What happens when the US government shuts down, and why this time may be different

Both parties traded barbs over accountability, with the Republicans, under President Donald Trump, placing the responsibility on the Democrats.

“The Democrats’ far-left base and far-left senators have demanded a showdown with the president,” said Senator John Thune, the majority leader. “And the Democrat leaders have bowed to their demands. And apparently, the American people just have to suffer the consequences.”

The government has been shut down 14 times since 1980, with three of these occurring during Trump’s first term (2017-2021) alone. Here is what to know.

First, what is a government shutdown?

The US Congress needs to approve about a dozen appropriations bills, which determine the funding of several government agencies, and get the president’s assent before October 1 every year. These bills are often lumped into a collection called an “omnibus” bill to speed up the process at the last minute.

Thus, a shutdown is the result if Congress is unable to authorise more spending before the funding deadline lapses. Depending on the extent of approvals made – and which agencies get funded, the government must fully or partially shut down.

And what triggered the present shutdown?

This time, the shutdown followed the Democrats’ demand for an extension on expiring healthcare subsidies and to restore Medicaid cuts introduced as part of Trump’s Big, Beautiful Bill.

To recall, this bill was a spending and tax cut megapackage, cleared by the Republican-majority Senate three months ago, which expanded the scope of tax breaks to the wealthy, increased defence spending through cuts in federal programs such as Medicaid, and sought to expand the scope of mass deportations. Thanks to the bill, some departments such as the Department of Defense (now the Department of War) and the Department of Homeland Security will receive funding and continue to function through the shutdown.

Over the last week, Republican lawmakers in Congress championed a “clean” continuing resolution to ensure federal funding would continue at current levels until November 21. This was opposed by their Democrat counterparts, who presented a counterproposal to keep the government functional through October, with a rider that approved healthcare provisions and restricted Trump’s ability to withhold funding. The resulting impasse has led to the present shutdown.

What is the impact of a shutdown?

On federal employees: In a shutdown, all non-essential functions of the federal government must be paused until Congress can approve their funding and sign these into law, barring such programs which are funded through other means, like fees. The functioning of the government in such a period is defined by the Antideficiency Act, which limits non-essential functions.

“An officer or employee of the United States Government or of the District of Columbia government may not accept voluntary services for either government or employ personal services exceeding that authorized by law except for emergencies involving the safety of human life or the protection of property…” according to the Act.

During the last government shutdown, which spanned 35 days between December 2018 and January 2019, about 800,000 government employees were sent home. This time, the Congressional Budget Office (CBO) has estimated that 750,000 employees would be furloughed at $400 million per day in back pay.

The Antideficiency Act allows the government to continue funding for such “essential’ services that protect life and property, as well as constitutional officers, such as the president and White House staff, all members of the military on active duty, and federal law enforcement officers.

On the public: Typically, federal entitlement programs such as Medicare, Medicaid and Social Security will remain functional thanks to benefit payments that are funded by permanent appropriations independent of Congressional renewal. Thus, beneficiaries will continue to receive their benefits; however, enrolling new beneficiaries may be difficult amidst the impending furloughs in these departments.

Civilians could anticipate issues with travel and transport, especially if workers in airports and air control staff refuse to show up to work to protest non-payment of their salaries. Similarly, access to public attractions and landmarks would be limited following the furloughs.

On the economy: The business impact of a federal shutdown would depend on the duration, with the CBO noting on Tuesday that “some private-sector entities would never recover all of the income they lost as a result of the suspension of federal activity” if the shutdown lasted several weeks.

According to the CBO, the 2018-19 shutdown was the costliest, reducing economic output by $11 billion, including $3 bn that the US economy has since never regained.

The shutdown would also delay the release of the September jobs report, with the temporary closure of the Bureau of Labor Statistics. The employment data is a vital barometer of the state of the US economy, and would impact the Federal Reserve’s decision to adjust the repo rate. Officials would be forced to rely on alternative data sources, including regional data collected by the 12 regional central banks, to assess the health of the US labour market.

How this shutdown may prove different

The present shutdown may prove to be a different experience from those in the past, thanks to Trump’s Department of Government Efficiency, the quasi-government agency. The department, tasked with reducing the size and scope of federal government by minimising “wasteful” federal expenditure, has advocated firing federal employees, instead sending them on leave.

The Office of Management and Budget told federal agencies last week in a memo to “use this opportunity to consider reduction in force”, or permanent lay-offs.

“Programs that did not benefit from an infusion of mandatory appropriations will bear the brunt of a shutdown, and we must continue our planning efforts in the event Democrats decide to shut down the government,” the memo said.