Policy Backgrounders

Implications of Government Shutdown

September 30, 2025

With the likely failure of two votes in the Senate on September 30, the Federal Government will begin a shutdown at 12:01 Wednesday morning. Key issues concern healthcare subsidies under the Affordable Care Act and Medicaid spending as well as procedural issues regarding spending appropriated by Congress.

• The House is in recess and will not convene again until after a shutdown begins, a strategy designed to put pressure on the Senate to accept the House’s proposed continuing resolution (CR). However, the CR cannot pass without Democratic support because of the 60-vote threshold necessary for Senate passage.
• A bill that passed the Senate, other than the House CR, would then need to be passed in the House – likely a difficult task.
• Unlike in past shutdowns, the Administration could use the shutdown to make significant changes in Federal operations, including large-scale reductions of Federal workers.
• The Economy, Strategy & Finance Center of The Conference Board has released a podcast examining the economic implications of a shutdown.

Federal Government Heads Towards a Shutdown

On Friday, September 19, the House passed the Republican CR extending current government funding levels through November 21 by a vote of 217-212. The bill immediately went to the Senate, where it failed that same day by a vote of 44-48. The Senate also rejected a Democratic CR by a vote of 47-45 that would have extended government funding through October 31, permanently extended the ACA premium tax credits scheduled to expire at the end of 2025, and repealed the health care provisions of H.R. 1, also known as the One Big Beautiful Bill Act (OBBBA). Congress then went on its scheduled recess for the week of September 22, with the Senate returning on Monday, September 29. Speaker Mike Johnson adjourned the House through at least October 1; it is currently scheduled to reconvene on October 7.

To attempt to reach a negotiated deal to keep the government open, the President met with senior Congressional leadership (Johnson, Senate Majority Leader John Thune (R-SD), Senate Minority Leader Chuck Schumer (D-NY), and House Minority Leader Hakeem Jeffries (D-NY) on September 29. After the meeting, Senator Schumer said, “We have very large differences on health care and on their ability to undo whatever budget we agree to through rescissions and impoundment.” Senator Schumer has floated a seven-to-ten-day CR as a way to resolve these differences and prevent a government shutdown, though Senate Majority Whip John Barrasso (R-WY) said that only the House CR proposal will be put on the Senate floor.

Ahead of the meeting, Senator Thune confirmed that the Senate would vote on the House-passed CR on September 30, just hours ahead of the midnight deadline to prevent a shutdown. Both Republicans and Democrats are digging in and holding their positions, with Senator Thune remarking that “fundamentally, nothing has changed,” House Republican leadership urging a unified front, and Democrats continuing to support Senator Schumer’s negotiating strategy.

The first principal difference between the parties is health care: Democrats have proposed extending subsidies on premiums for policies under the Affordable Care Act which expire at the end of 2025 without which premiums could rise significantly. After the meeting, Senator Schumer commented that there was “a real division” between the President and Republican leadership on the issue. While some Republicans have suggested they are willing to negotiate on the issue, they would do so only separately from a CR; it could be difficult for Republicans to pass a CR in the House that includes the subsidies, putting Speaker Johnson in a difficult position as happened during last year’s debates over shutdowns. This dynamic significantly raises the likelihood of a shutdown.

Economic Implications and Firings of Federal Workers?

The Economy, Strategy & Finance Center of The Conference Board has released a podcast examining the economic implications of a shutdown. In past shutdowns, normal government operations have essentially resumed unchanged and temporarily-furloughed Federal employees (though not contractors) have received back pay in full. For this shutdown, the Administration is considering using the lapse in funding to make significant changes in Federal operations.

Last week, the Office of Management and Budget (OMB) released a memo directing all Federal agencies to consider Reduction in Force (RIF) notices for all employees in programs, projects, or activities whose discretionary funding lapses on October 1, have no other alternative funding source (such as the OBBBA), and are not consistent with the President’s priorities. Once Congress enacts the formal FY2026 appropriations following a shutdown, the memo states that agencies “should revise their RIFs as needed to retain the minimal number of employees necessary to carry out statutory functions.” Essentially, this would involve resuming operations with a smaller number of employees.

On Tuesday morning, the President indicated the Administration is planning to move ahead with the policy, saying “[w]e may do a lot” [on RIFs]. And that’s only because of the Democrats,” seeking to put pressure on Democrats to accept the House CR to avoid the firings.

That stance, though, runs squarely into the Democrats’ second principal concern: their insistence that the Administration agree to spend the money that Congress appropriates rather than withholding it through recissions packages, the recent “pocket recission” on foreign aid, or efforts to reprogram funding. Democrats see this as reaffirming Congress’ “power of the purse”; they also fear approving a deal on government funding only to have the spending parameters changed unilaterally.

The Administration is unlikely to issue further guidance until a shutdown actually begins, to maximize leverage in advance of the shutdown. Programs likely to continue under a government shutdown include Social Security, Medicare, veterans benefits, military operations, law enforcement, Immigration and Customs Enforcement, Customs and Border Protection and air traffic control. FDA Commissioner Marty Makary told staff in a video on Sunday that he was “able to secure an exemption [from the RIF] because we are in the business of public safety.”

Possible Solution?

A potential off-ramp could be a deal on extending the ACA premium tax credits, perhaps for one year. As the lead Democratic sponsor in the Senate of a bill to make these tax credits permanent, Senator Jeanne Shaheen (D-NH) has inquired with her Republican colleagues regarding the possibility of some sort of extension, with Senators Susan Collins (R-ME) and Lisa Murkowski (R-AK) open to these conversations.

Given the need to have 60 votes in the Senate for a bill unless the Republican leadership uses the reconciliation process (which can only be used once in every fiscal year) to pass a funding extension, a group of GOP Senators is also reportedly working behind the scenes on a bill to extend the ACA tax credits with policy changes to secure the support of conservatives in Congress, such as income caps and a prohibition on using the tax credits for insurance plans that cover abortions. Despite these glimmers of a potential compromise, none of these efforts yet has the support of Congressional leadership from either party. Still, as Senator Gary Peters (D-MI) noted, though time is very short, a deal remains possible: “In this place [Congress], it’s never over till it’s over.”