By Akemi Kondo Dalvi, CPA/PFS?, CFP?
Anyone else tired of hearing the same looming government shutdown headlines in the news? After a six-week summer break, the House and Senate are back on Capitol Hill, talking about a possible government shutdown. There have been 21 federal shutdowns over the last five decades. Congress has until the end of September to avoid the 22nd.
The most recent government shutdown was 35 days under President Trump from December 2018 through January 2019. This was the longest government shutdown in U.S. history. The shutdown was attributed to Trump’s demand for $5.7 billion to fund a border wall along the Mexico border, which Democrats strongly opposed.iPresident Trump signed a short-term funding bill to reopen the government through Feb. 15 of 2019, ending the last shutdown.
Generally speaking, government shutdowns occur when Congress cannot pass a government appropriations bill. These bills are supposed to be passed annually to fund government operations for the upcoming fiscal year, which begins each Oct. 1. The 2024 appropriations bill included 12 funding bills: Agriculture, Rural Development, Food and Drug Administration, Commerce, Justice, Science, Energy and Water Development, Interior Environment, Military Construction, Veterans Affairs, Transportation, and Housing and Urban Development.
When final appropriations have not been approved by Congress and the president, continuing resolutions (CRs), also called temporary spending bills, are often passed to allow the federal government’s operations to continue without a shutdown. Four CRs were passed in 2024, splitting up passage of the 12 appropriations bills in a laddered approach that funded the government through Sept. 30, the end of the 2024 fiscal year.
That brings us to present day, the start of a new fiscal year and on the verge of a brand new government shutdown. House Speaker Mike Johnson has proposed a continuing resolution to keep the federal government funded through March 2025. However, there are rumors that Johnson’s plan could attach a bill to the CR, requiring people to prove they are citizens in order to register to vote. If passed, the bill would be enacted just before the November presidential election.ii
If the government were unable to pass a spending bill by Sept. 30, federal employees in essential positions would be required to continue working, and non-essential government workers would be forced to stay home. Both groups would have delayed paychecks. Many federal contractors will not get paid at all. Members of Congress will continue to get a paycheck, even if they haven’t reached a deal to fund the government.iii
Essential services such as the U.S. Postal Service, Medicare, Social Security, air traffic controllers, customs agents, and border agents will continue to work. Social Security payments and other mandatory government payments would still continue.
Analysts believe a government shutdown is highly unlikely due to the timing. In other words, it is predicted the House and Senate will work out a deal to keep the government funded, as a shutdown would reflect negatively on both political parties. If a new spending bill is not passed, the government would shut down at the same time that millions of voters are eligible to cast early votes, some in battleground states.
The risk is too high, and control of the House and Senate is at stake between Democrats and Republicans currently. Therefore, it is predicted Democrats will reject the GOP-led voter ID legislation, and Republicans will demand that the CR extend to March 2025, when the newly elected administration will be in place.
While headlines will continue to be alarming and sensational up to the presidential election, it is important to remember that the outcome often is less dramatic. Historians and economists have repeatedly stated that there is no discernable U.S. stock market pattern tied to Democratic or Republican presidential leadership alone. Rather it is the policies enacted by the administrations that affect the economy and stock market. Historically, the stock market has responded most positively to split control between House and Senate, as the two parties tend to balance each other in policy.
An ideal solution for investment portfolios to weather uncertainty is to reduce concentration risk through diversification, pair inversely correlated asset classes together to reduce volatility, and systematically rebalance to manage risk and emotion. Consult a Certified Financial Planner or a CPA/PFS to ensure your portfolio is prepared for whatever lies ahead.
List of government shutdowns in the U.S. since 1974:
- 1976: Under President Gerald Ford. Lasted for 11 days.
- 1977: Under President Jimmy Carter. Lasted 12 days.
- 1977: Under President Carter. Lasted eight days.
- 1977: Under President Carter. Lasted eight days.
- 1978: Under President Carter. Lasted 17 days.
- 1979: Under President Carter. Lasted 11 days.
- 1981: Under President Ronald Reagan. Lasted two days.
- 1982: Under President Reagan. Lasted one day.
- 1982: Under President Reagan. Lasted three days.
- 1983: Under President Reagan. Lasted three days.
- 1984: Under President Reagan. Lasted two days.
- 1984: Under President Reagan. Lasted one day.
- 1986: Under President Reagan. Lasted one day.
- 1987: Under President Reagan. Lasted one day.
- 1990: Under President George H.W. Bush. Lasted four days.
- 1995: Under President Bill Clinton. Lasted five days.
- 1996: Under President Clinton. Lasted 21 days.
- 2013: Under President Barack Obama. Lasted 17 days.
- 2018: Under President Donald Trump. Lasted three days.
- 2018: Under President Trump. Lasted several hours.
- 2019: Under President Trump. Lasted 35 days.
i. https://thehill.com/homenews/administration/427004-trump-agrees-to-end-shutdown/
ii. https://www.usatoday.com/story/news/politics/elections/2024/09/09/congress-government-shut-down-what-to-know/75141042007/
iii. https://www.cbsnews.com/news/government-shutdown-2023-does-congress-get-paid/
The opinions expressed above are solely those of Kondo Wealth Advisors, Inc. (626-449-7783 [email protected]), a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, Inc. nor its representatives provide legal, tax or accounting advice.