If Republicans in Congress and the Obama White House fail to resolve their differences in time, the federal government will begin a partial shutdown at 12:01 a.m. Tuesday, with all but essential services curtailed or closed entirely.
A few weeks later, another deadline will arrive when the government bumps up against its legally authorized borrowing limit. If Congress does not vote to increase the debt limit, it could set off severe financial problems for the government as it scrambles for the cash it needs to meet its commitments.
Q: So, what exactly is going on?
A: There are two distinct issues. First, the government could be forced to scale back operations beginning Tuesday if Congress and the administration do not agree on extending federal spending authority; about 800,000 employees would be involuntarily furloughed, while others would possibly have to work without pay.
Then, a few weeks later, Congress and President Barack Obama need to agree on terms for raising the federal debt ceiling so the Treasury Department can continue borrowing to meet all the government’s obligations, including interest payments on debt already issued.
Q: How have we reached this point?
A: Divided government always complicates governance, but growing political polarization and the erosion of a moderate center in Congress have made it even harder.
With Democrats controlling the White House and the Senate, the Republicans who control the House, tugged rightward by a vocal core of tea party conservatives, have begun using budget deadlines and the need for periodic debt limit increases as leverage to press for concessions. A favorite target, and the one at the center of the current dispute, is the health care overhaul passed by Congress and signed into law by Obama in 2010 over vigorous tea party opposition.
Given this poisoned political relationship, Congress has been unable to pass a budget in the normal way. To keep the government operating in March, it passed a temporary spending measure. But that expires at midnight today, and House Republicans say they will not vote for new spending unless the president’s health care law is delayed and its funding cut.
Democrats and the White House insist that they will not budge, and the first shutdown in 17 years is looking increasingly likely.
As for the debt limit, it was raised routinely in past years with bipartisan support. But Republicans say drastic measures are needed to keep the federal debt from continuing to rise.
On Thursday, Republicans laid out a list of demands in exchange for raising the debt limit, including a one-year delay of the health care law, the approval of the controversial Keystone XL oil pipeline, a tax overhaul and a rollback of environmental regulations.
Obama, saying the full faith and credit of the U.S. government should not be used as a political bargaining chip, has said he will not negotiate over it.
Q: What would be the concrete effects of a shutdown?
A: If past shutdowns are a guide, federal employees deemed essential, including uniformed service members and some diplomats, would continue working. Many civilian employees of the military would be furloughed.
Most federal workers providing medical care, air traffic control, airport security, border protection, prisoner custody and disaster assistance would continue working. Mail would be delivered. The new federal health care program would remain largely untouched, allowing people to sign up for insurance plans under the law starting Tuesday.
But hundreds of thousands of workers would be sent home. Parks, museums and monuments would be closed. Medical research would be curtailed, and much federal loan processing halted. Social Security and Medicare checks would still go out — they come from a trust fund, not from discretionary payments — but new claims might be delayed.
Members of Congress, incidentally, are deemed essential and would continue to be paid.
Q: How would the American economy be affected?
A: According to Mark Zandi, the chief economist for Moody’s Analytics, a partial shutdown would trim annual economic growth by 0.2 percentage points in the fourth quarter, even if it ended within four days. An impasse of a month could cut growth by 1.4 percentage points, about half of that from the lost pay of government workers. An interruption longer than two months, he said, “would likely precipitate another recession.”
In the event that there is no shutdown, Zandi has projected fourth-quarter growth at an annualized rate of 2.5 percent, a relatively weak rate of recovery.
Q: How would a debt default be felt?
A: While a shutdown would be damaging, a default could be disastrous, many economists and officials say. Treasury Secretary Jacob J. Lew told congressional leaders recently that a debt limit impasse in 2011 “caused significant harm to the economy and a downgrade to the credit rating of the United States.” A default at this time, he added, “could be catastrophic.”
Akthough some conservatives say the potential harm is being exaggerated, many analysts say a default would rattle world markets, raising borrowing costs, slowing the recovery and causing lasting financial instability.