shut down for 16 days.

Most recently, President Donald Trump oversaw the longest government shutdown – 35 days – when Democrats refused to vote for increased funding for Trump’s border wall between the US and Mexico. Notably, during all these shutdowns, the government still did not go into default on its debt.

House Speaker Nancy Pelosi plans to address raising the debt ceiling, the infrastructure bill, and Democrats’ social-spending bill this week, but it is unclear which path she will take if Democrats fail to garner enough votes to keep the government funded.