US faces government shutdown risks

WASHINGTON

The US government is facing a potential shutdown a day before the fiscal year 2026 begins, as Congress fails to reach an agreement on budget.

The House of Representatives approved a budget bill on Sept. 19, which would provide funding for the federal government until Nov. 21, while the Senate did not approve the Republican bill.

The fiscal year 2025 ends at midnight on Wednesday, but Republicans and Democrats have not reached an agreement on the federal government’s budget. Both parties’ leaders in Congress met with US President Donald Trump on Monday to discuss, but neither side is willing to compromise.

Democrats demand an extension of health insurance subsidies and the reversal of Medicaid cuts, while refusing support for the Republican bill, as it would make accessing healthcare more difficult. Republicans are not willing to compromise on this point.

Vice President JD Vance said after the meeting that the US is “headed to a shutdown” after meeting with Democrats, blaming Democrats for not meeting in the middle.

Senate Democratic Leader Chuck Schumer said whether a shutdown occurs will depend on Republicans.

Despite the Republican control on both houses of Congress, they lack the 60 votes needed to pass the budget bill in the Senate.

In the ultimate failure of reaching an agreement on the budget bill, the US federal government could shut down for the first time since 2019.

The legislation states that if Congress does not approve the budget for the fiscal year, temporary budgets need to be implemented to fill the gap. If temporary budgets are not approved either, federal agencies lose their spending authority and have to temporarily suspend operations.

While this situation does not spell a full-blown economic crisis, it does mean major disruptions in many aspects of life in the US that deal with the federal government.

Federal employees will not be paid for their work or their mandatory leave until Congress approves a new budget. Each federal agency has its own shutdown plan, determining which government activities can and cannot continue in this uncertain environment.

Services like border security, hospital care, air traffic control, law enforcement, and power grid maintenance were considered essential in previous shutdowns, while benefits like Social Security, Medicare, and Medicaid continued.

Immigration services, for instance, are not affected by a government shutdown as they are funded by independent fees.

Some public services could suffer from a government shutdown. Environmental and food inspections may be impacted, while factory inspections may be temporarily suspended.

National parks may close, while air travel delays and cancellations may occur due to air traffic controllers and security personnel working without pay.

The Bureau of Labor Statistics’ emergency plan states that economic data will not be published during a government shutdown, which means that non-farm payrolls — a closely watched flow of data expected to be published on Friday — may not be released.

The US faced some 19 shutdowns lasting three days or less since 1981, while some prolonged shutdowns seriously impacted federal government operations.

The first two shutdowns of these were in 1995-1996 during the former Clinton administration period, lasting a total of 26 days, while the third was a 16-day shutdown during the Obama administration.

The most recent government shutdown in US history was in Trump’s first term. The budget crisis that came to the fore with Trump’s refusal to sign a temporary budget that did not include funding for building the wall on the Mexican border led to a partial shutdown after the Democrats refused to back down.

The 35-day shutdown during Trump’s first term, beginning in December 2018 and ending in January 2019, was the longest in US history.

Experts say that implementing emergency plans, unpaid wages during the shutdown, and the retroactive pay for federal workers who continued working during the shutdown overshadow the potential savings a government shutdown could technically generate.

The Congressional Budget Office (CBO) estimates that the 2018–2019 US government shutdown shrank the country’s gross domestic product (GDP) by a total of $11 billion, $3 billion of which will never be recovered.

The CBO said longer shutdowns affect private sector investment and employment decisions as businesses fail to obtain federal permits and certifications, or access federal loans.

The shutdowns of 2013, 2019, and 2019 wasted around $4 billion of US taxpayer money, according to a Senate report dated 2019.

During a government shutdown, payments to federal workers and contractors who deliver government services are suspended — federal government shutdowns are generally confused with sovereign defaults. While in default, a much broader segment of the country’s population receives no pay.

The government cannot pay its creditors due to exceeding its legal debt limit in a default — all federal government payments, including mandatory ones, interest on debt, and payments to US bondholders, are put at risk.

Government shutdowns are disruptive, but a sovereign default could have catastrophic consequences, causing serious instability in financial markets and leading to further negative outcomes like increased borrowing costs and a lower credit rating.