Santa Claus is coming, with Trump Shutdown
Weeks after a public debate with Democrats Nancy Pelosi, and Chuck Schumer, which he lost, President Donald Trump is staring at a Government shutdown. He faced his first shutdown right at the first anniversary of him taking office, and another one in February 2018. But those were brief. This time however, he is set to face a tough fight as Democrats are on the ascendancy.
Here’s how things played out, the Congress passed a budget measure to prevent this, but he declined to sign the resolution as it did not have funding for his Border Wall – that Mexico was supposed to pay to build. House Speaker Paul Ryan then cobbled up a new measure for $5.7bn in funding for the wall. But this is almost certain to be rejected by the Senate, where the Republicans do not have the needed 60 votes. With the Congress at the threshold of a recess, and Democrats taking over the House on January 3, this shutdown – if it happens – could last for a lot longer.
Once a shutdown kicks in, Americans will find their parks closed and will not be able to access a number of government services. The stock market, which for the last few days has been in turmoil is likely to fall further. So what exactly causes the world’s richest economy to see this sort of dysfunction? And can it happen in other democracies too? Let’s take a close look.
What is a government shutdown?
The United States government has a list of services that are referred to as “discretionary spending”. These services require Congressional approval for their funding which is done through an Appropriation Bill. The period of an Appropriation Bill is for one fiscal year (October 1st to September 31st in the US). However, since the 1980s, Congress began using “Continuing Resolutions” to patch up funding when it could not agree on an Appropriation Bill for the whole year due to political differences over what programs to fund. A Continuing Resolution (CR) is for a smaller period, and is usually enacted for a few weeks. If the resolution is not extended, or replaced by an Appropriation Bill before the end of the previous resolution’s expiry period, discretionary spending is halted and those services have to cease functions. The Anti-deficiency Act, 1982, requires that in the event of a funding lapse as described above, the government begin a “shutdown” and furlough the staff in those services for the time being.
What services are halted in a shutdown?
All emergency services- Defence, policing, fire, ambulances- alongwith Medicare, Medicaid, Social Security, Air Traffic Control etc. continue unaffected. Agencies such as Food and Drug Administration, the Environmental Protection Agency, National Park Service, United States Merchant and Marine Academy, Internal Revenue Service, Immigration courts etc. close down during a shutdown. The US government is reduced to its bare bones during a shutdown and for once it’s not because a Republican fantasy of minimum government came true. Ironically enough, Members of Congress and the President continue to get paid as their pay is part of a separate legislative process. While there is no major foreign policy ramification, President Trump might have to cancel his tour of Switzerland in the wake of this shutdown.
Perhaps the biggest loser is the national capital- Washington DC- which gets all its funding approved from the Congress directly, unlike other states. In the 2013 shutdown during Barack Obama’s Presidency, 700,000 jobs in the Washington D.C. Metropolitan area were impacted. Those furloughed are usually paid for the days they did not work, however that only happens retroactively once a CR or an Appropriations Bill is passed, i.e. after the impasse is resolved.
What happens now?
The most likely possibility is that the Senate and the House pass a budget measure without the wall funding, again, sending the ball to Trump’s court. Logic would dictate that he sign it, because the new year will herald an adversarial Democratic House which will not give him second chances. But when has the President ever followed logic?
When have these shutdowns happened in the past?
Shutdowns began after 1980s when the then Attorney General Benjamin Civiletti issued two opinions that presented a much more strict interpretation of the Anti-Deficiency Act. Since then, excluding state shutdowns (when State Legislatures fail to approve spending for their states), there have been several shutdowns for different periods of time. During Bill Clinton’s Presidency there were two different shutdowns for 5 and 21 days respectively between 1995 and ’96. The most recent, and perhaps the most popular shutdown, was during the Obama Presidency in 2013 which lasted for 17 days in the month of October. The 2013 shutdown took place because the Republicans, led by Senator Ted Cruz, only offered Continuing Resolutions which would delay or defund the Patient Protection and Affordable Care Act (Obamacare).
Does the US Government default on its debt during a shutdown?
No. A debt default occurs when a debtor (in this case the US Government) is unable to pay the interest or principle on the due date. Interest payments on US Debt are affected by the “debt ceiling” which is usually decided at the beginning of the financial year. The US government’s debt is the most highly rated debt on earth as it is considered to be a very worthy creditor. While shutdowns are an inconvenience, a debt default by the US government would be catastrophic and perhaps worse than the Great Depression of 1929 because of the number of countries around the world that hold treasury bonds. As of the last available figures, the US government owes more than US$18trn to individuals and states. That amount is approximately equal to the GDP of China and Japan combined.
As of now, there is no risk of a shutdown leading to a debt default. The only time a shutdown came close to a debt default was during the 2013 shutdown when the US government was expected to exhaust its debt ceiling on the 17th of October 2013. The shutdown from the 1st to 16th of October, which began due to Obamacare morphed itself into a potential debt default. However, at the last minute a deal was reached for a temporary suspension of the ceiling and the default was avoided with barely hours to spare. This was also because of the remarkably confrontational nature of politics between President Obama and the Republicans, and is unlikely to be repeated. Thus, the US government is very unlikely to default on its debt.
Can a US-like shutdown happen in India or other democracies?
Most major democracies do not see such shutdowns due to political or constitutional reasons. Parliamentary democracies like India have an inbuilt mechanism wherein the executive is not entirely independent of the legislature. Thus, if a Budget, as it is called in India and the UK, fails, the government falls. In such cases, until elections take place or a new government is formed, the incumbent stays on as a caretaker government. The victorious opposition usually agrees to pass interim measures to ensure continuity of funding. In India, such a measure is referred to as a ‘Vote on Account’ and is enacted under the aegis of Article 110 of the Constitution as a money bill and grants money for a small period to the government (usually 2 months). When the budget was presented at the end of February, it was usual practice to use a ‘Vote on Account’ to account for the 6-8 weeks it takes to pass the budget, given that the financial year ends on March 31st in India. It is still used as a measure of financing the government in election years so that the new government does not have to live with the legislative agenda of the outgoing government for the whole year. Aside from this, most of the expenditure is already considered ‘charged upon the Consolidated Fund of India’ and does not require Parliamentary approval. These include things such as defence and police spending, salaries of judges, etc.
An example of the above process in action in a parliamentary democracy can be found in the United Kingdom. In 1979, the Labour government of James Callaghan was defeated in a no-confidence vote by Margret Thatcher. After the no-confidence motion was passed the Opposition conservative party worked with the defeated Labour government to ensure interim funding for the state until elections were held. Thus, such a shutdown is very unlikely in Parliamentary democracies owing to the nature of the polity.