Government Is ‘Headed to a Shutdown,’ Vance Says, as White House Talks Falter

The deadline to avoid a government shutdown is 12.01 a.m. Eastern time on Wednesday. (AFP via Getty Images)

Key Points

• A government shutdown looms as the deadline approaches. President Donald Trump met congressional leaders for last-minute talks.
• The impasse centers on extending health insurance subsidies for 24 million Americans enrolled in Obamacare plans.
• A Republican short-term funding bill passed the House but was rejected by the Senate, which is expected to vote on it again.

Leaders of the House and Senate left the White House on Monday without a deal to avert a government shutdown, potentially setting up a closure that could be far more painful than previous episodes.

President Donald Trump hosted the talks with Senate Majority Leader John Thune (R., S.D.), House Speaker Mike Johnson (R., La.), Senate Minority Leader Chuck Schumer (D., N.Y.) and House Minority Leader Hakeem Jeffries (D., N.Y.).

“I think we’re headed to a shutdown because Democrats won’t do the right thing,” Vice President JD Vance told reporters after the talks ended.

Schumer and Jeffries said outside the White House that they would continue to push for negotiations on restoring funding for healthcare subsidies that expire this year. Republicans say that issue is outside the scope of a bill to keep the government open.

If Republicans and Democrats can’t pass a short-term funding measure, the government will partially shut down at 12:01 a.m. on Wednesday Oct. 1. It usually means a halt to nonessential services, furloughs of government workers, and the closing of national parks. It would also delay Friday’s September jobs report, as it did in October 2013.

This time around, Trump administration officials plan to use the shutdown as an opportunity for mass firings of government workers, rather than the temporary furloughs typical of prior shutdowns. Russ Vought, director of the Office of Management and Budget, told agencies to outline plans for permanent “reductions in force” for programs whose funding lapses at the end of the month.

Among the unresolved issues is the status of subsidies that make health insurance affordable for the 24 million Americans enrolled in Obamacare health plans. They are set to expire in December. Democrats have pushed to extend those subsidies in any package to keep the government open, while Republicans have resisted that demand.

The House bill to avert a shutdown would keep the government open until Nov. 21, and there’s a chance some Democrats end up voting in favor of the bill if they get a promise that the healthcare subsidies would be part of talks ahead of that expiration date.

While prior standoffs have been short-lived, there are ample reasons for both parties to dig in this time around. Schumer and other Democrats received significant blowback after voting to keep the government open in a similar standoff in March. Other Democrats criticized Schumer for not fighting harder against spending cuts from Elon Musk’s “Department of Government Efficiency.”

Some Republicans, on the other hand, like the idea of using the shutdown to ramp up spending cuts and are convinced that Democrats will shoulder the blame from voters for a shutdown.

Polls show that most voters don’t want the government to close, and opinions of who would be to blame are sharply divided. About 34% of adults said they would blame Republicans for a shutdown versus 23% for Democrats and 34% for both parties equally, according to a poll by Strength in Numbers/Verasight earlier this month.

Asked who they would blame if a shutdown was specifically caused by Democrats fighting for healthcare funding, about 24% of adults said they would hold Democrats responsible and 35% said they would blame the GOP.

Shutdowns usually mean little for stocks. During the last prolonged shutdown, which lasted 35 days beginning at the end of 2018, stocks bottomed out in the third day and ended up 10% higher than where they started, analysts with UBS said in a research note on Monday. The analysts said a shutdown could reduce GDP growth by 0.1 percentage point for every week the government is closed, but that the growth typically is made up for in subsequent quarters.

But over the longer term, a prolonged shutdown would add to worries about permanent dysfunction in the U.S. government, a concern that some analysts have already blamed in part for heightened interest rates and dollar weakness.

The Republicans’ short-term bill, to keep funding the government into late November, was passed in the House earlier this month but then rejected in the Senate. Republicans need 60 votes, but they only have 53 senators.

Write to Joe Light at joe.light@barrons.com and Callum Keown at callum.keown@dowjones.com