Shutdown Risk Soars as Senate Rejects Dueling Funding Bills

Good evening. We head into the weekend 11 days from a government shutdown deadline, and the odds of federal agencies being shuttered jumped today as the Senate rejected a pair of funding bills. Here's what you should know.

Senate Rejects Competing Funding Bills, Raising Shutdown Odds

It sure looks like we're hurtling toward a government shutdown at the end of this month.

The Senate on Friday failed to pass a pair of competing stopgap spending bills, one from Republicans and one from Democrats, that would avert a shutdown after current federal funding expires at the end of the month. The votes cement a shutdown standoff, leaving it unclear whether lawmakers will be able to find a way to keep federal agencies open past September 30.

Far short of 60 votes: The Democratic bill, which combined a funding patch to October 31 with an extension of enhanced Affordable Care Act subsidies, a reversal of Republicans' Medicaid cuts and other policy provisions, was rejected in a 47-45 vote that fell well shy of the 60 votes needed.

Then, in a 44-48 vote, senators failed to pass a "clean" Republican stopgap that would extend funding largely at current levels through November 21. The bill would add some $88 million to fund security for members of Congress, the executive branch and the Supreme Court. One Democrat, Sen. John Fetterman of Pennsylvania, voted for the bill, while two Republicans, Sens. Lisa Murkowski of Alaska and Rand Paul of Kentucky, voted against it as well.

House Republicans had passed that bill in the morning, 217-212, largely along party lines. Republican Reps. Thomas Massie of Kentucky and Victoria Spartz of Indiana voted against the bill, while Democratic Rep. Jared Golden of Maine supported it.

Both sides now appear dug in and their messaging battle is ramping up as each blames the other for the standoff and a potential shutdown.

What Republicans say: GOP leaders say Democrats are gumming up what should be a simple vote to keep the government open - a vote on precisely the kind of "clean" short-term continuing resolution that Democratic leaders have called for in the past - by injecting partisan demands into the process. Republicans insist that, while some Democratic demands are non-starters, there's room to address the expiring Affordable Care Act tax credits, but that can be done once the government is funded, which would also buy time for appropriators to continue working on full-year spending bills.

"The Republican bill is a clean, nonpartisan, short-term continuing resolution to fund the government to give us time to do the full appropriations process. And the Democrat bill is the exact opposite," Senate Majority Leader John Thune said before Friday's votes. "It's what you might call, not a clean CR, a dirty CR - laden down with partisan policies and appeals to Democrats' leftist base."

What Democrats say: Democrats' message to voters if a shutdown occurs might be encapsulated by this line from Democratic Rep. Richard Neal today: "Republicans would rather shut down the government than bring down healthcare costs."

Democrats argue that they're fighting to keep millions of Americans covered by health insurance, to keep coverage costs from soaring for millions more and to keep the Trump administration from encroaching on Congress's power of the purse. And they say Republican claims that healthcare issues can still be addressed later this year aren't good enough. "For Republicans, later means never," Senate Minority Leader Chuck Schumer said Friday.

Democratic leaders are also betting that the American public values bipartisanship. Schumer and other Democrats argue that Republicans need their votes to pass a funding bill so they should negotiate a bipartisan deal. They're counting on the idea that Americans will blame the party in control of Congress and the White House for any shutdown. And they note that President Trump has said that Republicans should not "even bother" dealing with Democrats. "You want Democratic votes on a funding bill? A good place to start is actually trying to win those votes," said Sen. Patty Murray of Washington.

What's next: Both the House and Senate are scheduled to be out next week for the Jewish new year. Senators are due back on September 29, and Republicans are reportedly planning a repeat vote on the House-passed measure shortly before the deadline in hopes that some Democrats will fold under pressure. "Looks to me like it's this or a shutdown," Thune said.

House Republican leaders are looking to add more pressure on Senate Democrats. They told members on Friday that no votes would happen until October 1, after the shutdown deadline - a decision that leaves the Senate no path to enacting an alternative to the House-passed plan.

Extending Obamacare Subsidies Benefits Middle-Income Households Most: JCT

As we noted above, Democrats are pushing to extend enhanced subsidies for Obamacare health plans that expire at the end of the year as part of a funding package to keep the government open, but Republicans say the issue can wait. Affordable Care Act premium subsidies are a "December policy issue, not a September funding issue," House Speaker Mike Johnson told reporters this week, even as Democrats insist that they need to be addressed before health insurance pricing for 2026 is finalized and open enrollment begins on November 1.

A new analysis from the nonpartisan Joint Committee on Taxation shows that extending the subsidies through 2026 would benefit households earning less than $200,000 the most. According to a JCT memo obtained by Punchbowl News, households in that income range would see benefits worth $25.6 billion next year, while households earning between $200,000 and $500,000 would see benefits worth $1.5 billion.

Without the subsidies, prices are expected to soar for those with ACA health plans, and some participants may leave the program, driving prices higher still as the risk pool deteriorates. "Premiums are set to go through the roof, by as much as hundreds of dollars each month and thousands of dollars each year. The average American family can't afford that," Senate Minority Leader Chuck Schumer said Friday.

Treasury Releases Rules for 'No Tax on Tips'

Fulfilling a campaign pledge by President Donald Trump, Congress shielded some tip income from federal taxes in the big policy bill it passed this summer. On Friday, the Treasury Department released proposed rules for the program.

The regulations, which must undergo the standard approval process, identify nearly 70 types of jobs that would allow workers to claim the tax break, applying to as much as $25,000 in income. The tax break starts to be phased out at $150,000 in annual income and is eliminated for those earning more than $400,000.

The rules state that the break is limited to occupations in which workers "customarily and regularly receive tips," organized within eight categories: beverage and food service; entertainment and events; hospitality and guest services; home services; personal services; personal appearance and wellness; recreation and instruction; and transportation and delivery.

Many of the jobs in the non-exhaustive list of occupations covered by the new rules are no surprise, including bartenders, restaurant waitstaff, baristas, casino card dealers, caddies, musicians, street performers, bellhops, maids, house cleaners, barbers, cab drivers, movers and pizza deliverers. Others are less expected, including clergy, plumbers, electricians, online video creators, social media influencers and podcasters.

The rules make it clear, though, that all tips must be voluntary and not subject to negotiation, and cannot be connected to criminal acts. "Any amount received for illegal activity, prostitution services, or pornographic activity is not a qualified tip," the proposed rules say.

Fiscal News Roundup

• Senate Rejects Both Parties' Bills to Avoid a Shutdown, Leaving Next Steps Uncertain – NBC News
• Senate Derails Funding Bills in Shutdown Stalemate – Politico
• Inside Schumer's Shutdown Strategy – Punchbowl News (video)
• Speaker Floats Member Security Funding Package in October – Politico
• Trump to Impose $100K Fee on H-1B Visas in New Immigration Action – CNN
• Miran Says He Doesn't See Tariffs Causing Inflation, Putting Him in Minority on Fed Committee – CNBC
• Republicans Bristle at Rising Costs for Rebuilding Baltimore Bridge – Politico
• White House Vetting IRS Federal Advisory Committee – Politico
• U.S. Plans $6 Billion in New Arms Sales to Israel – Wall Street Journal
• Trump's Team Explores Government-Backed Manufacturing Boost – Wall Street Journal
• U.S. Government Expected to Get Multibillion-Dollar Fee in TikTok Deal – Wall Street Journal
• Judge Tosses Trump's $15B New York Times Lawsuit, Calling It 'Improper' and 'Invective' – NBC News
• Kennedy's Vaccine Advisers Decline to Recommend COVID-19 Shot for All Americans – Associated Press
• House Approves Charlie Kirk Resolution on Bipartisan Vote – Politico

Views and Analysis

• Schumer Finally Has a Plan for a Government Shutdown – Nia-Malika Henderson, Bloomberg
• A Government Shutdown Could Lead to the Last Filibuster – Ed Kilgore, New York
• Chuck Schumer Courts a Government Shutdown – Wall Street Journal Editorial Board
• Why the Fed Rate Cut Won't Ease the Government's Debt Problem – Richard Rubin, Wall Street Journal
• Why the Fed's Rate Cut May Be Its Last of 2025 – Jonathan Levin, Bloomberg
• How Independent Is the Fed Really? – Max Chafkin and Stacey Vanek Smith, Bloomberg (podcast)
• Do We Really Want an Independent Fed? – Christopher Caldwell, New York Times
• Kennedy's Take on Vaccine Science Fractures Cohesive National Public Health Strategies – Stephanie Armour et al, KFF health News
• RFK Jr.'s Dismantling of the Vaccine Schedule Has Only Just Begun – Leana S. Wen, Washington Post
• The Stealth Assault on Medicare – Robert Kuttner, American Prospect
• GOP Wrings Hands About Fraud After Crushing CFPB – Whitney Curry Wimbish, American Prospect
• How Democrats Can Get Their Economic Mojo Back – Will Marshall, The Hill
• Grocery Prices Have Jumped Up, and There's No Relief in Sight – Scott Horsley, NPR
• A Lawless Nation – Paul Krugman, Substack