Are We on the Brink of Another Government Shutdown?

On Capitol Hill, lawmakers are gearing up for what has become a national tradition: haggling over government spending. If a decision cannot be agreed upon in the next two months, the government will be forced into a shutdown. Here's what you need to know ahead of a possible shutdown in 2023.

What is a government shutdown?

Congress controls the pursestrings of the U.S. government, meaning the government generally cannot spend or promise money without the legislative branch's say-so. The federal government's new fiscal year begins on Oct. 1, and without an approved budget resolution, federal agencies will be unable to spend any money and will effectively shut down.

During a shutdown, Federal employees who are furloughed will see their personal finances tighten while being temporarily out of work. Additionally, private-sector spending by government agencies will be put on hold, as happened during the 2013 shutdown that reportedly cost the economy $24 million.

However, a government shutdown would not mean the end of all federal services. Programs like Social Security and Medicare are protected in the event of a shutdown. While some services, such as contacting your local Social Security office or applying for Medicare benefits would be restricted, monthly payments and medical benefits would not.

Read more: How Do Government Shutdowns Affect the Stock Market?

Playing politics

To be clear, government shutdowns are not uncommon. There have been 20 so-called "funding gaps" since the current budget approval process was put into place in 1976. Many of those funding shortfalls have lasted mere hours, culminating in compromise. But the 118th Congress has a handful of unique hurdles in the way of reaching an agreement before the Oct. 1 deadline.

As is common in budget proceedings, politicians on both sides of the aisle are playing politics with a must-pass bill. Specifically, some on the right flank of the Republican party are seeking to eliminate certain programs that do not match their ideology on social issues. The prospect is a non-starter for President Biden, who has threatened to veto any bill including such measures.

The power dynamic within the House has also shifted, in large part due to political drama revolving around Speaker McCarthy. To pass a bill, he will need to cobble together support from his already slim Republican majority -- without getting thrown off by a bucking Freedom Caucus of far-right members. And Speaker McCarthy is in a vulnerable position, with only a few representatives needing to agree to call a snap vote to replace him. His failure to find common ground in a hostile House could spell a drawn out shutdown.

What comes next?

There is a lot of work to be done in the next two months to avoid a shutdown, not the least of which is reconciling a budget proposal between the two chambers of Congress. And while the Democratic-majority Senate has begun drafting a bill in earnest, the House has some work to do before it can stand behind a proposal of its own. If Congress can eventually agree on a spending bill, it will then require President Biden's signature to become law.

In the meantime, federal employees should consider boosting their savings should a shutdown happen. Because funding will not run out until October, affected workers have a little time on their side to bolster their emergency funds and prepare for a temporary loss of income. A well-planned strategy today can help prevent the need to dip into retirement accounts or take on debt to fund daily expenses.

The drama that will play out in Washington over the next few months is an all-too-common display of political brinkmanship, but with an added twist. Social issues are taking center stage, and a divided House may be unable to reconcile its differences in order to put forth passable legislation. And for the half million federal workers whose livelihoods depend on finding a compromise, all eyes will be on the House over the next few months.