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The result is that while Biden aides do not want the government to close down, the White House isn’t working as urgently to avert one as it did earlier this year to head off a breach of the U.S. debt ceiling. So President Biden may not be willing to bend much to meet the demands of a relatively small bloc of House Republicans, as the GOP is more likely to face a backlash from voters over a shutdown.
Economists say a government shutdown would likely shave off growth moderately in this quarter, because of the drop-off in federal spending, but then lead to greater growth after a shutdown ends — potentially a benefit to the administration heading into the 2024 presidential election.
“From the point of view of the White House, it’s very clear the circular firing squad inside the GOP will result in a shutdown where the Republican Party gets blamed for any hit the economy takes,” said Joe Brusuelas, chief economist at RSM. “The short-term optics around economics and politics all favor the White House.”
Still, a government shutdown could still fuel voters’ sense of uncertainty while the administration is already contending with a historic United Auto Workers strike and other geopolitical headwinds. A shutdown could be broadly felt across the country, with effects ranging from national parks closures to the loss of vital economic data produced by federal agencies.
The White House is not ignoring the prospect of a shutdown, even though the GOP may suffer more politically. Administration officials have begun conversations about their shutdown plans, but the specifics remain in flux, according to two people briefed on internal conversations, who spoke on the condition of anonymity to describe internal planning.
“This is Congress’ responsibility: They’re the ones who have to pass it, and it’s on their shoulders,” said G. William Hoagland, senior vice president of the Bipartisan Policy Center, a nonpartisan think tank. “But I think we can expect more White House engagement.”
One White House official, speaking on condition of anonymity to describe the administration’s position, said that House Republicans are to blame for failing to abide by the debt ceiling agreement reached in June. That deal, reached between McCarthy and Biden with days until the Treasury Department would have had to stop borrowing money to pay for spending Congress had already authorized, specified that the government would spend about the same amount next fiscal year as it has this year — which, accounting for inflation, may mean small spending cuts in many programs. But House Republicans have interpreted the legal spending limit as a ceiling rather than a floor, and they’ve pushed for even steeper cuts to federal agencies.
If the House can pass a temporary bill to fund the government past the Sept. 30 deadline, negotiations with the Senate and White House could begin. Until that point, however, the administration has little role until far-right House conservatives and McCarthy can resolve their own disagreements.
“People are asking if we’ll intervene. What would we intervene to do exactly?,” said an administration official, also speaking on the condition of anonymity to describe internal thinking.
Because a government shutdown is likely to be far less painful for the economy than breaching the debt ceiling would have been, the shutdown looks likelier to actually happen.
Failure to raise the debt limit would have meant the U.S. Treasury Department could no longer borrow money to make payments it was legally required to make. That would imperiled not just government services but also the U.S.’s ability to repay the holders of its debt and even retirement programs like Social Security and Medicare. Mark Zandi, chief economist at research firm Moody’s Analytics, estimated this spring that a U.S. default could have wiped out 8 million jobs and $10 trillion in household wealth, possibly provoking a global financial crisis.
In a government shutdown, funding for federal agencies lapses and the administration is required to suspend a broad range of payments. But the White House Office of Management and Budget has preexisting shutdown plans that allow for an orderly process to unfold. And bondholders and Social Security recipients still get paid, because that money isn’t provided by annual spending laws.
There have been four government shutdowns in U.S. history, according to the Committee for a Responsible Federal Budget, a Washington-based think tank, including a 35-day shutdown during the Trump administration. Even that funding lapse had no major impact to the U.S. economy more broadly. The nonpartisan Congressional Budget Office found that shutdown decreased economic output by about $3 billion, despite particularly severe effects for federal workers who missed consecutive paychecks.
In the event of breaching the debt ceiling, “we’d be permanently and abruptly be on a worse path,” said Wendy Edelberg, director of the Hamilton Project and a senior fellow in economic studies at the Brookings Institution, a Washington-based think tank. “A shutdown is largely temporary — or at least, the persistent economic effects are small, and hard to tease out of the data.”
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