Many Americans are now aware of the fact that the federal government has been shut down for the first time in a decade and a half. After the House and the Senate were unable to reconcile different versions of a continuing resolution (CR) to fund the government due to the House’s desire to defund or delay the Affordable Care Act, the government terminated non-essential operations that receive funding through the appropriations process. Both Republicans and Democrats in Congress are confident in their bargaining positions, and the two sides are so far apart that they do not even agree on what they are bargaining over; these factors imply that this shutdown might last over ten days.
First, unlike what the term “shutdown” implies, the government is still partially operating. Since a continuing resolution was not passed, departments that receive discretionary funding will lose their funding. This does not include programs that receive mandatory funding such as Medicare, Social Security, and, ironically, the Affordable Care Act (ACA), among other programs. The ACA has been the target of the tea party during this negotiation since, as its health care exchanges went up on October 1st, conservatives believe that now is the last chance they will have to end the law before people start receiving its benefits and it becomes another part of the welfare state. Discretionary programs that have to receive annual funding are the ones that have been shut down; programs like the National Park Service and departments such as the Environmental Protection Agency are being forced to send most of their workers home without pay, while other departments, such as the Department of Defense and the Department of Justice, can keep most of their employees because they are deemed “essential.”
So although the government is still partially functional, it is not operating at close to full capacity. 800,000 workers have been furloughed, and a continued shutdown would not only hurt those families but could harm 4th quarter GDP. Thus, it is imperative that Congress agree on a continuing resolution, especially with the debt ceiling (the maximum amount of debt the United States can incur) set to be hit around October 17th, which, if breached, would propel the US into recession and potentially create a global financial crisis.
Up until this point, both the Democratic and Republican parties have maintained excellent party unity. Although moderate and conservative Democrats have voted along with the Republicans to fund certain parts of the government since the shutdown began and moderate Republicans have said on the record that they would vote for a “clean CR” – that is, a continuing resolution without any other conditions – neither party has had any meaningful defections. Unfortunately, this is to be expected given the wide gap between the positions of the two parties. Many Republicans, particularly the Tea Partiers, will not agree to a CR without at least a delay of the ACA. For Democrats, the ACA is not even on the table. Likewise, Republicans want to enact spending cuts and entitlement reforms in order to pass a CR and raise the debt limit, while for Democrats, both a clean CR and a raise of the debt ceiling are non-negotiable conditions. Speaker John Boehner (R-OH) recognizes this, and although a majority of his own party would vote for a clean CR, he is still beholden to the Tea Party right. If Boehner were to allow such a vote, therefore, a CR and a debt-ceiling raise could be passed without any other conditions. However, unlike the spending fights of 2011, both sides are coming from drastically different places and neither can back down without embarrassing itself. Given how the two parties have positioned themselves, is an agreement possible?
I think the parameters of an agreement do exist, provided that Boehner is willing to lose some Tea Party votes. My prediction is that the shutdown continues for another week until the debt ceiling is approaching, at which time Boehner will have to bring a bill to the floor even if it does not have majority support within the Republican caucus. Boehner knows that creating another recession is a non-option, and sources close to him have stated that he will let a debt-ceiling vote pass mainly with Democratic votes if need be. The one proposal to reform the ACA that has bipartisan support is a repeal of the medical device tax, and that will almost certainly be part of such a deal. Boehner has entertained the idea of entitlement reform as part of proposal, and a chained CPI proposal – which would essentially slow the growth of Social Security payments by linking them to a different calculator of inflation – is something that President Obama has publicly considered as part of a negotiation. On the Democrats’ side, if chained CPI and other entitlement reforms are part of a final deal, it is possible that they can recoup some of the spending cuts from the sequester two years ago.
Overall, I think the broad contours of a deal do exist – a clean CR, raise of the debt ceiling, repeal of the medical device tax, and potentially a trade of entitlement reform and revenue neutral tax reform for restoration of spending cuts – but both sides will wait it out a bit longer before coming to the table again. Each thinks it has leverage right now, but after another week, I think that leadership in both parties will come to an agreement that will prevent economic catastrophe. In the meantime, the American people must wait while the machinations of divided government work themselves out.