Update 895 – Sliding toward Shutdown
FY26 Status Leads Week’s Round-Up
With only 10 days left for Congress to approve and Trump to sign a Fiscal Year 2026 (FY26) budget to avoid a shutdown, the House voted today to advance a Republican CR proposal that would fund the government through November 21. But the Senate quickly rejected the proposal, as well as a competing CR proposed by Democrats. With only two more in-session days scheduled before the end of the fiscal year, shutdown odds have only increased. House Republicans are planning to stay out on recess past the September 30 deadline, forcing the Senate either to accept their proposal or trigger a government shutdown. More on this below.
Also this week, the House voted to block efforts to curb President Trump’s tariffs through March, and Senator Ron Wyden (D-OR) introduced the Billionaire Income Tax Act, which would prevent Billionaires from paying lower tax rates on their income than teachers and nurses. Additionally, a House Financial Services Committee markup was held on Tuesday, where the committee took up several bills that would weaken banking regulations.
Good weekends all…
Best,
Dana
Headline
Shutdown Looms as FY26 Stand-off Intensifies
Today, the House took a step forward on government funding, passing a short-term continuing resolution (CR) in a 217-212 vote. Republican Representatives Thomas Massie (R-KY) and Victoria Spartz (R-IN) joined Democrats in opposing the stopgap funding bill, while Democrat Representative Jared Golden (D-ME) voted in favor.
But the nominal “progress” toward avoiding a shutdown was short-lived, as the Senate quickly considered and rejected the CR in a 44-48 vote that occurred this afternoon. Senator John Fetterman (D-PA) was the sole Democrat to support the measure, and Republican Senators Lisa Murkowski (R-AK) and Rand Paul (R-KY) opposed. The Senate is scheduled to be out on recess next week, leaving it only two scheduled in-session days (9/29 and 9/30) before a potential government shutdown begins on October 1.
The House-passed CR, which was drafted by Republicans almost entirely without input from Democrats, would extend funding at current levels through November 21 (seven weeks) with some adjustments, or anomalies. The CR is relatively light on some of the extreme, partisan policy riders that have been the trademark of the House Republican Caucus in recent years, though the vote count indicates an absence of bipartisan support.
Despite not containing an abundance of extreme riders, Democrats have argued that the CR extends the status quo, continuing inadequate funding levels and failing to address gaping holes in our social safety net (e.g., healthcare) created by Republican policies like the OBBB. Democrats have also called out Republicans for failing to negotiate with them before releasing a proposal. In their eyes, how can legislation be bipartisan or non-partisan when it was drafted without the other party’s input?
For these reasons, Democrats released a counter-proposal for a CR on Wednesday night. Their proposal, which would only extend funding through the end of September, added a multitude of Democratic priorities, including:
- Permanent extension of enhanced ACA Premium Tax Credits (PTCs) scheduled to expire at the end of this year, leading to a 75 percent increase in marketplace healthcare premiums.
- Repeal of the health title of the OBBB, which included over $1 trillion in cuts to Medicaid.
- Restoration of some funding that was illegally withheld/impounded by the Trump administration.
- Elimination of the simple majority vote threshold for rescission packages and protections against rescissions right before the end of a fiscal year (pocket rescissions).
Schumer was able to force a vote on the Democratic CR proposal shortly before the Senate considered the House-passed version, but it failed 47-45.
Now, the path forward on government funding is unclear, and the chances of a government shutdown are rapidly increasing. Time and time again, Democrats have pushed for bipartisan negotiations with little response or interest from Republicans. President Trump himself even urged congressional Republicans not to negotiate with Democrats, stating last week that GOP leaders should not “even bother dealing with them.” But government funding bills, like other legislation in the Senate, are subject to a filibuster, which requires 60 votes to break. And as Republicans only hold a slim 53-47 majority, there is no way to reach a resolution without some sort of compromise to secure Democratic votes (if they stand united).
Unless either side caves, we are headed for a harmful government shutdown. Members of both parties are acutely aware of this fact and have spent much of their time in recent weeks trying to position their party to “win” a shutdown. Republicans are arguing that Democrats are forcing a shutdown by not agreeing to a clean CR, while Democrats see no reason to support a proposal amid Trump’s successful attempts to renege on past funding agreements and Republicans’ gutting of crucial government assistance in the OBBB.
For Senate Democrats, there is little incentive to offer their votes for free simply for the sake of avoiding a shutdown, especially after a group of them – including Minority Leader Chuck Schumer (D-NY) – faced extreme backlash from their base after backing down in a similar funding negotiation in March. It is currently unclear which party would take responsibility for a government shutdown in the eyes of the public, but Democrats are certain that they can’t simply repeat their March approach, meaning they are likely to make use of the leverage they have.
To complicate matters further, House leadership is planning to delay the chamber’s return from recess until after the September 30 shutdown deadline. This means that, even if Senate Republicans do choose to negotiate with Democrats to get to 60 votes, their proposal would head back to an empty House.
With neither side willing to compromise and House leaders threatening to stay away through the end of the current fiscal year, Congress remains gridlocked, leaving the public bracing for a government shutdown and its potential far-reaching economic consequences.
Other Developments
House Extends Executive Power Over Tariffs
On Tuesday, the House passed a procedural measure to prevent Congress from challenging Trump’s tariffs. The vote narrowly passed at 200-198. Following this measure, members of the House cannot act to end the national emergencies declared by the President, which justify many of his tariffs, until March 31.
Pressure to force a vote on Trump’s tariffs is not merely a Democratic cause. Before the vote, Republicans who planned to vote down the measure secured assurances of the creation of a tariff working group in an attempt to get them in line. However, Republican Representatives Thomas Massie (R-KY) and Don Bacon (R-NE) voted with all Democrats against the measure.
Republican members face pressure on multiple fronts when it comes to supporting Trump’s tariffs. China’s refusal to purchase American soybeans in retaliation for Trump’s tariffs is top of mind for many Republicans with rural constituencies. As Democratic voices get louder and Republicans are forced to grapple with struggling constituencies, House leadership may eventually face enough pushback to see a vote on Trump’s tariffs.
Wyden Introduces Billionaires Income Tax Act
On Wednesday, Senator Ron Wyden, joined by Representatives Steve Cohen (D-TN) and Don Beyer (D-VA), introduced the bicameral Billionaire Income Tax (BIT) Act to prevent millionaires and billionaires from avoiding tax liability and paying a lower tax rate than working Americans.
While working Americans pay income tax on every paycheck, the ultra-wealthy are able to avoid paying taxes by using the “Buy, Borrow, Die” loophole. As wealthier Americans make more of their income from growth on capital assets (e.g., stocks, bonds, and real estate) instead of wages, they are often able to avoid tax liability by simply buying and holding assets so as not to realize a taxable gain. The ultra-wealthy can then borrow against these assets, securing liquid funds without triggering a taxable event. Finally, when they die, they can pass these assets on to their heirs tax-free due to the step-up in basis that occurs upon death. The BIT works to close this loophole by taxing ultra-millionaires and billionaires on the growth of their assets, regardless of whether they are sold.
Specifically, the BIT would:
- Apply to billionaires or those who make $100 million or more in income for three consecutive years.
- Using a mark-to-market approach, require that these qualifying individuals pay the capital gains tax rate on the growth of their assets as if they had realized the gain that year (as high as 23.8 percent for long-term capital gains).
In contrast to the Republicans’ reconciliation bill – a giveaway for the richest Americans passed in July – the BIT would raise taxes on the top 0.01 percent of Americans, who often get away with paying little to nothing in taxes because of the way they earn their income.
The BIT is expected to raise a remarkable $557 billion over 10 years, solely from the richest Americans. This revenue will allow for additional investments in priorities like healthcare and food assistance, which Republicans gutted in their Big Ugly Bill this summer.
20/20 Vision was proud to sign a letter on Wednesday in support of the Billionaire Income Tax Act, which would be a critical step in rebalancing the tax code and addressing the ever-growing concentration of wealth at the top of the income distribution. The proposal is unlikely to move forward while Trump is in the White House and Republicans control both chambers of Congress.
Hearings/Markups
HFSC Advances Banking Reg. Bills Out of Committee
The House Committee on Financial Services convened on Wednesday for a markup in which eleven bills focused on banking, capital markets, and the involvement of foreign companies in the financial system were advanced out of committee.
Several bills would weaken banking regulation. These include:
- H.R. 5262, the Bank Competition Modernization Act, sponsored by Representative Scott Fitzgerald (R-WI), passed in a 28-24 party-line vote. The bill would waive a requirement that federal banking regulators request the Department of Justice perform a competitive analysis on proposed bank mergers that would result in an institution with under $10 billion in assets. The $10 billion asset threshold would be adjusted annually for nominal GDP growth. The bill would further weaken the bank merger review process and result in increased consolidation in the banking sector.
- H.R. 5270, the Stress Testing Accountability and Transparency Act, sponsored by Representative Bill Huizenga (R-MI), passed in a 28-24 party-line vote. The bill would require the Federal Reserve Bank to propose regulations to establish the models, assumptions, and scenarios used in annual stress tests. This would undermine the effectiveness of testing conducted by the Fed to assess whether banks are sufficiently capitalized to absorb losses during stressful conditions and would be used as the basis for covered banking organizations’ stress capital buffer (SCB) requirements.
We encourage all members of Congress to oppose these dangerous deregulatory bills as they move forward.
HFSC on AI Use in the US Financial System
On Thursday, the House Financial Services Committee held a hearing on “Unlocking the Next Generation of AI in the US Financial System.” The focus of the hearing was on examining the use of AI in the US financial system, both by regulators and by firms. Representative Bryan, Steil (R-WI), Representative French Hill (R-AR), and the GOP talked about how important it was to allow innovation in artificial intelligence for it to flourish. Steil, in particular, praised Trump’s AI action plan, released back in March, and called for enhancing US leadership and competitiveness in AI technology. As Steil put it, “It is paramount that our markets are not left behind in the race for global AI leadership.”
By contrast, Ranking Member Stephen Lynch and the Democrats, although not opposed to AI, did raise concerns about the risks that AI poses, particularly in the financial system. They talked about how AI brings serious risks to the financial system, such as:
- Fraud
- Privacy violations
- Issues with workforce and marketplace fairness.
Lynch criticized the Trump administration’s decision to rescind Biden-era directives to guide the safe development of artificial intelligence. Furthermore, Lynch criticized Trump’s Action Plan, saying that it reflected the view that consumer protection stood as an impediment to AI innovation. He also used the occasion to criticize Trump’s dismantling of the agency that was in charge of consumer protection in the financial system, the CFPB.
One of the main bills under discussion was H.R. 4801, the Unleashing AI Innovation in Financial Services Act. Introduced by Representative Hill, the bill is a reintroduction of a bipartisan bill from the 118th Congress, which would establish regulatory sandboxes for companies to test AI at financial regulatory agencies, giving them the ability to develop AI without fear of interference, but also in a way that minimizes the risks posed by AI testing.
Look Ahead
Thursday, September 25
- Q2 GDP Third Estimate
Wednesday, September 26
- August PCE report