Government shutdown: It may be just a matter of time now

Congress started the official countdown this week: It’s T-minus 31 days to a government shutdown.

OK, so I made up the part about the official countdown. But I don’t see any other likely outcome, now that the only folks trying to negotiate a budget deal -- the White House and a group of mainstream Senate Republicans -- aren’t talking anymore.

Lawmakers face two deadlines with enormous fiscal consequences, and they aren’t prepared to meet either one.

The new federal fiscal year starts Oct. 1, and lawmakers haven’t passed any of the annual appropriations bills needed to keep federal departments and agencies running. Not only that, the House and Senate are miles apart on how many dollars to provide those departments and agencies. The GOP-controlled House wants to abide by the reduced total set by the 2011 Budget Control Act, while ignoring the way the law evenly split spending reductions between defense and non-defense programs. The Democrats who run the Senate want to assume that Congress will revoke the “sequester” cuts in the 2011 law, and they don’t want to starve domestic programs for the sake of defense spending.


House Speaker John A. Boehner (R-Ohio) has floated the idea of a temporary spending bill that would keep the government operating for a few weeks past the Sept. 30 deadline. The purpose, though, would be simply to focus the fight with the White House and Senate Democrats on the bill to raise the debt ceiling, which must pass by mid-October. If it doesn’t, the federal government will begin withholding payments to creditors, beneficiaries and, eventually, bondholders.

Based on what happened in 1995, the economic fallout is likely to be limited if the fight over annual spending bills leads to a government shutdown. But if the government stiffs creditors because it can’t agree to raise the debt limit? That could be a catastrophe. Just the hint that Congress wouldn’t raise the debt ceiling in time caused markets to freak out (and Standard & Poor’s to downgrade the federal government’s credit rating) in August 2011. That whole sorry episode is blamed for retarding economic growth that summer.

Allow me to point out, yet again, that it’s Panglossian to argue that the markets won’t mind Congress not raising the debt ceiling in a timely fashion as long as Washington doesn’t default on Treasury notes. Although the House passed a measure this year to make bond interest payments a top priority if the government runs up against the debt limit, investors simply don’t trust entities that don’t pay their bills. That’s why markets would react severely if Congress didn’t raise the debt ceiling in time to send out checks to contractors or reimburse Medicare doctors, even if the Treasury didn’t miss any interest payments.

Negotiations between the White House and the Senate GOP may resume when we get closer to the Sept. 30 deadline. Still, the administration’s usual negotiating partners -- Boehner and Senate Minority Leader Mitch McConnell (R-Ky.) -- have made it clear that they’re not going to be the ones doing the bargaining. Meanwhile, administration officials have said repeatedly that President Obama won’t negotiate with anyone over the debt ceiling, which he says needs to be raised with no strings attached.

So right now, at least, it appears that both sides are fully committed to a high-stakes game of chicken. Boehner would prefer to play it with the debt ceiling hanging in the balance, but he may not be able to put it off that long -- he may not have the votes for the stopgap spending measure needed to get past the Sept. 30 deadline. That’s because too many members of his caucus insist on including language in the stopgap measure that would “de-fund” the 2010 healthcare law, a move that would simply set up an impasse with the Senate (and the White House).

For their parts, Democrats seem comfortable with the idea of a shutdown that they could blame on Republicans, just as they did in 1995. Being able to pin a fiscal fiasco on the GOP could help them avoid a Republican takeover of the Senate in 2014, and boost their chances to retake the House. So don’t look for that party to offer any major compromises to strike a fiscal deal.

And sadly, there won’t be a deal without major compromises. The two sides are roughly $100 billion apart on total spending for the coming fiscal year. Even if the House prevails on the total to be spent, the sides are still split on how to allocate the dollars between defense and domestic pursuits. And it’s hard to see how Congress raises the debt ceiling without Democrats accepting changes to Medicare and other mandatory spending programs that they oppose, or Republicans caving to Obama’s demand for a “clean” bill.

Of course, they could put all of this wrangling behind them if they struck the long-awaited “grand bargain” on a long-term plan for reducing the deficit and bringing the debt under control. The task is easier now than it was a year ago, thanks largely to slower growth in healthcare costs and rising federal tax revenue. But such a deal has long been a bridge too far for the current lineup of lawmakers. And judging by the events this week, even the ones who seemed willing to strike one have lost interest.



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