On Friday, Senate Democratic Leader Chuck Schumer proposed a new plan to Republicans in an attempt to resolve the U.S. government shutdown that began on October 1.
Under Schumer’s proposal, Democrats would agree to pass a short-term funding resolution to keep the government operational. This marks a significant shift in their stance, as they had previously insisted on directly including an extension of tax credits in the spending bill.
In exchange, Republicans would need to agree to a one-year standalone extension of the Affordable Care Act (ACA) tax credits, which are set to expire at the end of December. These credits help reduce the cost of health insurance purchased through the marketplace.
However, Senate Republicans swiftly rejected the proposal, stating there was "no room for discussion." Despite this, the exchange of proposals was seen by markets as a potential sign of progress in negotiations. The S&P 500, which had fallen 1.3% earlier in the day, reversed course and closed higher.
White House officials also noted that the Democrats’ concession indicated mounting pressure to reach a deal.
Meanwhile, the economic impact of the shutdown continues to widen. The U.S. Department of Transportation and the Federal Aviation Administration (FAA) have ordered airlines to reduce flights at major airports, while food assistance programs have been suspended, affecting tens of millions of Americans.
**Democrats Shift Strategy** The core issue in negotiations revolves around ACA subsidies.
On Friday afternoon, Schumer explained the rationale behind his proposal on the Senate floor, stating:
"Democrats have consistently emphasized the need to address the healthcare crisis, but Republicans have repeatedly refused to negotiate healthcare cost reductions until the government reopens. We must find a path that respects both sides."
The proposal includes three steps: passing a short-term funding bill to reopen the government, extending ACA premium tax credits, and forming a bipartisan committee to negotiate long-term healthcare affordability reforms.
Schumer described the plan as a "simple compromise" and expressed optimism that the Senate could pass it "within hours."
The key change is that Democrats no longer demand the inclusion of healthcare subsidies in the funding bill, opting instead to address them separately. The proposal also significantly scales back from their initial $1.5 trillion spending demand, which included permanent ACA tax credit extensions and the repeal of Medicaid work requirements.
**Republican and White House Pushback** Despite the Democratic concessions, Republican Leader John Thune dismissed the proposal, though he acknowledged "progress" in negotiations, stating:
"They [Democrats] are feeling the pressure."
White House officials took a firmer stance, accusing Democrats of "holding the American people hostage for other spending." They emphasized that Democrats should reopen the government immediately before discussing tax credits.
The Senate is expected to hold a procedural vote later Friday on a bill to pay federal employees who have gone unpaid during the shutdown. Thune has also threatened to hold a weekend vote on a temporary funding bill to keep lawmakers in Washington.
While Thune pledged a vote on ACA tax credits this year, he did not guarantee passage. House Speaker Mike Johnson refused to commit to a vote.
**Market Optimism** Following Schumer’s proposal, stocks rebounded, with the S&P 500 closing higher. This suggests markets are more focused on the potential for a breakthrough than the immediate rejection.
Major U.S. airlines also gained, with American Airlines Group rising 3.8% and Delta Air Lines up 1.9%. Airlines have begun canceling flights nationwide after the FAA ordered reductions at 40 major airports, starting at 4% on Friday and potentially reaching 10% by next weekend.
Transportation Secretary Sean Duffy warned that flight cuts could escalate to 20% if air traffic controller shortages worsen.
Additionally, food aid for 42 million Americans remains suspended, despite a federal judge ordering the Trump administration to release funds. The White House is appealing the ruling.
**Risk Disclaimer** Markets involve risks; investors should exercise caution. This article does not constitute personal investment advice and does not account for individual financial circumstances. Investors should assess whether the opinions provided align with their specific situation before making decisions.
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