Here Are The Reasons Why Another Government Shutdown Looms

It seems that it was just yesterday when the market was celebrating Trump’s avoidance of a government shutdown due to an “unprecedented” bipartisan deal with Democrats, which left Republicans out in the cold. Well, things are once again back to normal.

With fewer than 30 sessions left in the year and a heap of legislative priorities pressing on lawmakers’ agendas, it will be “extraordinary” if Republicans manage to pass tax reform this year, something Treasury Secretary Steven Mnuchin somewhat surprisingly admitted in an interview published yesterday. However, given President Donald Trump’s penchant for burning bridges with lawmakers – perhaps best exemplified by his decision to make a deal with “Chuck and Nancy” only to go back on said deal by pushing a package of unrealistic demands, including funding for his border wall and more resources for immigration enforcement – Republicans’ ability to keep the government open past Dec. 8 is looking increasingly tenuous.

As Bloomberg points out, given the rancor within the Republican ranks, and a lack of trust among Democrats – fostered by the president’s penchant for burning bridges – not only will the Trump White House be forced to punt on all of its major legislative priorities, but it may not be able to avert what would be the first federal government shutdown since 2013, as squabbling lawmakers struggle to find common ground on immigration reform, disaster-relief spending, taxes, Obamacare (subsidies) and preserving funding for Planned Parenthood.

And now, after a year of trying – and failing – to legislate, the Republicans’ unfinished business is coming back to haunt them in the fourth quarter.

The year’s most divisive fights in Congress are set to converge in a bitter partisan clash in December that could result in a US government shutdown. The unresolved battles – over a wall on the U.S.-Mexico border, immigration, health-care subsidies, Planned Parenthood and storm relief – are hanging over talks on must-pass spending legislation to keep the government open after Dec. 8. The spending measure is at risk of becoming so weighted with controversial items that it collapses. “The laundry list of things they want to put on it grows every day,” said Jim Dyer, a former House Appropriations Committee Republican staff director.

Even if Republicans could focus their energies on overcome their internal divisions and passing the budget, which is set for a vote today in the Senate after easily sailing through the more Trump-friendly House earlier this month, certain “unbridgeable policy differences” could make passing a budget difficult. With Republican Sen Thad Cochran away this week due to illness, it’s anybody’s guess whether the budget resolution being brought to a vote in the Senate today will pass. Even Trump has no idea.

Republicans are going for the big Budget approval today, first step toward massive tax cuts. I think we have the votes, but who knows?

— Donald J. Trump (@realDonaldTrump) October 19, 2017

Of course, since lawmakers are probably wary of the political backlash a shutdown might cause, the pressure to punt on the deal and agree to extend the current spending program for another year might be too difficult to resist, especially if no deal on tax reform is forthcoming.

With Cochran off due to sickness, there is a slimmer margin of error to pass the controversial budget, which seeks a $1.5 trillion expansion of the budget deficit over the next 10 years. That said, with the late backing of Senator Collins from Maine, Lisa Murkowski from Alaska along with Sen. McCain, there’s a chance the bill could pass before the weekend. But then the next even more logistically fraught phase begins: passing tax reform, which is supposed to be hammered out during the reconciliation process for the budget bill.

Being forced to punt could leave the Trump White House with no major legislative accomplishments this year.

Even without contentious issues, completing a trillion-dollar spending bill in time would be a tall order. The brewing battle could leave Republicans with no major accomplishments in President Donald Trump’s first year after they couldn’t find enough votes to repeal Obamacare. The more protracted the fight, the less time in 2017 to overhaul the tax code, the GOP’s top priority.

Unbridgeable policy differences might result in a push to simply extend current spending authority through fiscal 2018. That would limit military spending to $549 billion, leaving out the big boost sought by Senate Armed Services Committee Chairman John McCain of Arizona and other Republican defense hawks.

And of course, there will always be certain intransigent lawmakers vowing to force a shutdown if they don’t get what they want.

McCain is among those threatening to take his year-end priorities to the mat. He said Wednesday that he won’t support any temporary extension of government agency spending unless the defense caps are lifted. He said a government shutdown – for the first time since 2013 – is possible.

“There’s always a risk every time we go through this cycle,” he said. Democrats say a shutdown can be averted if Trump and congressional Republicans, including the conservative House Freedom Caucus, put aside unrealistic demands such as a ban on funds for Planned Parenthood or requiring any added hurricane-relief funds to be offset with domestic spending cuts.

“We don’t want a shutdown,” said Senate Democratic leader Chuck Schumer of New York. “Ask President Trump. Ask our hard-right Freedom Caucus types.”

Still, with Democrats scrambling to preserve Obamacare after Trump cut subsidies, the renewed battle over health care could sink the White House’s other priorities, like spending. And Trump’s decision to encourage – and then denounce – a bipartisan plan to enshrine the subsidies in law has only heightened the rancor and mistrust harbored by both Republicans and Democarts.

Trump, who earlier encouraged Alexander to cut a deal, signaled opposition to the measure. His spokeswoman, Sarah Sanders, said, “We need something that goes a little further to get on board.”

Steve Bell, a former Senate Budget Committee GOP staff director, said Trump’s shifting positions could poison the well for bipartisan deals. “All of that makes a Dec. 8 shutdown very possible,” he said.

Even passing disaster relief spending – something President Donald Trump repeatedly promised to deliver – looks set to devolve into a political dogfight.

Another sticking point is disaster relief. Texas, Florida and Puerto Rico could seek tens of billions of dollars in additional rebuilding money once final damage assessments are tallied. Conservatives are likely to seek spending cuts in exchange for such funds, which Democrats and many other Republicans reject.

A dispute over extending the Children’s Health Insurance Program, which expired in September, could also carry over into the spending bill. So too could a perennial push by Republican House conservatives to ban funding for Planned Parenthood, which provides abortions and family planning services. On defense, Republicans are seeking to increase spending caps by $54 billion, while Democrats insist that must be coupled with the same increase for non-defense spending.

Republicans would like to avoid a shutdown after the 2013 incident hammered their polling ratings. But Trump’s mercurial approach to lawmaking has made legislators in both parties nervous.

The real question is: How will markets react once tax reform is off the table and the federal government has ground to a halt? Will the long awaited volatility spike arrive? And will investors then rush to take the opportunity and “buy the fucking government shutdown dip?”