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Government Shutdown Nears as Republicans Huddle on Course

September 30, 2013
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The U.S. Congress headed into the final hours before the first partial government shutdown in 17 years with neither side budging or negotiating before a midnight deadline.

House Republicans, led by Speaker John Boehner, plan to meet during the early afternoon  in the Capitol basement to plot their next move. The House is urging the Senate to link a delay of the 2010 health law to a short-term extension of government funding. Senate Democrats planned to strip that language, leaving the House only a few hours to act.

President Barack Obama said he’s "not at all resigned" to a shutdown and he will speak with congressional leaders today.

Obama will meet with his cabinet today as agencies prepare for a shutdown and he plans to reiterate to reporters that he won’t give in to Republican demands over the health law, according to an administration official who asked for anonymity to discuss strategy. Hanging in the balance are 800,000 federal workers who would be sent home if Congress fails to pass a stopgap spending bill before funding expires tonight.

"I’m afraid, based on what Speaker Boehner has said so far, that we are going to look at a shutdown," Representative Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee, said today on Bloomberg Television.

 

Stocks Fall

 

Concern that a shutdown would stunt economic growth sent stocks lower today, trimming the biggest quarterly gain since the start of 2012, while Treasuries rallied and the Japanese yen strengthened before a potential shutdown.

The Standard & Poor’s 500 fell 0.5 percent to 1,683.74 at 1:14 p.m. in New York. All 10 main industries in the S&P 500 dropped, with financial, telephone and energy shares falling the most.

Crude oil traded near its lowest level in three months. West Texas Intermediate oil fell as much as 1.8 percent. Treasury 10-year note yields were little changed at 2.63 percent at 12:07 p.m. in New York, according to Bloomberg Bond Trader prices.

The fallout in U.S. government services would be far- reaching: national parks and Internal Revenue Service call centers probably would close. Those wanting to renew passports would have to wait and the backlog of veterans’ disability claims could increase.

 

Political Implications

 

The political implications are much less clear. Democrats are painting Republicans as obstructionists who are trying to undo a law passed by Congress, upheld by the Supreme Court and ratified by Obama’s re-election in 2012. Republicans say they are trying to save Americans from the effects of the law, known as Obamacare, and that Democrats won’t negotiate.

A Bloomberg National poll conducted Sept. 20-23 shows Americans narrowly blame Republicans for what’s gone wrong in Washington, just as they did when the government closed in 1995 and 1996 -- two of the 17 times U.S. funding stopped since 1977. A CNN/ORC International poll conducted Sept. 27-29 and released today said 46 percent of respondents would blame congressional Republicans for a shutdown, while 36 percent would say the president was responsible.

"There aren’t any Republicans talking about shutdown," Senator John Thune, a South Dakota Republican, told Bloomberg Television’s Peter Cook. "We want to fund the government."

 

Senate Meets

 

The Senate convenes at 2 p.m. today and is set to reject the House’s latest plan, which passed on a nearly party-line vote early yesterday.

"Then it’ll be the moment of truth," Representative Gerry Connolly, a Virginia Democrat, said today on MSNBC.

House Republicans said they’ll respond by again asking for changes to Obamacare and spent yesterday trying to shift blame for a shutdown to the Democrats.

House Republican leaders don’t expect to have enough party support for a measure that only extends federal spending, according to a leadership aide who spoke on condition of anonymity to discuss strategy.

If that’s what the Senate passes today, a probable option for House Republicans to attach to the spending measure is a provision ending the government’s contribution to health insurance for Congress members and their staffs, the aide said.

In a government shutdown, essential operations and programs with dedicated funding would continue. That includes mail delivery, air-traffic control and Social Security payments.

 

Economic Growth

 

A shutdown could reduce fourth-quarter economic growth by as much as 1.4 percentage points, depending on its duration, according to economists. The biggest effect would come from the output lost from furloughed workers.

Greg Valliere, chief political analyst for Potomac Research Group Holdings in Washington, told Bloomberg Television today that "a shutdown is not the issue" because default is more important.

"If we even talk about default, if we come within a day or two of default, that’s a terribly negative story for the overall economy," he said.

Because Republicans hold a majority of seats in the House, they decide what goes into the bills that are brought up for a vote. A faction that opposes compromise with the Democrats has been pushing its leaders to keep fighting rather than bring a bill to the floor that both parties could accept.

 

Democratic Votes

 

Without enough Republican support, the only way to pass a bill is with Democrats voting "yes." That scenario poses a risk for Republican leaders: If their decision angers a large bloc of their membership, the next time the top jobs come up for a vote they could could be pushed out.

That bloc of hard-liners could also stall other legislation, including the need next month to raise the $16.7 trillion federal debt ceiling.

The House plan being considered by the Senate would authorize 10 weeks of spending starting tomorrow only if much of the health law is delayed for a year. While House Republicans backed off defunding Obamacare in favor of delaying most of its provisions, Democrats haven’t budged in their support for the health law.

The latest House plan leaves intact some parts of the health-care law already in effect, such as requirements that insurers cover pre-existing conditions and that family plans cover children to age 26. The bill would let insurers deny abortion coverage based on religious or moral objections.

The House measure would delay a requirement for people to purchase coverage or face a penalty, and postpone the creation of marketplaces -- which are supposed to start functioning Oct. 1 -- where people could shop for coverage from private insurers. Further, it would repeal the 2.3 percent medical device tax, which would increase the U.S. deficit by about $29 billion during the next decade.


--With assistance from Derek Wallbank, Caitlin Webber, Heidi Przybyla, Roger Runningen, Danielle Ivory, Kasia Klimasinska, Peter Cook, Laura Litvan, Leslie Hoffecker, Kathleen Hunter and Margaret Talev in Washington, Emma Oliver and Lars Paulsson in London, Takashi Hirokawa in Tokyo and Kyoungwha Kim in Singapore. Editors: Jodi Schneider, Steve Geimann

 

To contact the reporters on this story: Roxana Tiron in Washington at rtiron@bloomberg.net; Michael C. Bender in Washington at mbender10@bloomberg.net; Richard Rubin in Washington at rrubin12@bloomberg.net

 

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

 

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