Does It Matter If Congress Doesn't Raise the Debt Ceiling?
Additionally, states and localities would be impacted by the sequester. Education funding would be cut, as would money for community block grants, nutrition program for women and children and public housing programs. About one-third of state funding comes from the federal government and 18 percent of states' grant dollars are federally funded, according to a report released by Pew Center for the States.
The Continuing Resolution
The primer: The continuing resolution, also known inside the Beltway as the CR, is a mechanism passed by Congress to keep money flowing, keeping the government open. Because Congress was unable to pass the dozen appropriations, or funding, bills before the new fiscal year, which began October 1, Congress passed a CR to keep the government running. It will expire March 27.
If Congress or the president uses the CR as a bargaining tool to invoke policy preferences, such as reducing spending, cutting Social Security or raising taxes, then Congress could risk a government shutdown.
Although there have been numerous close calls in recent years, the last government shutdown was during the Clinton administration in 1995 and it was the country's longest. Lasting 21 days, Mr. Clinton and Congress battled over government spending and budget priorities.
The impact: While the impacts of not raising the debt ceiling are severe, a government shutdown appears mild in comparison. It could impact hundreds of thousands of government workers and disrupt people's vacation plans, but it would largely spare broader, dire impacts on the economy - other than continue to erode the market's confidence in Washington.
To explain, during a government shutdown, all non-essential government workers are furloughed. In the 1995 shutdown, the Congressional Research Service said 284,000 workers were told not to come to work. In a previous shutdown, earlier that year, 800,000 workers were impacted. Vacations would be impacted because national parks would not open and passports would not be issued.
But with a government shutdown, any government activity that "protects life and property" must remain in operation. For instance, air traffic controllers stay on the job and federal prisons stay guarded. But, one area of contention during a government shutdown revolves around entitlement recipients. Because programs like Social Security and Medicare are part of the mandatory spending part of the budget, a government shutdown does not impact those payments. However, the thousands of government workers who issue those checks or answer the phones to help recipients change their address or sign up for the programs, could be considered nonessential, therefore delaying disbursement of checks and help with services.
Government workers who are considered essential to life and property would be expected to come to work and once the government is up and running, Congress has the ability to approve retroactive pay, which would enable government workers, including the furloughed ones, to receive pay lost due to the lapse in funding.
As Republicans and Democrats spar over spending, taxes and the debt ceiling, the economic impacts have consequences that, once again, are in the hands of Washington's politicians.