U.S. Shutdown Seems Unavoidable

No signs of compromise or negotiations from the House or Senate emerged over the weekend.

The U.S. government stands poised for its first partial shutdown in 17 years at midnight tonight, after a weekend with no signs of negotiations or compromise from either the House or Senate to avert it.

Republicans and Democrats in Congress say they don’t want a shutdown, though neither side is budging from their positions to avoid one. House Republicans want to delay President Barack Obama’s Affordable Care Act for a year and make other changes to the health law. The Democrats vow not to let that happen.

Hanging in the balance are 800,000 federal workers who would be sent home tomorrow if Congress fails to pass a stopgap spending bill before funding expires tonight. Standard & Poor’s 500 Index futures slid and Asian stocks retreated on concern of a shutdown, while Treasuries advanced.

Asked yesterday if he thought the government would shut down, Illinois Senator Richard Durbin, the chamber’s No. 2 Democrat, said, “I’m afraid I do.”

“We know what is going to happen,” Durbin said on CBS’s “Face the Nation” program. “We are going to face the prospect of the government shutting down.”

The fallout would be far-reaching: national parks and Internal Revenue Service call centers probably would close. Those wanting to renew passports would have to wait and the backlog of veterans’ disability claims could increase.

The political implications are much less clear. Democrats are painting Republicans as obstructionists who are trying to undo a law passed by Congress and upheld by the Supreme Court. Republicans say they are trying to save Americans from the effects of Obamacare and that Democrats won’t negotiate.

A Bloomberg National poll conducted Sept. 20-23 shows Americans narrowly blame Republicans for what’s gone wrong in Washington, just as they did when the government closed in 1995 and 1996 -- two of the 17 times U.S. funding stopped since 1977.

The Senate convenes at 2 p.m. today and is set to reject the House’s latest plan to delay Obamacare and repeal a tax on medical devices, and send back a temporary spending measure.

House Republicans said they’ll respond by again asking for changes to Obamacare and spent yesterday trying to shift blame for a shutdown to the Democrats.

Representative Kevin McCarthy of California, the No. 3 House Republican, didn’t rule out the possibility of passing a spending measure that lasts a few days to give the parties time to negotiate -- if Democrats are prepared to go along with some Republican efforts to trim back Obamacare.

 

‘Little Longer’

“We will not shut the government down,” McCarthy said on the “Fox News Sunday” program. “If we have to negotiate a little longer, we will continue to negotiate.”

Even that option seemed unlikely, as Democrats have said they aren’t interested in changes to Obamacare, first passed by Congress in 2010.

House Republican leaders don’t expect to have enough Republicans who support a measure that only extends federal spending, according to a leadership aide who spoke on condition of anonymity to discuss party strategy.

If that’s what the Senate passes today, a likely option for House Republicans to attach to the spending measure is a provision ending the government’s contribution to health insurance for members of Congress and their staffs, the aide said.

Trying to push Senate Democrats into action, about 20 House Republicans gathered yesterday in front of the Senate side of the U.S. Capitol and accused Democrats of wanting a shutdown to score political points.

“This is the old football strategy,” Representative Tim Griffin, an Arkansas Republican, said holding a football. “When you get to where you want to be in a football game, you run out the clock.”

In a government shutdown, essential operations and programs with dedicated funding would continue. That includes mail delivery, air-traffic control and Social Security payments.

A shutdown could reduce fourth-quarter economic growth by as much as 1.4 percentage points, depending on its duration, according to economists. The biggest effect would come from the output lost from furloughed workers.

 

Debt Limit

A brief government shutdown won’t lead to any significant change of the Treasury Department’s forecast for when the U.S. will breach the debt limit, a Treasury spokeswoman said yesterday in an e-mail. The Treasury has said measures to avoid breaching the debt ceiling will be exhausted on Oct. 17.

U.S. government securities rallied in Asian trading, with yields on benchmark 10-year notes slipping to 2.598 percent as of 2:34 p.m. in Tokyo, from 2.625 percent late last week. The MSCI Asia Pacific Index lost 1.1 percent, and S&P 500 futures sank 0.7 percent.

“Concern about the effect on the global economy is being taken up by the markets,” Japanese Chief Cabinet Secretary Yoshihide Suga told reporters in Tokyo today. Suga said that while there was no immediate effect on the economy from the shutdown 17 years ago, he hoped “there will be a swift resolution to the problem.”

The White House yesterday released a photo of Obama meeting with his top staff, including Treasury Secretary Jacob J. Lew and budget director Sylvia Mathews Burwell. A cabinet meeting was scheduled for today. While there was no public statement yesterday, Obama plans to make public statements this week calling on the Republicans to pass legislation he’ll sign, according to a senior administration official who asked for anonymity.

The latest House plan, which passed after midnight yesterday, would authorize 10 weeks of spending starting Oct. 1 only if much of the Obama health law is delayed for a year.

The proposal opened the second round of volleys with the Senate. While House Republicans have moved slightly off their position, from defunding Obamacare to delaying most of its provisions, Democrats haven’t budged in their support for the health law.

Texas Republican Senators John Cornyn and Ted Cruz criticized Senate Majority Leader Harry Reid, a Democrat, for not calling the Senate into session yesterday to consider the latest House proposal.

 

Cruz Criticism

“There’s no reason the Senate should be home on vacation,” Cruz, who last week spoke on the Senate floor for more than 21 hours to protest the health-care law, said yesterday on NBC’s “Meet the Press.”

The Senate can act quickly to pass legislation, if all 100 members agree. If a single member objects, it would block legislation from being passed for four days or more.

When the Senate amends the proposal, House Speaker John Boehner will have four main choices -- two of which avert a shutdown. He could pass the Senate bill with mostly Democratic votes or attempt a short-term funding extension to keep the government open past Oct. 1, when fiscal year 2014 begins.

The other two options lead to a shutdown. Boehner could add health-law provisions to the spending bill and ask the Senate to go along, which Senate Democratic leaders have said they’d reject, or do nothing and wait for the political fallout.

The U.S. has had 17 funding gaps from 1977 to 1996, based on a Congressional Research Service analysis. In 1995 and 1996, interruptions lasted from Nov. 14 to Nov. 19 and from Dec. 16 to Jan. 6, as Republicans led by House Speaker Newt Gingrich clashed over the budget with President Bill Clinton.

The latest House plan leaves intact some parts of the health-care law already in effect, such as requirements that insurers cover pre-existing conditions and that family plans cover children to age 26. The bill would let insurers deny abortion coverage based on religious or moral objections.

The House measure would delay a requirement for people to purchase coverage or face a penalty, and postpone the creation of marketplaces -- which are supposed to start functioning Oct. 1 -- where people could shop for coverage from private insurers. Further, it would repeal the 2.3 percent medical device tax, which would increase the U.S. deficit by about $29 billion during the next decade.

Republicans and Democrats began bracing for a shutdown by attempting to affix blame on the other side. It’s at least the fourth time in the past three years that lawmakers have taken a budget battle to the brink of a fiscal crisis, each time averting the worst-case scenario just before or after the deadline.

“This has been the Congress of chronic chaos since day one, and this is just another episode,” said Representative Steve Israel, a New York Democrat.

 

Bloomberg News

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