Washington is trying to avoid a government shutdown starting this Friday. But a follow-up deadline of April 30 could be even more consequential.
That’s when it will no longer be quite so simple to pass a short-term solution that delays the issue — one possible solution to this week’s crisis — without lawmakers feeling the consequences.
Beginning May 1, the government would face automatic cuts of 1% to both defense and non-defense programs if lawmakers can’t agree on full-year spending bills. That was the deal President Joe Biden and then-Speaker Kevin McCarthy agreed to last year.
A lack of progress on negotiators in recent weeks seems to make yet another short-term solution more likely for now as Congressional leaders prepare to travel to the White House on Tuesday for a meeting with Biden at 11:30 a.m. ET.
“The odds are fairly high that there will be some sort of agreement, perhaps even another short-term continuing resolution to extend funding a little bit further,” Gregory Daco, chief economist at EY-Parthenon, said in a Yahoo Finance Live appearance Monday afternoon.
Read more: How a government shutdown would impact your money: Student loans, Social Security, investments, and more
Previous rounds of brinksmanship saw lawmakers waiting until the last minute but ultimately delaying shutdowns during standoffs last October and November, as well as this January.
The current negotiations between the White House and House Speaker Mike Johnson, Senate Majority Leader Chuck Schumer, Senate Minority Leader Mitch McConnell, and House Minority Leader Hakeem Jeffries have followed a similar pattern so far and seem set to provide yet another case study in government gridlock.
And that’s after credit rating agencies have again and again cited dysfunction as a driving reason for their dimming views of US creditworthiness.
“I ask all Senators to keep their schedules flexible,” Schumer said this weekend in a note to colleagues about how to prepare for the days ahead.
‘A partial government shutdown is possible’
On March 1, federal departments like the VA, Agriculture, Energy, and Transportation will close their doors without any action. A broader array of government services would then shutter on March 8 if the gridlock continues.
Many had hoped this week’s fight would be averted after leaders agreed to a nearly $1.7 trillion spending deal this January. But that deal, seen as fragile from the beginning, only concerned overall spending numbers. It crucially left a range of policy disputes still unresolved.
This week’s standoff is likely to hinge around those debates.
Conservative House Republicans are pushing a host of so-called policy riders they say are crucial for any deal. A recent letter from the powerful conservative House Freedom Caucus listed 21 such demands asking “why would we proceed” without them.
The demands are a GOP wishlist on an array of topics, from defunding Planned Parenthood to reducing the salary of the Homeland Security secretary to $0. Most or all of them are sure to be rejected out of hand by Democrats.
Another issue that has risen to prominence in recent days is a federal assistance program for low-income mothers and children. Keeping the program afloat, reports Politico, has become another last-minute flashpoint.
Speaker Johnson alluded to that debate in a statement Sunday, saying it was an example of Democrats “attempting at this late stage to spend on priorities that are farther left than what their chamber agreed upon.”
In a note to clients Monday, Stifel chief Washington policy strategist Brian Gardner wrote that a partial government shutdown is possible because of these policy disputes, but even then, it would likely be short. He called that April 30 deadline “the bigger issue.”
In a follow-up message to Yahoo Finance, Gardner pegged the chances of those spring cuts actually going into effect at slightly less than 50/50 and saw minimal effects for the economy if it comes to that.
One exception, Gardner noted, is that “there could be some impact on the defense sector, which would feel the impact of the cuts more acutely.”
A focus on Mike Johnson
Negotiators had hoped to announce a spending deal last weekend to head off another week of infighting, but those talks fell apart Sunday, with each side immediately blaming the other.
“It is my sincere hope … Speaker Johnson will step up to once again buck the extremists in his caucus and do the right thing,” Senate Majority Leader Chuck Schumer wrote. House Speaker Mike Johnson immediately called the note “counterproductive.”
Much of the focus during Tuesday’s White House meeting will be on Johnson, who has said he doesn’t want a shutdown but is trying to manage — and perhaps not be ousted by — some House colleagues who seem happy with the idea of a shutdown.
Some of these colleagues also seem intent on stretching this week’s fight to trigger those automatic spending cuts on April 30.
Rep. Chip Roy (R-Texas) is one example. He was recently asked on X, formerly known as Twitter, what happens if lawmakers do nothing.
He responded: “We enter shutdown. Fine by me to force progressive democrats to accept changes.”
He also called a deal that would allow those automatic cuts to begin in May “a start.”
Ben Werschkul is Washington correspondent for Yahoo Finance.
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