Update 901 — Shutdown in Stasis;
Cracks Open in GOP Support for CR
The end is not in sight for the government shutdown, with the Senate repeatedly failing to agree on a short-term CR and the House in recess. Republicans may be cracking, as voters blame Trump and the GOP more than Democrats for the shutdown and support the Democrats’ main ask of extending enhanced ACA premium tax credits. But with GOP leadership still avoiding direct negotiations and Speaker Johnson announcing the House will stay in recess until Senate Democrats agree to House-passed CR, there is only tunnel, no light ahead.
In other economic policy developments, Treasury Secretary Bessent tapped SSA Commissioner Frank Bisignano to serve double duty in the newly created position of “CEO” of the IRS, and Jonathan McKernan was confirmed to serve as Undersecretary for the Treasury Department for Domestic Finance. The Senate passed the NDAA on Thursday to tee up negotiations between the House and the Senate. The FDIC and OCC also proposed a rule to limit how their examiners can police serious deficiencies in the banking system.
Good weekends all…
Best,
Dana
Headline
Shutdown Rages into Third Week
The government shutdown continued this week, as the Senate failed to reach the 60-vote margin on the competing Democratic and Republican-proposed continuing resolutions (CRs) for the fifth, sixth, and seventh times. The Senate will reconvene next on Tuesday to reconsider the shutdown-ending measures. Speaker of the House Mike Johnson (R-LA) announced today that the House will remain in recess until the Senate agrees to the House-passed, Republican CR proposal.
The two parties remain gridlocked over their proposals for a short-term extension of discretionary funding at prior-year levels, something Congress has been forced to turn to as no full-year funding bills were passed into law by the start of the 2026 fiscal year (FY26) last Tuesday. Democrats, who hold leverage due to the 60-vote filibuster threshold in the Senate and the current 53-vote Republican majority, have insisted on negotiations over healthcare and guardrails that would prevent the administration’s illegal impoundment of congressionally appropriated funds. Republicans and the Trump administration have stated some willingness to negotiate if Democrats agree to end the shutdown, but they have largely dodged Democrats’ push for serious, formal talks on the matter.
Republicans Crack under Shutdown Blame
While the shutdown fight was thought to be an easy battle by many Republicans, given their trifecta, this is not turning out to be the case. Early shutdown polling indicates that President Trump and Republicans are more to blame for the current shutdown, with 47 percent of individuals blaming Trump and Republicans in Congress and only 30 percent blaming Democrats.
This perception has been at least partially fueled by the administration’s threats to use the shutdown to fire agency staff on a “mass” basis and target “Democratic” agencies with cuts. The Trump administration added fuel to this fire this week, arguing in a memo that furloughed employees may not be entitled to back pay under the Government Employee Fair Treatment Act (GEFTA), which Trump himself signed into law in his first term. He went as far as to say “there are some people that really don’t deserve to be taken care of,” sparking backlash from members of Congress and their constituents. This suggestion goes against both precedent and the guidance from the Office of Personnel Management (OPM) issued last month — a clear example of the President using federal workers as pawns to get his way without having to negotiate with Democrats.
Public support and momentum are gaining for the specific concessions Democrats are pushing for, namely an extension of enhancements to ACA premium tax credits (PTCs) scheduled to expire at the end of this year. 78 percent of Americans say they want Congress to extend the enhanced PTCs, including 59 percent of Republicans and 57 percent of MAGA supporters. While there is no widespread support in the GOP for extending the credits, which were established under Obamacare and enhanced through the COVID-era American Rescue Plan Act (ARPA), some GOP members of Congress are beginning to recognize the potential expiration as a huge liability. Representative Marjory Taylor Green (R-GA), a staunch conservative and MAGA supporter, voiced support for an extension of enhanced PTCs this week – an early sign that Republicans do not feel strength in their current position.
Resolution in Doubt as Shutdown Drags On
Despite the shift in blame toward the GOP, there still doesn’t seem to be an easy path forward on ending the shutdown in the Senate. Some Republican Senators, like Mike Rounds (R-SD), have signaled that they would be open to a short-term extension of the COVID-era expansion to ACA PTCs. But Republican leadership still insists that it will not make a deal as part of a shutdown-ending measure, instead offering negotiations after the government is back up and running. This is insufficient to many Democrats, who point out that insurers have already set higher premiums, and open enrollment for the ACA marketplace will begin on November 1, meaning delayed action may still lead to significant coverage losses. Democrats have also been pushing for a permanent extension of the PTC enhancements, a far cry from a short-term extension that would help Republicans avoid insurance premium spikes ahead of next year’s pivotal midterms.
As the shutdown rages into its third week, it will begin to have a more pronounced impact on federal workers and Americans more generally, potentially putting pressure on one side to cave. If Congress is unable to find a solution to end the shutdown by Monday, military personnel will risk missing their next paycheck on October 15. Military pay is seen as a non-negotiable issue by both parties, upping the stakes on the respective positions they are currently dug into. Congress and the Trump administration have indicated some willingness to pass a partial fix to ensure that military personnel can receive their next paycheck, but this would not address the millions of other federal workers – like air traffic controllers – who are expected to continue to work in essential roles without pay. In any case, the stakes will only increase as the consequences of a shutdown continue to materialize, bringing midterm implications for whichever party takes more of the shutdown blame in the eyes of the public.
Nominations
Trump Taps Frank Bisignano for “CEO” of IRS
This week, Treasury Secretary Scott Bessent selected Social Security Administration Commissioner Frank Bisignano to serve in the newly created position of CEO of the Internal Revenue Service (IRS). While Bisignano will now help lead the tax-collecting agency, Bessent will remain as the official acting commissioner of the IRS.
Bisignano’s appointment to the new role comes amid a tumultuous year at the IRS. Bessent took over as the seventh head of the IRS this calendar year in August, following the removal of former Representative Billy Long earlier that month. Long, who had the shortest tenure as IRS Commissioner in history, was removed following the agency’s refusal to turn over confidential taxpayer data to Immigration and Customs Enforcement (ICE) and statements he made about the start of the upcoming tax filing season being delayed. The administration argued these were not the reasons for Long’s removal and appointed him to serve as ambassador to Iceland shortly after.
Bisignano will now be charged with running the IRS’s day-to-day operations, in addition to his continuing role atop the SSA. He is expected to carry on with the administration’s agenda for the agency, which includes an increased focus on modernization and a scaling back of enforcement efforts that were increased under President Biden with funding from the Inflation Reduction Act (IRA) – most of which has since been rescinded. But carrying out this agenda while ensuring the agency is ready for the next filing season is no easy task. In the first half of this year, the IRS lost around a fourth of its staff due to DOGE/the administration’s gutting of federal agencies, a problem that will only worsen as over half of IRS employees are or will become eligible for retirement within the next five years.
To make matters worse, the current government shutdown led the agency to furlough over half of its workers this week. This decision, made without advance notice to IRS staff, is expected to impact the October 15 late filing deadline, as staff won’t be in place to process returns. It is also sure to have some effect on preparation for the next filing season, the start date of which was already called into question by former IRS Commissioner Billy Long.
Senate Okays McKernan as Treasury Under Secretary
On Tuesday, the Senate confirmed Jonathan McKernan to serve as Under Secretary of the Treasury for Domestic Finance by a vote of 51-47. In this capacity, McKernan will hold the top domestic policy position at the Treasury Department, where he will be responsible for overseeing debt management and $30 trillion U.S. Treasury markets.
McKernan previously served as a member of the board of directors of the Federal Deposit Insurance Corporation (FDIC), where he furthered a deregulatory agenda, including by opposing stronger capital requirements for the nation’s largest banks. Earlier this year, President Trump nominated McKernan to lead the Consumer Financial Protection Bureau (CFPB) amid the administration’s effort to dismantle the agency. McKernan continued to falsely suggest that the CFPB was acting outside the scope of its authority, and his nomination was opposed by every Democrat on the Senate Banking Committee. McKernan has also served as an advisor to Treasury Secretary Scott Bessent.
McKernan will be well-positioned to carry out the Trump administration’s dangerous deregulatory agenda. McKernan was confirmed by a party-line vote.
Other Developments
Senate Passes NDAA
On Thursday evening, the Senate passed the National Defense Authorization Act (NDAA) in a 77-20 vote, amid the ongoing government shutdown. The NDAA is an annual authorization that establishes federal defense programs ahead of the appropriations process. For Fiscal Year 2026, the Senate passed a $914 billion defense bill. The House passed its version of the NDAA with a notably lower top line of $892 billion, in line with the President’s budget request, with a vote tally of 231-196. For FY2025, the NDAA’s final top line was $895 billion.
The Senate’s main hurdle up until this point was disagreements over which amendments could be voted on. Yesterday, Senate Armed Services Committee Chair Roger Wicker (R-MS), announced leadership had agreed to debate on 17 amendments, split between each party, as well as a less controversial manager’s package of 48 amendments. A series of Democrat-proposed amendments to quell the President’s powers to deploy the National Guard within the U.S. failed.
Notably, the following amendments were considered:
- Housing – The bipartisan legislation, billed the “Renewing Opportunity in the American Dream to Housing Act of 2025,” or ROAD to Housing Act, was added to the NDAA as an amendment. The bill, which passed the Senate Banking Committee by a 24-0 vote back in July, would enact a number of measures to increase access to housing in America, ranging from encouraging local zoning reform to beefing up disaster recovery programs.
- Banking – Senator Rand Paul (R-KY) offered S.2113, the End the Fed’s Big Bank Bailout Act, a bill he introduced in June with Senator Bernie Sanders (I-VT) to end the Federal Reserve’s authority to pay banks interest on reserves, as an amendment. The amendment failed in a 14 – 83 vote, with Senate Banking Committee Ranking Member Elizabeth Warren (D-MA) voting in favor.
- Federal Reserve – Senator Rick Scott (R-FL) offered S.1627, a bill he introduced in May with Senator Warren, as an amendment to require Presidential appointment and Senate confirmation of the Inspector General of the Board of Governors of the Federal Reserve System and the Consumer Financial Protection Bureau. The amendment failed to meet the required 60-vote threshold in a 53 – 43 vote.
Now that each chamber has adopted its own version of the NDAA, the House and Senate Armed Services Committees will begin a lengthy conferencing process to most likely shake off any partisan amendments from the House bill to reach a compromise by the end of the year.
OCC, FDIC Propose Rule on “Unsafe and Unsound” Practices
On Tuesday, the Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC) released a joint notice of proposed rulemaking to limit how they can police and ultimately protect the safety and soundness of the banking system.
The proposed rule defines the term “unsafe or unsound practice” in section 8 of the Federal Deposit Insurance Act through regulation for the first time. An unsafe or unsound practice can serve as a ground for several types of enforcement actions against a financial institution, including involuntary termination of deposit insurance by the FDIC or a civil money penalty. The proposed rule would focus the definition of an “unsafe or unsound practice” on material harm to the financial condition of an institution (impact on an institution’s capital, asset quality, earnings, liquidity, or sensitivity to market risk) or material risk of loss to the Deposit Insurance Fund (DIF).
The proposed rule would also establish a higher bar for when the FDIC and OCC can raise a “matter requiring attention” (MRA) – a communication detailing a deficiency serious enough to require attention from a bank’s board of directors and management – as part of the supervision and examination process. This higher standard allows the agencies to issue an MRA for a practice that materially harms the financial condition of an institution or presents a material risk of loss to the DIF, limiting examiners’ ability to issue MRAs. The proposed rule also establishes uniform standards for when and how the FDIC and OCC may communicate an MRA.
Comments on the proposed rule close 60 days after its publication in the Federal Register.