Every year, all government spending needs to be approved as legislation by both houses of Congress before getting a sign-off from the president. The Republicans control the House and the Democrats control the Senate. The two sides could not agree on a spending bill before the October 1 deadline, which marks the beginning of the fiscal year. Since no spending bill was passed, no government money can be spent.
How We Got Here
A continuing resolution, which would have provided funding to the government through December, was proposed. Republicans in Congress used this as a bargaining chip to make alterations to the Affordable Care Act. (This is also where Sen. Ted Cruz's "filibuster" comes in.) The extraordinary part about this crisis is that budgets and resolutions are usually passed by Congress with no strings attached. This is more than just two parties disagreeing; it represents a careful strategy by members of Congress to hold the entire government for ransom in order to undermine a health-care law.
What "Shutdown" Means
A few minutes before midnight last night, the Office of Management and Budget issued a memo directing federal agencies to "execute plans for an orderly shutdown due to the absence of appropriations." This furlough affects more than 800,000 workers, but that doesn't necessarily mean they won't show up to work. Federal employees were told to report to their offices today, at which point their managers will decide who is and isn't essential to daily operations. Air traffic controllers, federal prison guards, government inspectors, and the military will remain on the job. Everyone else is just not getting paid.