U.S. gov't shuts down for first time in 7 years amid widening partisan divisions

The U.S. federal government entered a shutdown at the start of Wednesday, as partisan divisions prevented Congress from passing a funding bill, marking the first government shutdown in nearly seven years.

This 15th government shutdown since 1981 would halt the release of a closely watched September employment report, slow air travel, suspend scientific research, withhold pay from U.S. troops and lead to the furlough of 750,000 federal workers at a daily cost of $400 million.

Trump, whose campaign to radically reshape the federal government is already on track to eliminate some 300,000 jobs by December, warned congressional Democrats that a shutdown could clear the path for "irreversible" actions, including further job cuts and program reductions.

The shutdown commenced hours after the U.S. Senate failed to pass a short-term spending bill that would have temporarily kept the government running. The continuing resolution proposed by Senate Republicans was blocked by Democrats, falling short of the 60 votes required for passage.

In the latest negotiations, healthcare benefits have been a key sticking point between the two parties. Democrats are demanding stronger healthcare-related benefits, including an extension of the enhanced subsidies for the Affordable Care Act, which are set to expire at the end of the year, as well as restoring the act's coverage eligibility for certain immigrants who are legally present, including refugees and asylum seekers.

Republicans, on the other hand, opposed these measures and have been pushing to temporarily maintain current government funding levels to allow more time for negotiations.

Republicans and Democrats continued to trade blame recently, accusing each other of forcing the government into a "shutdown."

At issue on the government funding front is $1.7 trillion for agency operations, which amounts to roughly a quarter of the government's total $7 trillion budget. Much of the remainder goes to health and retirement programs and interest payments on the growing $37.5 trillion debt.

Trump budget director Russell Vought, who has called for "less bipartisan" appropriations, threatened permanent layoffs last week in the event of a shutdown.

Wall Street futures slipped, gold struck a record high, and Asian stocks wavered as investors worried about delays in the release of key data and the impact of job losses. The dollar hovered near a one-week low versus major peers.

The longest U.S. government shutdown to date

The longest government shutdown in U.S. history, which lasted over 35 days from December 2018 to January 2019, was during Trump's first term in office and was sparked by a dispute over border security.

"All they want to do is try to bully us. And they're not going to succeed," Senate Democratic leader Chuck Schumer said in a floor speech a day after a White House meeting with Trump and other congressional leaders that ended with the two parties far apart.

Senate Majority Leader John Thune described the failed short-term spending bill as a "nonpartisan" measure devoid of partisan policy riders that Democrats have had no problem accepting in years past. 

"What's changed is, President Trump is in the White House. That's what this is about. This is politics. And there isn't any substantive reason why there ought to be a government shutdown," the South Dakota Republican told reporters.

Trump's Republicans hold majorities in both chambers of Congress, but legislative rules require 60 of the 100 senators to agree on spending legislation. That means that at least seven Democrats are needed to pass a funding bill.

Democrats are under pressure from their frustrated supporters to secure a rare victory ahead of the 2026 midterm elections, which will determine control of Congress for the final two years of Trump's term.

The social impact of a shutdown

Along with the extended health subsidies, Democrats have also sought to ensure that Trump will not be able to undo those changes if they are signed into law. Trump has refused to spend billions of dollars approved by Congress, prompting some Democrats to question why they should vote for any spending legislation at all.

University of Chicago professor Robert Pape said the unusually polarized U.S. political climate in the aftermath of conservative activist Charlie Kirk's assassination and the growing power on the extreme wings of both parties could make it harder for party leaders to agree on a deal to reopen the government.

"The rules of politics are radically changing, and we can't know for sure where all of this is going to end," said Pape.

U.S. stock index futures fell on Wednesday as investors assessed the implications of the federal government shutdown, which threatens to disrupt the release of key economic data and complicate the Federal Reserve's policy path. While shutdowns have not derailed markets historically, the current episode coincides with a critical period when stock valuations are elevated and sentiment is fragile.

Hundreds of thousands of federal workers would be furloughed without pay, and a wide range of services could be disrupted, from financial oversight to trash pickup at national parks. Other workers deemed essential would remain on the job, though they also would not get paid. In the past, federal workers have been paid for their time off retroactively. 

Shutdowns that last only a few days have little practical impact, particularly if they occur over a weekend, but the broader economy could suffer if federal employees begin missing paychecks after two weeks. This time, a prolonged shutdown would create more turmoil as Trump's trade wars and battles with the Federal Reserve have already injected uncertainty into the global economy.

(With input from agencies)