Lawmakers on Capitol Hill are feeling the strain from the prospect of extended government shutdowns. Experts suggest that such closures could significantly affect the economy and create pressure on President Trump to find common ground with Democrats.
While specialists believe that the immediate economic effect may be minimal, the situation could exacerbate existing issues, particularly with Trump’s ongoing trade conflict. The impact on gross domestic product (GDP) may become clearer in the coming weeks.
“A short shutdown lasting a week or two won’t be a major issue. But if it drags on for a month or more, it could become serious. Government workers not being paid has a ripple effect,” an expert remarked.
He added that the financial markets could also feel the pinch. Investors may start questioning the reliability of national governance, particularly regarding timely debt repayments. Yet, he noted that a shutdown would need to extend beyond a month for this concern to become significant.
It remains unclear whether Democrats or Republicans will feel the most urgency to resolve the situation. Currently, neither party seems particularly anxious about the repercussions.
One economist mentioned that the growing tension would likely compel Congress and Trump to reach an agreement.
Approximately 2.8 million individuals are employed within the U.S. military, which includes 1.3 million active-duty personnel.
“If the shutdown continues for a long time, especially affecting military pay, that would present a significant political challenge,” the economist said.
Both parties appear to believe they have a strong narrative to push blame onto each other as the shutdown progresses. Republicans highlight that the GOP-controlled House passed a straightforward funding bill that would extend existing spending through November 21st.
On the other hand, Democrats have raised concerns that healthcare premiums will rise this fall due to a lack of action on subsidies under the Affordable Care Act. They aim to roll back cuts to Medicaid made as part of Trump’s recent legislation and argue that these healthcare issues are central to the ongoing shutdown discussions.
Since the GOP currently holds control of both the White House and Congress, Democrats are looking for accountability from Trump and Republicans, especially if the economy falters due to the shutdown.
The Congressional Budget Office indicated that the government shutdowns of late 2018 and early 2019 lowered GDP by 0.2% in the first quarter of 2019. However, once the government reopened and workers received their back pay, the economic downturn was mitigated.
“Typically, a government shutdown lasting a week reduces annual GDP growth by about one-tenth in a quarter, with the effects less severe in shorter shutdowns,” the economist explained.
Trump and Congressional Republican leaders are waiting for Democrats to concede. Senate Majority Leader John Thune (R-S.D.) plans another vote on a seven-week funding bill that recently passed the House.
Strategists indicate that Thune is waiting for enough Democratic votes to reach the necessary 60 for passage.
So far, a couple of Democrats and Independent Senator Angus King (Maine) have supported the GOP plan, while Republicans have lost support from Senator Rand Paul (Kentucky).
Create an alternative funding proposal has yet to gain traction among Republicans or lose support from Democrats.
Republican strategist Ford O’Connell remarked that the GOP will continue pushing spending bills until Democrats agree. He also noted that a recent poll indicated 65% of respondents believe Democrats shouldn’t advocate for a government shutdown.
While acknowledging Trump’s desire to restore order, O’Connell predicted that Democrats would become more adept at negotiation over time.
Speaker Mike Johnson (R-La.) supports Thune’s plan and commented to reporters that there’s little more the GOP can do to enhance their proposal for Democrats.
This shutdown differs from others in that Trump and Office of Management and Budget Director Russell Vought have hinted at using it as an opportunity to permanently lay off thousands of federal employees.
Vought informed Republicans in a recent call that layoffs could occur soon.
Jared Bernstein, the former chairman of the U.S. Council of Economic Advisors under President Biden, said the broader consequences of the shutdown will depend on whether the layoffs actually happen.
He warned that mass layoffs would compound existing economic challenges, adding, “The job market is already shaky—it could lead to serious problems.”
Data from payroll processor ADP revealed that the U.S. lost 32,000 jobs in September, and the Bureau of Labor Statistics had reported job growth of just 22,000 in August, with a downward revision showing a loss of 13,000 jobs in June.
“If a shutdown is typical and lasts just a few weeks, the economy tends to recover quickly. Anything longer, though, presents complications,” Bernstein explained.
This week, the Trump administration announced it would freeze $18 billion in funding for infrastructure projects in New York City, canceling $7.5 billion from Biden-era initiatives, largely affecting energy projects in states with Democratic representatives.
Rodell Mollineau, a Democratic strategist, suggested that Trump aims to pressure Democrats into a deal but cautioned that this could harm American citizens and might backfire politically against Republicans.
A recent Washington Post poll found that 47% of respondents held Trump and Republicans responsible for the shutdown, while 30% pointed fingers at Democrats, and 23% were undecided.
Moreover, among independents surveyed, 50% blamed Trump and Republicans, in contrast to only 22% who blamed Democrats.
Gbenga Ajilore, Chief Economist at the Center for Budget and Policy Priorities, emphasized that the shutdown’s primary effects would manifest in the federal workforce and public services, noting potential flight delays due to diminished operations at the FAA and TSA.
Ajilore raised concerns regarding the administration’s decision-making on spending priorities and how this could affect the public during a shutdown.
Prior to the shutdown, Zandi expressed that the likelihood of a recession within the next year was already worrying. He cautioned that economic vulnerabilities may be most pronounced in the upcoming quarters.
He also indicated that rising health insurance premiums due to withdrawn subsidies under the Affordable Care Act could add financial strain to households, impacting their consumer behavior.
Nonetheless, he warned that other economic measures, like the corporate tax cuts from Trump’s recent legislation, might cushion the blow of lost healthcare subsidies.
