A budget bill to extend 2017 tax cuts and implement other tax and spending priorities is advancing through Congress. In the House of Representatives, leaders instructed committees to meet certain ten-year deficit reduction targets to help offset the costs of these changes. While negotiations may lead to more modest cuts, these initial targets include:
- $880 billion from the House Energy and Commerce Committee, which oversees Medicare, Medicaid, the Children’s Health Insurance Program, and parts of the 2010 Affordable Care Act (ACA).
- $330 billion from the House Education and Workforce Committee, which oversees student loans, Pell grants or funding for community colleges.
- $230 billion from the House Agriculture Committee, which oversees the Supplemental Nutrition Assistance Program (SNAP).
Spending cuts of this magnitude could have a significant impact on states, which jointly administer programs like Medicaid and SNAP with the federal government and which must balance their budgets each year.
At this writing, the House Energy and Commerce Committee Chair has advanced its section of the bill, which would compel states to introduce Medicaid work requirements for certain adults and impose new constraints on provider taxes used to help pay for Medicaid, among other changes. The House Agriculture Committee Chair also passed its portion, which would make major changes to the SNAP program including additional state cost-sharing, enhanced work requirements, and limits on benefit increases beyond inflation.
As it is still unclear which proposed Medicaid or SNAP changes will make it into the final bill, how they will be allocated over time, and what would be the impact across states, we consider two illustrative policies below:
- Proportional cuts in federal Medicaid spending of $88 billion in 2026.
- Proportional cuts in federal SNAP spending of $23 billion in 2026.
These federal spending cuts would come at a time when states are already forecasting weak revenues and potential budget gaps exacerbated by uncertainty over the direction of federal policy, including tariffs. Historically high state rainy day funds could help reduce the severity of federal cuts. However, these funds are typically intended to help stabilize state budgets during recessions and not to cover ongoing expenses.
States will therefore be compelled to make tough choices among spending cuts (with potential effects on programs and services), tax hikes, or both. In 2026 alone, looking across all states, federal cuts of $88 billion for Medicaid and $23 billion for SNAP would amount to:
- More than 3 percent of state spending
- More than 7 percent of state taxes
- Nearly 11 percent of state personal income and general sales taxes
State-by-State Impact
Impacts would vary dramatically across states, representing more than 15 percent of state tax revenues in Alaska and nearly 10 percent of state taxes in Ohio, compared to only 3 percent of state taxes in North Dakota and Wyoming.
By comparison, Alaska’s projected Medicaid cuts would be roughly equivalent to 85 percent of the state’s expenditures on public safety. Ohio’s projected Medicaid cut is equivalent to roughly 80 percent of the state’s department of transportation’s budget.
The following figures illustrate the potential size of Medicaid and SNAP cuts and state responses (see assumptions and methodology below). Click on the dark blue bar to view results for “All Programs” or Medicaid and SNAP separately.
Illustrative Examples of State Tax Responses
States would have different tools to address federal cuts depending on how they raise revenue. Here, we illustrate what would happen if states increased both general sales tax and personal income tax rates or just one of these tax rates to raise additional revenues:
- Oregon, which does not have a sales tax, would need to implement a large income tax rate increase to offset lost federal support, equal to raising the average rate by more than 1.2 percentage points. For a household making $80,000 a year, roughly the median income, this represents close to an additional $900 a year in taxes.
- Nevada, which does not levy an individual income tax, would need to raise its sales tax rate by almost 0.7 percentage points to make up the difference. This would be about $200 dollars on a new car worth $30,000.
- In New York, the average personal income tax rate would go up by about 0.6 percentage points and the average sales tax rate would also need to increase by almost 0.6 percentage points. A household with a median income of $80,000 would have to pay almost $400 more in yearly state income taxes and higher sales taxes on most goods.
- Louisiana would have to increase its income tax rate by 0.6 percentage points and its sales tax rate by almost 1 percentage point.
Our estimates assume no behavioral response from taxpayers to higher state tax rates. Such tax increases could prompt some individuals to relocate, reduce their work hours, or cut back on purchases.
Summary
The following table summarizes potential federal spending cuts and state responses.
If federal cuts go through as planned, states will have to make difficult choices. They could cut their own spending on SNAP and Medicaid, potentially hurting some of their most vulnerable residents. Cutting other spending, on education, public safety or transportation for example, may also affect the quality of services and be politically challenging.
Higher taxes are also an option. But in 2022, about a quarter of adults said they were just getting by, faced with rising costs, high debt and insufficient wages. Increasing their taxes by a few hundred dollars or more a year may be more than they can bear. And placing the burden on businesses and wealthier residents could undermine economic competitiveness.
We rely on data from several sources for this analysis, which you can view in the methodology appendix.
