Homeland Security to Shut Down as Lawmakers Depart Without a Deal

Happy Thursday! Trump border czar Tom Homan said today that the administration is ending its aggressive immigration crackdown in Minnesota. Homan said that the operation, which resulted in more than 4,000 arrests as well as weeks of protest and the fatal shootings of two U.S. citizens by federal officers, made Minnesota safer and less of a "sanctuary state for criminals." State and local officials said it would take time to recover. "This operation has been catastrophic for our neighbors and businesses, and now it's time for a great comeback," Minneapolis Mayor Jacob Frey wrote on X.

The fight over the administration's immigration enforcement isn't over, though - and it's about to result in another partial government shutdown. Here's what you need to know.

Homeland Security to Shut Down as Lawmakers Depart Without a Deal

The Department of Homeland Security is headed for a shutdown tomorrow night - one that might not be resolved quickly as Democrats continue to press the Trump administration for changes to its immigration enforcement tactics.

With little progress in bipartisan talks on reforms to rein in federal immigration agents, Democrats on Thursday rejected a White House counteroffer meant to keep the department funded beyond a Friday night deadline. Senate Democrats then blocked House-passed legislation that would provide $64 billion to fund DHS through September. The 52-47 vote on the measure fell short of the 60 votes needed for the bill to advance. Sen. John Fetterman of Pennsylvania was the only Democrat to support the bill. Senate Majority Leader John Thune switched his vote to "no" to be able to bring the bill up again in the future.

Democrats then objected to a two-week extension of current funding to keep the department running while longer-term negotiations continue. Congress is now set to be out on recess until February 23, leaving little hope that a shutdown will end quickly.

Democrats insist reforms must come first: Democrats insist that they are only seeking reasonable and necessary reforms to rein in abuses by Immigration and Customs Enforcement and Customs and Border Protection. They say guardrails must be put in place before additional funding is approved.

"Democrats have made abundantly clear: We cannot continue funding a rogue department without substantial reforms. Accountability at DHS must be written into law," said Sen. Patty Murray, vice chair of the Senate Appropriations Committee. "We cannot kick the can down the road as Republicans want us to do. The time to rein in these rogue agencies is right now. We cannot waste another moment-and if Republicans refuse to make the changes the American people are demanding, they are forcing a Republican shutdown of DHS."

White House negotiators reportedly submitted their latest proposal Wednesday night. Democrats quickly said it falls short of what is needed. "Late last night, we received more details on the White House's proposal-and what's clear at this point: It does not come close to addressing Americans' grave concerns about how ICE and Border Patrol are operating," Murray said.

Murray told reporters that Democrats intend to counter the White House offer.

Republicans say Democrats must step up: Thune, a South Dakota Republican, defended the White House offer and blamed Democrats for walking away from an earlier bipartisan agreement to fund DHS - the same measure that they voted against today. That bill would have provided money for body cameras and de-escalation training for federal officers, but after Alex Pretti was shot and killed late last month, Democrats insisted those measures were insufficient and additional reforms are needed.

Thune also criticized Democrats for insisting that Congress provide only a two-week extension of DHS funding while new reforms were negotiated. He said Democrats then showed little urgency to meet their new deadline. "It's clear," Thune said on the Senate floor, "that the White House is serious. But it's increasingly looking like Democrats are not."

Thune said the onus is now on Democrats to get serious. "Democrats are never going to get their full wish list. That's not the way this works," he said. "But Democrats can build on the measures that Republicans have already agreed to if they actually engage in serious negotiations with the White House." Thune added a pointed question for those on the other side of the aisle: "Is this about politics, or is it about solutions?"

What a shutdown would mean: A DHS shutdown may have limited immediate impact, despite the department's sprawling reach. Immigration and Customs Enforcement and Customs and Border Protection received huge funding boosts as part of last year's Republican reconciliation bill. Other parts of the department, including the Federal Emergency Management Agency, the Transportation Security Administration, the Coast Guard and the Cybersecurity and Infrastructure Security Agency, would see their funding lapse - but the public might take a while to notice.

"D.H.S. essential missions and functions will continue as they do during every shutdown," the department said in a statement to news outlets. "However, during a shutdown, many employees will be forced to work without pay, putting strain on the frontline defenders of our nation."

DHS deemed 258,000 of its 272,000 employees "essential" and required them to work during the government shutdown last fall, Reuters notes. And Politico points out that FEMA has enough funds available to continue operations for at least a month or two, while TSA screeners wouldn't miss a full paycheck until mid-March. Coast Guard and Secret Service employees could get paid using money from last year's Republican megabill.

The bottom line: Funding for DHS is set to lapse on Saturday, marking the third time in five months that the federal government or parts of it will have to shut down. Negotiations will continue, and lawmakers have been told to be prepared to quickly return to D.C. if a deal is reached.

Americans Are Paying About 90% of the Cost of Trump's Tariffs: Analysis

American consumers and companies are paying roughly 90% of the cost of President Trump's tariffs, according to new research from economists at the Federal Reserve Bank of New York and Columbia University.

In an analysis published Thursday, economists Mary Amiti, Chris Flanagan and Sebastian Heise of the New York Fed and David E. Weinstein of Columbia reviewed tariff rates and import data to determine who shouldered the burden of Trump tariffs between January and November 2025.

As a general rule, the cost of tariffs - which economists refer to as the tariff incidence - is split between exporters and importers. Although importers by definition pay the tariff fees at the port of entry, the cost is usually shared to some extent by exporters, who can lower their prices to help soften the blow of higher import taxes.

Since Trump began to impose dramatically higher tariffs on trading partners around the world, he and administration officials have insisted that the tariff incidence from the new levies is falling on foreign exporters, presumably through major price cuts. The data, however, indicates otherwise.

According to the four economists, between January and August of 2025, U.S. importers covered 94% of the cost of the tariffs. In October, the tariff incidence inched lower to 92%, and by November, the most recent data available, it stood at 86%. Although the incidence shifted over time, it's clear that American consumers and companies were paying most of the cost throughout the year.

Over the course of the first 11 months of 2025, the average import tariff rate rose from 2.6% to 13%. The findings on the tariff incidence imply that consumer prices for imported goods rose on average 11% more than prices for goods not subject to the tariffs.

Similar findings: The results of the new research are consistent with other analyses. In January, the Kiel Institute concluded that American firms and consumers have paid 96% of the cost of Trump's tariffs, while a paper published by the National Bureau of Economic Research found that the tariff incidence is close to 100%.

In new economic projections released this week, the Congressional Budget Office said it expects the U.S. to pay 95% of the cost of the tariffs, with consumers ultimately bearing the full cost through higher prices. In addition, CBO said the tariffs will reduce investment and employment in the long run, lowering the level of gross domestic product relative to a scenario without the tariffs.

The bottom line: The researchers in the Fed paper offered a simple conclusion: "In sum, U.S. firms and consumers continue to bear the bulk of the economic burden of the high tariffs imposed in 2025."

Did you know? Abraham Lincoln and Charles Darwin were both born on this date in 1809. Send your feedback to yrosenberg@thefiscaltimes.com.

Fiscal News Roundup

• Homeland Security Shutdown Seems Certain as Funding Talks Between White House and Democrats Stall – Associated Press
• Trump Administration Says It Is Ending Its Immigration Surge in Minnesota – NBC News
• Guard Troops Fully Withdraw From Chicago, Portland and Los Angeles – New York Times
• Bessent's Crackdown on Alleged Fraud in Minnesota Sends Banks Scrambling – Bloomberg
• Trump Tariffs Leave Importers With Record-Breaking $3.5 Billion U.S. Customs Bond Funding Shortfall – CNBC
• Americans Are Paying the Bill for Tariffs, Despite Trump's Claims – New York Times
• Tariff Votes Hand Republicans an Unwanted Referendum on Affordability – Politico
• Trump Nominates White House Lawyer to Trade Court That Could Decide Details of Any Tariff Refunds – Politico
• Tillis Open to Compromise That Would Advance Trump's Fed Chair Nominee – Associated Press
• Senate Clamps Down on DC Tax Bill – Politico
• Justice Department's Antitrust Chief Has Been Fired, Sources Say – CNN
• Lawmakers Express Bipartisan Outrage as DOJ Accused of 'Spying' on Members' Epstein Searches – The Hill
• More Than 50 Conservative Leaders Sign Letter Against Trump Drug Pricing Policy Codification – The Hill
• As Colleagues Wind Down Their Careers, Rosa DeLauro Is Staying Put – Roll Call
• EPA Repeals Landmark Finding That Climate Pollution Is Harmful – Politico

Views and Analysis

• A Partial Government Shutdown Is About to Hit the Department of Homeland Security. Here's What That Means – Tami Luhby, CNN
• How the Upcoming DHS Shutdown May Affect You – Herb Scribner, Axios
• Some Folks on Wall Street Think Yesterday's US Jobs Number Is 'Implausible' and Thus Due for a Downward Correction – Jim Edwards, Fortune
• Trump's First-Term Tariffs Crushed US Manufacturing – Alan Reynolds, Cato Institute
• Global Trade Is Leaving the US Behind – Scott Lincicome, Bloomberg
• Tariffs as Fiscal Policy – Kimberly A. Clausing and Maurice Obstfeld, Cato Institute
• A Consumption Tax on Americans Is Brewing. Tariffs Are the Dry Run – Mitch Daniels, Washington Post
• The Real Greenspan Lesson for Warsh on Inflation – Jason Furman, Financial Times
• Why the Middle Class Feels Poor – Jordan McGillis, Wall Street Journal
• ICE Is on a Dark Path. Congress Must Act Now – New York Times Editorial Board
• Dr. Oz Is Not the Retirement Guru America Needs – Kathryn Anne Edwards, Bloomberg
• RFK Jr. Promised to Restore Trust in US Health Agencies. A Year Later, It's Eroding – Mike Stobbe and Ali Swenson, Associated Press
• What the Democrats Need to Do Now – Michael Tomasky, New Republic