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Four takeaways from the short-lived shutdown

- January 24, 2018

On Monday, Congress ended a short-lived government shutdown, voting to fund both a popular children’s health-care program and government operations for another few weeks. Senate Majority Leader Mitch McConnell (R-Ky.) got 33 Democratic votes by promising that the Senate would look at how to protect the “dreamers” from deportation, discussing legal status for undocumented immigrants brought here as children. They had been protected by President Barack Obama’s Deferred Action for Childhood Arrivals (DACA) program, which President Trump canceled. McConnell relaxed his condition that the Senate would only consider a DACA measure if the president endorsed it.

Not every Democrat trusts McConnell. More than a dozen Senate Democrats — including several considered likely to run for president in 2020, such as Kamala D. Harris (D-Calif.), Kirsten Gillibrand (D-N.Y.), and Cory Booker (D-N.J.) — voted against the bill, as did three-quarters of House Democrats.

Others have done their partisan postmortems on shutdown winners and losers. Instead, we offer four takeaways about the polarized congressional dynamics that more often lead to short-term deals rather than substantive laws.

1. The big problem is that the GOP is divided on immigration

Republican senators have increasingly disagreed with one another. As we wrote last spring and summer, these fractures are undermining Republicans’ attempts to legislate.

Naturally, Trump blamed Democrats this past week, accusing them of supporting “illegal immigrants” over hard-working Americans. But both House and Senate Republicans are divided on immigration. In the House, over two dozen Republican representatives recently called on Speaker Paul D. Ryan (R-Wis.) to put a DACA bill on the floor. Across the Capitol, nine Senate Republicans joined a bipartisan group this week to pressure McConnell to commit to DACA action.

Republican disagreements over immigration — including DACA, quotas, family reunification and humanitarian protections — helped Democrats press for action. Republicans apparently discounted Democrats’ threats to prolong the stalemate. But Democrats’ efforts to forge common ground with more collaborative Republicans could make it harder for McConnell to ignore bipartisan demands.

2. Democrats have stress fractures, too

Trump’s first year in office has shown us Democrats in lockstep opposition to his controversial nominees and to Republican efforts to repeal Obamacare and cut taxes for the wealthy. That apparent unity masks a steadily widening internal divide. Looking at the figure below, you can see that the Senate’s ideological span is the widest in a generation.

Complex issues like immigration make it harder to forge consensus.

So it may be no surprise that Democratic activists and much of the liberal or left-leaning news media excoriated Senate Minority Leader Charles E. Schumer’s (D-N.Y.) deal with McConnell. Many are asking: Why did Democrats fold so soon?

Reports suggest that Schumer faced conflicting pressures from his party’s left and right wings. Progressives wanted to hold out for a DACA fix attached to the funding bill. Red-state Democrats who will face voters in November worry about getting out of step with their constituents. Sen. Claire McCaskill — a moderate Democrat up for reelection in Missouri this year — said of the Democrats’ different sides last week, “never the twain shall meet.”

Schumer has tried to downplay Democratic differences while highlighting the GOP divide. That made it hard to hold the line on the shutdown. Rather than let the party fracture, Democrats settled for a promise. We could well see a replay when the new short-term funding bill runs out next month.

3. Can-kicking won’t fix a broken budget process

Why does Congress keep recycling stopgap spending bills? If legislators followed the law, Congress and the president would have enacted 12 “appropriations” bills for the fiscal year that began last October. As you can see in the figure below, it’s been 20 years since Congress last finished its spending homework on time. Polarization, divided party control and internal fissures all make this difficult, even in good economic times. Recently, controversial amendments on the Confederate flag and employment discrimination have upended the budgetary process in the House. And partisan differences have stalemated spending bills in the Senate.

Unable to pass spending bills one by one, party leaders typically combine some or all of the bills into “omnibus” measures. While lawmakers craft these measures, Congress often adopts stopgap “continuing resolutions,” just as it did this week. CRs are nothing new; Congress lives on a steady diet of them, averaging five per year over the past two decades. In late 2000 alone, Congress passed 21 very short-term CRs to buy time while lawmakers finalized spending bills for the fiscal year that was already underway.

This broken budget process sets the polarized parties up for repeated brinkmanship. That’s how we got the recent shutdown. Deadlines can force an otherwise dysfunctional Congress to act. But they also can allow the parties to delay working out their differences, turning votes over short-term spending bills into battles over the parties’ governing priorities. So long as lawmakers disagree over the size and scope of federal programs, they will keep fracturing over the budget.

4. More deadlines are coming

When the current CR expires in February, lawmakers could repeat the process. But lawmakers could lose patience with short-term fixes. And Congress still has to decide overall levels of defense and domestic spending. If it doesn’t, it would face a “sequester” — a compromise Congress bound itself to seven years ago — that automatically triggers across-the-board cuts to spending in both areas. Both GOP defense hawks and Democrats passionate about domestic programs seem eager to avoid that.

Another flash point is coming this winter: raising the debt ceiling, which sets the upper limit on federal borrowing. Without increasing the limit, the federal government — which must issue new bonds to cover its obligations — would likely default on its debt. Would either party refuse to provide necessary votes to raise the ceiling until their other legislative demands were met?  Republicans tested the ceiling more than once during the Obama administration. It’s unlikely but who can be sure?

Some GOP conservatives argue that the U.S. Treasury can prioritize paying some obligations and not others — meaning that a default might not be so bad. And House Financial Services Chairman Jeb Hensarling (R-Tex.) in 2015 revealed that Treasury and the Federal Reserve had run exercises to test whether the government could pay interest to its bondholders first, so that the government would not technically stiff its creditors.

The debt ceiling deadline creates additional opportunities for lawmakers to demand policy concessions in exchange for their votes — if not by Democrats than by Republican factions eager to shrink the government’s obligations. Expires-at-midnight governing is here to stay.

Mark Spindel is founder and chief investment officer at Potomac River Capital, a Washington-based investment firm.

Binder and Spindel are co-authors of the recently published The Myth of Independence: How Congress Governs the Federal Reserve (Princeton University Press, 2017).