Understanding the 2025 U.S. Government Shutdown

On Wednesday, October 1, Americans woke up to the news that their government had shut down.1 It is the first such shutdown since 2018, although there have been plenty of near-misses in recent years. In this case, both parties rejected last-minute proposals and counterproposals to fund the government, with the major sticking point being healthcare.

 

What exactly does this mean?

As you know, whenever Congress authorizes a law, the government must spend money to enact it. Sometimes, the authorization doesn’t contain provisions to fund the law so a second piece of legislation is required, known as an appropriations bill. This is where Congress separately appropriates money specifically for the new law.

These appropriations must be renewed, usually by October 1 each year, for the law to remain funded. This is what’s known as discretionary spending, because Congress decides upon its own discretion whether to continue funding the law. Currently, there are twelve appropriations bills that Congress must pass every year. These bills cover defense spending, national parks, food safety, passport applications, airports, and much more. 2

However, as political partisanship has grown so extreme in recent years, it’s become nearly impossible to pass these bills in a timely manner. Instead, Congress usually attempts to package each piece of legislation into a single omnibus bill. And when that doesn’t work, lawmakers turn to something called a continuing resolution (C.R.), which is a temporary spending bill that essentially keeps all government agencies operating at their existing funding levels.

As of this writing, Congress has not been able to agree on any of these options. (Technically, the House did pass a continuing resolution, but it failed in the Senate.) There are many points of contention, but the biggest has to do with healthcare. Specifically, the expiration of enhanced premium tax credits. These credits, designed to help lower income people afford coverage, were first put in place by the Affordable Care Act. They were then expanded by legislation passed during the pandemic. But those credits expire at the end of 2025, meaning that millions of Americans who relied on them to afford coverage may suddenly be without healthcare. That, in turn, may cause premiums to rise for nearly everybody else. Certain people with lower incomes, for example, may see their costs go up by 75% or more.2

Democrats refused to vote for any plan that didn’t extend these credits. Their reasoning is that if the issue is not taken care of now, millions may lose coverage or have to pay more than they can afford. Republicans, on the other hand, contend these credits add to the deficit, were never designed to be permanent, and should be dealt with separately. Both sides have an argument — it’s simply a matter of differing priorities. But, both see this as an opportunity to cast blame on the other and score political points.

 

What happens now?

Because of this gridlock, many aspects of the government that fall under the umbrella of discretionary spending can no longer be paid for. As a result, agencies must shut down all “nonessential services” — although what that means can vary dramatically depending on the agency or service in question. Some services, which are simply too vital to ever stop operating, will continue, although they may not work as fast or efficiently as normal. Think law enforcement. Forest service. Firefighting. Air traffic control. (This may be the single biggest one, so more on this in a minute.) Much of the National Weather Service. You get the idea. However, many people who do these jobs will not get paid, or will be paid much less, until Congress acts.

Other agencies will be hit even harder. Over 75% of employees in the Labor, Commerce, and Education departments have been furloughed. The Environmental Protection Agency, has sent a whopping 89% of its employees home.3 Some agencies, like the IRS, will be able to hold out for longer due to special contingency plans, but those often cover only a week or so before they, too, will be forced to send workers home.

Other government operations, meanwhile, fall under the umbrella of mandatory spending. These are for certain laws and programs that are not required to be renewed annually. (Think Social Security benefits, Medicare, and Medicaid.) These programs will continue operating during a shutdown. Unfortunately, many employees who oversee these programs will be sent home. As a result, there may be delays in helping citizens who need to interact with these services in some way.

The shutdown will continue until Congress either authorizes a new C.R. or begins passing individual appropriation bills. It’s impossible to know exactly how long this will take, but it’s worth noting that shutdowns usually don’t last very long. Most, in fact, only go on for a day or two. But sometimes, shutdowns can drag on for weeks. In 2013, for example, we experienced a 16-day shutdown.4 And, from December 2018 through January 2019, the government shut down for 35 days.4

 

How might it affect the markets?

Shutdowns can cause major disruptions to important services, and they’re especially hard on the people who actually keep our country running. (For this reason, let’s all spare a thought for those government employees who get furloughed during the holidays.) That said, they typically do not have a major impact on the overall economy, usually because they don’t last very long. Shutdowns don’t tend to directly affect the markets, either.

Data suggests the S&P 500 has fallen “an average of 0.4% in the week before a shutdown and gained a total of 0.1% over the length of all shutdowns since 1976.”5 And there has historically been no lasting damage, either, with the S&P 500 rising “about 12% in the 12 months following [a shutdown].”6 Not surprising, considering the markets react to many factors. Important as it is, a shutdown is only one of them. Quite frankly, it’s rare for just one event to have a lasting impact on stocks, even if media headlines suggest otherwise.

That said, shutdowns shouldn’t be taken lightly, either. If prolonged, the effects begin to compound. For example, the last full shutdown, in 2018, lasted for thirty-four days. Towards the end, air traffic controllers, who had been required to work without pay, began calling in sick in droves, resulting in major travel delays and impacts to trade. And the current shutdown comes during a time when economic uncertainty is already on the rise. Inflation has subtly but gradually ticked up this year, while the labor market has slowed down. (As of August, the unemployment rate was up to 4.3%, the highest since 2017 other than during the worst pandemic months of 2020.)7

Approximately 750,000 federal workers could be furloughed as a result of this shutdown, but in an ironic twist, we may not have another jobs report for some time, as the agency responsible for tracking that data is one of those most affected by the shutdown.1

 

Takeaway

For us as investors, there’s no reason to panic, and certainly no reason to make a major shift to our investment strategy. Again, history shows most shutdowns to be limited in duration and modest in impact. At the same time, it’s important we don’t ignore what’s going on either, as there’s simply no telling how long this shutdown will last or how deep it will run. My advice is to enjoy the changing of the season and focus more on preparing for the holidays than on what’s going on in Washington. But in the meantime, the Cornerstone Team will keep a very close eye on your behalf!

 

As always, please let us know if you have any questions or concerns.

Sources:
1“US government shutdown begins as partisan division rules Washington,” Reuters, https://www.reuters.com/world/us/us-government-beginsshut-down-most-operations-after-congress-fails-advance-2025-10-01/

2 “How much and why ACA Marketplace premiums are going up in 2026,” Peterson-KFF Health Systems Tracker, https://www.healthsystemtracker.org/brief/how-much-and-why-aca-marketplace-premiums-are-going-up-in-2026

3 “How the Shutdown Is Affecting Federal Services and Workers,” The NY Times,
https://www.nytimes.com/interactive/2025/09/30/us/politics/government-shutdown-furloughs.html

4 “How long do government shutdowns last?” NBC News, https://www.nbcnews.com/data-graphics/longest-government-shutdown-us-historypresident-administration-rcna234766

5 “Analysis: Potential US government shutdown could dent investor confidence,” Reuters, https://www.reuters.com/markets/us/potential-usgovernment-shutdown-could-dent-investor-confidence-2023-09-08/

6 “What would a government shutdown mean for markets and the economy?” NBC News, https://www.nbcnews.com/business/businessnews/government-shutdown-markets-economy-impact-rcna234643

7 “The Employment Situation — August 2025,” U.S. Bureau of Labor Statistics, September 5, 2025. https://www.bls.gov/news.release/empsit.nr0.htm

Investing involves risk and you may incur a profit or loss regardless of strategy selected, including asset allocation and diversification. Past performance is not indicative of future results. Raymond James Financial Services, Inc. does not provide advice on tax or legal issues. These matters should be discussed with the appropriate professional.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Past performance may not be indicative of future results. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of the authors and not necessarily those of Raymond James.

Understanding Key Tax Law Changes in the “One Big Beautiful Bill”

On July 4, President Trump signed the “One Big Beautiful Bill Act” into law, enacting sweeping legislation that makes changes to everything from the debt ceiling to Medicaid to immigration to taxes.1

While the new law is one of the most fiercely debated in recent memory, it also has many of our clients asking what it all means for them.

Rather than diving into the political debate, we want to highlight the key provisions that could affect your taxes, retirement, and other areas we regularly plan for together.

While some of it may not apply to you, it could apply to members of your family. If so, feel free to share this information with them.

If you have any questions or concerns, please reach out. Remember, the Cornerstone team is here to help provide financial clarity.

 

Changes to Tax Deductions and Exemptions

1During President Trump’s first term, Congress passed the Tax Cuts and Jobs Act, which made major changes to the tax code. Many of those changes were set to expire at the end of this year, but the BBB has made them permanent. That means all current tax rates and brackets will continue for the foreseeable future.

In addition, several tax deductions are set to increase under the BBB. 

For example:

  • The standard deduction has been raised from $15,000 to $15,750 for single individuals, and from $30,000 to $31,500 for married couples filing jointly.
  • Future increases will be indexed to inflation.

For those who choose to itemize their tax deductions:

  • The SALT (state and local tax) deduction limit is increased $10,000 to $40,000 and this deduction will increase by 1% each year until 2030, when the cap reverts back to $10,000.
  • Note that the SALT deduction begins to phase out for taxpayers earning $500,000 or more in annual income.

Lastly, the exemption on estate and gift taxes is raised to:

  • $15 million (up from $13.99 million) for singles
  • $30 million (up from $27.98 million) for married couples

 

Changes to Tax Credits1

The BBB also makes some important changes to several types of tax credits — raising one while eliminating others.

  • The child tax credit, previously set to expire, has now been permanently increased to $2,200(Note: If you see the $2,500 figure, that was from an earlier version of the bill and is no longer accurate.)
  • The BBB eliminates several “green” tax credits:
  • Electric vehicle credits (new and used) end September 30, 2025.
  • Energy-efficient heating/cooling system credits (e.g., rooftop solar panels) end December 31.

 If you’re considering “going green,” it may be best to act soon!

 

Changes That Could (Potentially) Affect 

Social Security Taxes1

This could have been included under tax deductions, but due to its complexity, it deserves its own section.

After the BBB became law, many Social Security beneficiaries received an email stating the law would eliminate federal income taxes on Social Security benefits for most recipients.² This claim has also circulated on social media.

That statement is not entirely accurate. The BBB does not directly change how Social Security benefits are taxed.

Instead, the law creates a temporary tax deduction for seniors:

  • Individuals aged 65+ can claim a $6,000 deduction if income is $75,000 or less.
  • Married couples filing jointly can claim $12,000 if income is $150,000 or less.
  • The deduction phases out entirely at $175,000 for individuals and $250,000 for couples.

What does this all have to do with Social Security? When coupled with other types of deductions, this provision can reduce taxable income for many retirees and pre-retirees. Given that Social Security taxes are dependent on a person’s annual income, some retirees who take this deduction may find that, as a result, they no longer owe taxes on their benefits.

If you are collecting Social Security, plan to start in the near future, or know somebody who is, keep in mind that it takes some careful number crunching to determine whether this new deduction will impact taxes on your benefits. Please let us know if you have any questions.

Finally, bear in mind this new deduction isn’t permanent  it’s slated to expire after 2028.

 

Child Savings Accounts1

For those welcoming a child or grandchild between 2025 and 2028, the BBB introduces a new tax-advantaged savings account:

  • The government provides a one-time $1,000 deposit.
  • Parents and relatives can contribute up to $5,000 per year.
  • Employers can contribute up to $2,500.
  • Earnings grow tax-deferred, and withdrawals are taxed as long-term capital gains when the child turns 18.

These types of accounts can be a handy way to help children save for the future, including higher education. However, there are lots of rules regarding these accounts, and they may not always be the best option compared to other alternatives. For these reasons, let’s chat before you or your family decide to open one!

 

Conclusion

As you can see the tax law changes in the BBB could have an impact on your financial plan.

Rest assured; our team is continuing to review these provisions closely. We’ll follow up with anything new that may be relevant to you — whether through a future update or during your next review.

In the meantime, please don’t hesitate to reach out with any questions.

 

 

Sources

1 Text of “ONE BIG BEAUTIFUL BILL ACT,” Congress.gov, https://www.congress.gov/bill/119th-congress/house-bill/1/text

2 “Social Security Email About ‘Big Beautiful Bill’ Tax Changes Sparks Confusion,” Kiplinger, July 7, 2025. https://www.kiplinger.com/taxes/social-security-email-on-big-beautiful-bill-tax-changes-sparks-confusion

 

While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of Raymond James, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Material sourced by Bill Good Marketing, an independent third party.

 CSP #836829 Exp. 7.8.26

Avoiding Withdrawal Pitfalls: Retirement Planning for Federal Employees

Retirement planning for federal employees comes with unique challenges – especially when it comes to deciding how and when to withdraw from your plan. As you approach retirement, you may be feeling a mixture of excitement and overwhelm. From understanding available options to avoiding penalties and meeting IRS deadlines, there’s a lot to consider.

You’ve worked hard, now it’s about making sure your retirement funding works just as hard for you. With the right guidance and planning, you can make confident decisions and avoid costly missteps.

 

Understanding Your Retirement Withdrawal Options

When it’s time to access your retirement savings, you’ll face decisions that can impact your income, taxes, and financial security for years to come. You may have the option to choose a lump-sum payout, monthly payments, or an annuity.

 

Pros and Cons of Common Withdrawal Methods
  • Lump-sum payments provide immediate access to funds but may increase your tax liability.
  • Monthly withdrawals help manage your tax bracket and provide steady income.
  • Annuities offer predictable payments but may limit flexibility.

Carefully review these options in light of your overall financial goals.

  


 

Avoid Early Withdrawal Penalties

Withdrawing before age 59½ may result in a 10% early withdrawal penalty. However, if you separate from service at age 55 or older, you may qualify for an exception.

 

Timing Matters

Planning your withdrawals around these milestones is key. Consider consulting with a financial advisor to create a timeline that minimizes taxes and penalties.

  


  

Planning for Required Minimum Distributions (RMDs)

Once you turn 73, the IRS requires you to begin taking minimum distributions from your retirement account.

 

Missing RMDs Can Be Costly

Failing to take your RMDs on time can lead to a 25% penalty. Setting up automatic reminders and a withdrawal strategy can help you stay compliant and maintain consistent cash flow.

  

  

Coordinate Retirement Income Sources

Retirement planning for federal employees often involves multiple income streams—such as Social Security, pensions, and other savings.

 
Manage Taxes with an Income Plan

Coordinating withdrawals can help balance your income and control your tax bracket. A well-planned income strategy ensures stability and reduces surprises during tax season.

  

 
 Talk to a Financial Advisor Who Understands Federal Benefits

We recommend working with a financial advisor who understands the federal system. Federal employee benefits can be complex, and strategic planning can help you avoid common pitfalls.

Two of our Wealth Advisors at Cornerstone—Gordon Wollman and Jill Mollner—hold the Chartered Federal Employee Benefits ConsultantSM (ChFEBCSM) designation. Their training helps ensure we understand the specialized needs and concerns of federal employees.

 


 

Ready to Take the Next Step?

If you’re seeking clarity and confidence in your retirement journey, we’re here to help. Schedule a complimentary strategy session today to talk through your goals and build a plan that fits your future.

Call 605-357-8553 in Sioux Falls or 605-352-9490 for our Huron office.
Email cfsteam@mycfsgroup.com

Raymond James and Cornerstone Financial Solutions are independent from, and are not affiliated with, or endorsed by, the U.S. Government, the Federal Employee Retirement System, or any other Federal Government-sponsored benefits programs or retirement plans. Clients should consult their plan administrator for detailed plan information.

Gordon Wollman and Jill Mollner hold the Chartered Federal Employee Benefits ConsultantSM (ChFEBCSM) designation. Federal Seminars and ChFEBCSM, Inc. owns the symbol marks ChFEBCSM, Chartered Federal Employee Benefits ConsultantSM and ChFEBCSM logo in the U.S. CSP #761837 Exp. 4.17.25.

Tax-Deferred Investment Mistakes

What Are Tax-Deferred Investments?

Tax-deferred investments allow your money to accumulate tax-free until you make a withdrawal.  (Ideally, after retirement.)  These withdrawals are then taxed as ordinary income.  Traditional IRAs, 401(k)s, and annuities are all examples of tax-deferred investments.

 

Common Ways People Misuse Tax-Deferred Investments

Unfortunately, many pre-retirees misuse these types of investments in the following ways:

 

Taking withdrawals too early.

This can rob your retirement of much needed savings.  In some cases, it can also come with additional penalties.  For example, if you make withdrawals from an IRA prior to age 59½, the money would be subject to a 10% penalty from the IRS in addition to being taxed.

 

Not contributing the maximum annual amount.  

Most tax-deferred investments have a cap on how much you can contribute each year.  But many people vastly undershoot this cap.  It’s quite common to see people put their tax-deferred accounts on the bottom of the pole.  Other types of investments, or even just spending, take priority.  As a result, these people are not benefiting from all that tax-deferred investments have to offer.

 

Contributing after-tax dollars instead of pre-tax dollars.  

Sometimes, it’s easy to get careless and contribute money that you have already paid taxes on.  Remember, when you withdraw that money down the road, it will be taxed again as ordinary income.  That’s called double-taxation, and no one wants that!  Instead, make contributions with pre-tax dollars whenever possible.

 

Not choosing the right investments.  

A tax-deferred account may be great from a tax standpoint, but if you want the money inside those accounts to grow, you have to choose the right investments.  Some types of investments may actually lead to higher taxes in retirement than they would through capital gains in a taxable account.  Always pay close attention to which investments are going into each account you own.

 

Need Help With Your Tax-Deferred Investment Strategy?

If you are concerned you may be misusing your tax-deferred investments or just aren’t sure of it, let us know, we are happy to help!

401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty.

Contributions to a traditional IRA may be tax-deductible depending on the taxpayer’s income, tax-filing status, and other factors. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Cornerstone Financial Solutions, Inc. and not necessarily those of Raymond James.  CSP # 704811. Exp. 1.24.26