Government Shutdown: No Deal in Sight

The shutdown of the Federal government continues into its second week with no formal negotiations between Democrats and Republicans and no deal in sight. Issues concerning health care and spending powers remain key issues in the shutdown.

• The Senate has held several failed votes on two competing continuing resolutions (CR), one from Republicans and one from Democrats, that would extend current funding levels through November 21 and October 31, respectively.
• Democrats are demanding an extension of the Affordable Care Act (ACA) premium tax credits, the restoration of Medicaid and other health care spending, and restrictions on the President’s ability to impound funds Congress has appropriated. Republicans have continued to press for a relatively “clean” CR keeping most appropriations at FY 2024 levels while Congress continues to work on formal appropriations bills for FY 2025.
• The Administration has increased the pressure on Democratic lawmakers by threatening layoffs of Federal workers, withholding backpay for furloughed employees, and cancelling or suspending funds directed to cities and states governed by Democrats.
• The most likely scenarios for a breakthrough are a bipartisan compromise on extending the ACA premium tax credits or overwhelming public pressure to reopen the government that causes one or both parties to moderate its demands.

Congress Continues Voting with Same Results

Since the start of the Federal government shutdown on October 1, the Senate has voted several times on two proposals to reopen the government. The first is a Republican-led continuing resolution (CR) passed by the House extending current government funding levels through November 21. The second is a Democratic-led CR that extends government funding through October 31, permanently extends the ACA premium tax credits, restricts the President’s ability to impound funds, and repeals the Medicaid and other health care provisions in Public Law 119-21 (H.R. 1, 2025), also referred to as the “One Big Beautiful Bill Act” or OBBBA. Each vote has failed as Congressional leadership and rank-and-file members from both parties entrench their positions. Notably, House Speaker Mike Johnson (R-LA) has decided to keep the House out of session through at least Monday, October 13, in a bid to put pressure on Senate Democrats to provide sufficient votes to approve the Republican CR.

Given the hardline positions in both parties, the debate has moved into the political arena, with lawmakers seeking to convince the public that the other side is to blame for the shutdown. Republican leadership has highlighted the impact of the shutdown on constituencies that Democrats represent. They have also asserted that they will not begin negotiations on a potential extension of the ACA premium tax credits until the government reopens. Democrats have homed in on the upcoming premium increases for health insurance purchased through the ACA marketplace (pandemic-era enhanced subsidies for health insurance end December 31), and reductions in Medicaid spending from the OBBBA. Recent polling on the ACA premium tax credits shows more than three-quarters of adults believe Congress should extend them, with majorities in support across all political leanings. Polling after the government shutdown started reveals the public assigning slightly more blame for the shutdown to the President and Republicans in Congress as opposed to Democrats.  

Administration’s Actions Ramp Up Pressure

While Congress remains at an impasse, the White House has threatened actions against Federal workers and used administrative procedures to increase the pressure on Democratic lawmakers. In addition to directing all agencies to consider Reduction in Force (RIF) notices after government funding lapsed, the White House Office of Management and Budget (OMB) has also suggested that some furloughed Federal workers may not receive back pay after the government reopens. Democrats believe that OMB’s legal opinion contradicts the Government Employee Fair Treatment Act of 2019, which states: “Each employee of the United States Government or of a District of Columbia public employer furloughed as a result of a covered lapse in appropriations shall be paid for the period of the lapse in appropriations, and each excepted employee who is required to perform work during a covered lapse in appropriations shall be paid for such work, at the employee’s standard rate of pay, at the earliest date possible after the lapse in appropriations ends, regardless of scheduled pay dates.”

The issue of rescissions and impoundment is also a major sticking point in negotiations to reopen the government. The Administration has put on hold approximately $18 billion in infrastructure funding for New York City and $2.1 billion for Chicago while it conducts reviews of the projects related to “unconstitutional practices” and “race- and sex-based contracting requirements.” The Administration has also canceled nearly $8 billion in clean energy projects in 16 states. These moves to suspend or cancel Federal spending led Democrats to include language in their CR restricting the President’s ability to impound Federal funds. Republican Senators are highly skeptical that the President would agree to restrict his perceived impoundment authority. As such, Senate Democrats must make a political calculation on whether to prioritize health care spending on Medicaid and the ACA premium tax credits or fight on this legal dispute regarding impoundment.

What Could Break the Congressional Stalemate?

One pathway for a breakthrough is an extension of the ACA premium tax credits. The President signaled on Monday that he was open to negotiating an agreement on health care, though he later backtracked and emphasized the Republican position that any negotiation will only take place after the government reopens. House Minority Leader Hakeem Jeffries (D-NY) also rejected the prospect of a one-year extension of the ACA premium tax credits, despite this proposal holding some bipartisan support. Rep. Jeffries and Senate Minority Leader Chuck Schumer (D-NY) said Democrats have not been involved in talks with the President yet on reopening the government. Democrats believe they have the political momentum, with Senator Schumer saying, “Every day gets better for us.” However, given the lack of formal discussions and the hardline positions Congressional leaders are taking, the potential for negotiations on health care seems dim this week.

Another scenario that could prompt a breakthrough is increasing public pressure that causes one or both sides to moderate their positions and begin formal negotiations. The longer the shutdown lasts, the greater the impact on Federal workers, Americans who rely on government benefits and services, and the broader economy. During the shutdown, the Federal government is not releasing key economic data and faces delays in processing applications and customer service requests. The ripple effects of the shutdown will begin to have practical impacts on the American public, as air traffic controller issues cause air travel days and Federal workers miss paychecks. A key deadline is October 15, when members of the military will miss their scheduled paycheck absent legislative action. Combined with notification letters of higher premiums to individuals under ACA marketplace coverage before open enrollment starts on November 1, these types of impacts affecting the public could lead to increased public pressure for lawmakers to strike a deal. Until then, the prospects for a breakthrough remain slim.