The Shutdown Is Only the First Battle in the War Over Trump’s 2026 Budget

The political stalemate that has closed down much of the federal government for two weeks has emotionally stressed and financially strapped 750,000 federal workers furloughed to date, and another 650,000 working without pay. This is leaving aside the 300,000 federal employees who were fired or took forced buyouts this year. In time, it will also damage thousands of companies and employees that depend on the spending of those workers and thousands of other companies and employees that rely on shuttered federal operations.

The economic costs will depend on how long the standstill lasts. If it’s resolved this week or next and the 1.4 million federal workers receive their back pay as the law requires, the economic costs will be minimal. If it persists into November and is followed by more shutdowns, and President Donald Trump ignores yet another law, the costs to the economy will mount.

In either event, today’s shutdown is the opening act or what boxing fans call the undercard—the bout that precedes the main event. The dispute concerns the Democrats’ drive to use the Continuing Resolution to undo Republicans’ directive in their One Big Beautiful (sic) Bill to slash Obamacare premium subsidies for tens of millions of Americans. But the Continuing Resolution provides only short-term federal funding while Congress struggles with the 2026 federal budget. That’s the main event.

Very soon, the brawl over Trump’s 2026 budget will dwarf today’s skirmish. It’s loaded with political third rails that will be as fearsome to many congressional Republicans as the president’s personal threats to keep them in line. With their narrow majorities, how many GOP representatives and senators will vote for policies their constituents reject?

That looming debate will force virtually all of them to support publicly, one by one, the acutely unpopular tariffs Trump needs for his revenues; vast new funding for his far-reaching and even less popular ICE operations to violently arrest and summarily deport millions of law-abiding immigrants and deploy U.S. soldiers and marines to American cities; and carry out the president’s deep and wildly unpopular cuts to Medicaid and research and treatments for diabetes, Parkinson’s, and cancer. As I wrote in these pages three months ago, voting for the final passage of his 2026 budget will also endorse five years of budget deficits projected to nearly equal all U.S. annual private savings.

Given these multiple landmines, the political insider Simon Rosenberg wrote this week, “Under our current rules, passing a budget requires 60 votes in the Senate, all 53 Republicans and 7 Democrats, and a simple majority in the House. Do we think these guys can somehow strike a deal that 7 Democrats, all Congressional Rs, and Trump can agree to?”

And that’s without considering the likely damage to Trump’s political leverage from the pending release of Jeffrey Epstein files. Securing the votes he needs for his budget will make today’s struggle over the Continuing Resolution seem like child’s play.

So, as we consider the shutdown’s economic costs, bear in mind that the coming fierce fights over the 2026 budget may well lead to one or more additional shutdowns, compounding those costs. And that’s all just a prelude to the far greater economic costs from the disruptive policy changes in that budget.

The shutdown’s costs begin with its impact on the incomes and spending of 1.4 million federal employees furloughed or working without pay. The Federal Reserve has found that 37 percent of American households cannot cover an unexpected, $400 emergency expense without borrowing or selling something of value. Even so, many simply couldn’t raise it. That’s chump change alongside the average $1,662 per week that the shutdown costs the 1.4 million furloughed or unpaid federal civilian workers. That tells us that most people cannot cover their regular bills.

Most furloughed and unpaid federal employees and their families are spending less and/or borrowing more (which will only depress their spending later)—and revenues are falling, or will soon, for tens of thousands of businesses where those families pay for food, utilities, rent or mortgage payments, transportation, clothing, healthcare, entertainment, and more. The impact then ripples further through the economy, as those businesses cut back on orders and payments to thousands of other companies that provide and transport the goods and services those businesses sell or use as inputs.

That’s far from the end of it. Additional costs arise from the shutdown’s impact on the federal activities carried out by the furloughed workers. For example, when the national parks suspend operations, the thousands of businesses that supply and deliver goods and services for the parks and their visitors also forfeit revenues they count on. As the shutdown continues or is soon followed by another, those businesses will cut back their operations, jobs, and purchases from thousands of other companies.

The National Park Service is part of the Department of the Interior, and the current shutdown and furloughs also directly affect operations in ten other departments—Defense, Agriculture, Commerce, Justice, Transportation, Homeland Security, Housing and Urban Development, the Treasury, Transportation, State, and independent agencies including the Environmental Protection Agency, the Small Business Administration, and NASA. Hundreds of thousands of private companies and employees are involved in those suspended operations.

Most businesses will try to wait out the shutdown, assuming it will be brief. But if it persists or is followed by additional shutdowns, the revenues and investments of companies and employees at each level of these multifaceted production and sales chains will bear meaningful costs, triggering additional ripple effects.

The shutdown also has regional effects based on where the furloughed and unpaid federal employees work and live. As a share of employment, the places with the highest percentages of federal workers, as expected, are the District of Columbia, Maryland, and Virginia, closely followed by New Mexico and Hawaii, and then by Alaska, Oklahoma, West Virginia, and Alabama. Since everything today is political, we’ll note that the first five are blue and the next four are red. At the other end, the states least affected by the shutdown are New York, New Jersey, Massachusetts, Minnesota, Michigan, Oregon, and Wisconsin, all blue or purple.

Let’s do the math. The shutdown directly affects spending by 1.6 percent of all working households and 1.4 percent of U.S. consumption and indirectly influences the spending of perhaps 4 percent of households and 3 percent of consumption. I estimate that if the stalemate continues into November and the ripple effects take hold, October’s monthly economic growth could be diminished by three-tenths of 1 percent, a modest and wholly unnecessary cost of polarization in Washington.

Greater economic damage will come once the shutdown ends, and Congress and Trump will batter themselves enough to enact some form of his budget. Every major initiative in it—the mass deportations; the military mobilizations in blue cities; the brutal cuts to Medicaid, Obamacare, food assistance, medical research, and education; and, of course, Trump’s tariffs—will damage the economy. For at least the next year, there will be few happy days here again.