What is a partial US government shutdown and what is the debt ceiling?

Many areas of the US government could temporarily shut down at midnight on Saturday if Congress does not pass a stopgap spending bill due to the pressure from Donald Trump.

The president-elect is also urging lawmakers to approve greater government borrowingaddressing the country’s debt ceiling before he takes office on January 20.

Why would the government be paralyzed?

Congress is supposed to allocate funds to 438 government agencies by Oct. 1, the start of the fiscal year, but lawmakers rarely meet this deadline and often pass temporary spending bills to keep the government running while they finish their work. job.

The current temporary spending law expires Saturday. Republicans and Democrats have prepared legislation that would push the deadline back to March 14, but Trump has urged Republicans to vote against it.

If lawmakers don’t reach a deal that can pass the Republican-controlled House and Democratic-majority Senate and pass by midnight Friday, much of the government will be unfunded.

What is the debt limit?

The borrowing limit is a cap set by Congress on the amount of money the U.S. government can borrow. Because the government spends more money than it collects in taxes, lawmakers have to periodically address the issue, a politically difficult task since many are reluctant to vote for more debt.

Trump wants Congress to address the debt ceiling now so he doesn’t have to deal with it when he’s in the White House. One of his first priorities upon returning to power will be to extend the tax cuts approved during his first term. According to tax experts, this would add about $4 trillion over the next decade to the federal government’s $36 trillion debt.

Congress set the first debt limit at $45 billion in 1939, and has had to raise it 103 times since then as spending has consistently exceeded tax revenues. In October, public debt represented 98% of US gross domestic product, up from 32% in October 2001.

Under a 2023 budget deal, Congress suspended the debt ceiling until Jan. 1, 2025. In practice, the U.S. Treasury will be able to pay its bills for several more months, but Congress will have to address the issue at some point. time next year.

Inaction could prevent the Treasury from paying its debts. A default on US debt would likely have serious consequences, roiling global financial markets and plunging the country into recession.

Sometimes Congress quietly raises the debt ceiling, and other times lawmakers take the opportunity to engage in a boisterous debate over fiscal policy before raising the ceiling at the last possible moment.

In 1995 and 1996, Republicans tried unsuccessfully to combine a debt ceiling increase with spending cuts, leading to two partial government shutdowns. They won major spending curbs in a 2011 standoff that brought the United States to the brink of default and led to its first downgrade of its credit rating.

What is the impact of a government shutdown?

According to the Congressional Research Service, since 1981 there have been 14 shutdowns, many of which have lasted only a day or two. The most recent was also the longest, lasting 35 days between December 2018 and January 2019 due to a dispute between then-President Trump and Congress over border security.

Hundreds of thousands of federal workers would be suspended without pay and many services could be disrupted, from financial oversight to garbage collection in national parks.

Other workers considered essential would remain at their jobs, although they would not be paid either. Services such as mail delivery and tax collection would be maintained.

Shutdowns that last only a few days have little practical impact, especially if they occur over a weekend, but the broader economy could suffer if federal employees start losing paychecks after two weeks.

A shutdown would directly reduce GDP growth by about 0.15 percentage points for each week it lasts, according to Goldman Sachs, but growth would increase by the same amount after it was resolved.

The 2018-2019 shutdown cost the economy about $3 billion, equivalent to 0.02% of GDP, according to the Congressional Budget Office.

What functions are considered essential?

Each department and agency has a contingency plan to determine which employees must continue working without pay.

The 2018-2019 shutdown left about 800,000 of the federal government’s 2.2 million employees out of work.

The Department of Homeland Security’s 2022 shutdown plan calls for keeping 227,000 of its 253,000 workers, including border security agents and the Coast Guard.

The Justice Department said in its 2021 contingency plan that 85% of its 116,000 employees would be considered essential, including corrections staff and prosecutors. Criminal litigation would continue, although most civil litigation cases would be put on hold.

Air travel would remain relatively unhindered, but in previous strikes the Transportation Security Administration has warned that airport screeners could be dismissed at a faster rate.

It is unclear whether all 63 U.S. national parks will remain open.

The Internal Revenue Service has furloughed up to 90% of its staff in the past, but all of its employees are considered essential under its current contingency plan.

All military personnel would continue to work, but about 429,000 civilian Pentagon employees would be laid off.

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