From November 14 through November 19, 1995 and from December 16, 1995 to January 6, 1996 the U.S. government was shut down as a result of a budgetary impasse between Congress and the White House. The shutdown was precipitated by a dispute between Democratic President Bill Clinton and Republican Speaker of the House Newt Gingrich over domestic spending cuts in the fiscal year 1996 budget and resulted in a bipartisan agreement to balance the budget in seven years' time.
Upon gaining the speakership of the House following the 1994 midterm elections Newt Gingrich strove to implement policies contained in the Republican Party's 1994 Contract with America, a campaign document that promised to slash funding for congressional committee staff and introduce a balanced budget amendment to the Constitution, among other things. Most of the proposals failed to pass the Democratically-controlled Senate, however, and the Republican focus shifted to limiting President Bill Clinton's ability to govern. In response to Clinton's refusal to accede to Republican demands for steep cuts in Medicare, Medicaid, and other non-defense spending for the fiscal year 1996 budget, Gingrich threatened to prevent a vote on increasing the federal government's debt ceiling, which would have forced the U.S. into the unprecedented position of defaulting on its outstanding debt. A continuing resolution bill allowed the government to keep running. Nevertheless, the Clinton White House and Republican congressmen failed to reach agreement on the budget, and as a result the expiration of the continuing resolution on November 13, 1995 led to the closing of all non-essential government services. The shutdown lasted until November 19, when the President and Congress agreed to try to balance the budget in seven years. There was little agreement about how exactly this would be accomplished, however, and negotiations over the budget quickly dissolved. When the new continuing resolution that had been agreed to in November expired on December 15, the government shut down again. Over the following twenty-two days White House and Congressional negotiators struggled to hammer out an agreement over the budget, with the end result that, by January 1996 the President and Congress agreed to a seven year balanced budget plan that included modest spending cuts and tax increases.
Politically speaking, President Clinton got the better of the 1995-96 government shutdown. Whereas Gingrich expected the public to side with the Republican Party during the dispute, opinion polls showed that a majority of Americans felt that the impasse had been the result of Republican obstinacy. However, the 1995-96 government shutdown demonstrated the costs of divided government and, more importantly, shifted the political discourse to the right. Although the budget deal restored many of the Republican's proposed cuts in domestic spending, Clinton adopted a more centrist position for the remainder of his presidency. Clinton's move to the right was exemplified in his State of the Union Address of January 27, 1996, in which he declared that "the era of big government is over."