Trump cuts exacerbate budget fights in red states

Republican-led states facing major budget shortfalls in 2026 are facing an awkward reality: President Donald Trump’s signature tax and spending bill is making their problems worse.

Federal tax cuts approved by Republicans as part of the megabill, coupled with new requirements for Medicaid and the Supplemental Nutrition Assistance Program, are costing some states as much as $450 million this year in added costs and lost tax revenue, further squeezing budgets that were already stretched thin. Legislatures are now considering cuts and reallocations, including a cut to child care subsidies in Missouri, a 5 percent reduction across state agencies in Arizona and a $22 million cut from disability services in Idaho.

“We’re stealing from Peter to pay Paul,” Idaho Republican state Rep. Jordan Redman said recently. Aligning Idaho’s state tax with Trump’s federal tax cuts is estimated to cost the state $155 million in 2026 and $175 million in 2027, according to the governor’s office. “It's put us in a predicament where now we're trying to figure out, ‘Ok, what programs do we keep? What programs do we cut?’”

Trump has already struggled to sell Americans on many provisions of his “big, beautiful bill,” from Medicaid and SNAP cuts to tax changes that provide the most benefit to the wealthiest 10 percent of Americans. Now Republicans, many of whom support the president’s tax policy, are now facing the prospect of unpopular state-level spending cuts or new taxes that might make selling Trump’s “big, beautiful bill” harder, especially as the president drifts from messaging on the law and affordability to other major issues, including the war in Iran.

“The feedback I'm hearing from citizens is that extra few bucks on their [return] at the end of the year, because of the taxes they didn't have to pay, comes secondary to wanting us to take care of the things that government needs to be invested in,” said Idaho GOP Sen. Jim Guthrie. “Which is your infrastructure and your roads and bridges and schools and also your Medicaid population.”

In Iowa, federal cuts added nearly $350 million to a more than $1 billion budget hole, the Iowa Legislative Services Agency confirmed to POLITICO. Many of these preexisting deficits were caused by the end of Covid-era relief funds and state-level tax cuts.

Trump signed his signature tax and spending bill into law on July 4 last year. It requires states to pay a larger share of SNAP administrative costs and fund resources to handle new Medicaid work requirements, which can cost some states as much as $50 million on top of existing costs or budget deficits. But aligning state and federal tax cuts is undoubtedly the biggest challenge of the megabill on state budgets this year.

When federal tax cuts are passed by Congress, many states automatically adopt those same cuts into their state tax code, resulting in a dip in state revenue. But states can selectively choose which federal taxes to adopt without penalty, and even Republican-led states are not adopting all of Trump’s cuts. Nebraska, for example, declined to adopt tax cuts on tips and overtime, Republican state Sen. Robert Clements, chair of the Senate Appropriations Committee, told POLITICO recently. And Idaho opted out of certain corporate tax code changes, according to Guthrie.

“The One Big Beautiful Bill implemented commonsense reforms to slash the pervasive waste, fraud, and abuse in Medicaid that was making the program unsustainable for the Americans who rely on it,” White House spokesperson Kush Desai said in a statement. “President Trump at the same time has negotiated over a dozen Most-Favored-Nations drug pricing deals to dramatically slash prescription drug prices for both consumers and state Medicaid programs – savings that will compound once Congress passes the President’s Great Healthcare Plan to codify these and other health affordability policies.”

Indiana’s temporary adoption of federal tax cuts on tips and overtime is projected to cost the state $251 million in 2026 tax revenue, according to an analysis by the Institute on Taxation and Economic Policy. And full adoption of the federal tax code could cost Arizona $381 million in 2026, per a 2025 analysis by the Joint Legislative Budget Committee. Arizona Republican Senate Appropriations Committee Chair John Kavanagh plans to cover the gap by pulling surplus funding and reducing agency budgets by as much as 5 percent, he told POLITICO.

Changes to SNAP and Medicaid requirements are also costing states millions. Many red states are funding technology and additional staffing to process new Medicaid work requirements and improve the accuracy of their SNAP payment system. If they don’t spend tens of millions of dollars now, Oklahoma Republican House Appropriations and Budget Chair Trey Caldwell said, it could cost his state hundreds of millions in future years due to penalties imposed by the megabill on states with high rates of overpaying or underpaying SNAP benefits.

“We're going to take the first hit in [fiscal] ‘27,” Caldwell said, calling the nearly $26 million increase that Oklahoma Human Services requested for SNAP “another direct cost of H.R.1.”

Overall cuts or budget freezes for state agencies, higher education, family programs and disability services are also some of the most common changes that red states are weighing.

Missouri Republican House Budget Committee Chair Dirk Deaton, for example, proposed an approximately $50 million cut to child care enhancements in committee earlier this month.

“We’re faced with hard decisions,” Deaton said during the March 9 hearing. “It is what it is.”

Missouri’s legislature is also deliberating cuts to addiction services and programs that aid people with disabilities. Republican Gov. Mike Kehoe signed a bill earlier this month that allocated $132 million to the 2026 budget for implementation of the megabill, and has requested millions more in the 2027 budget.

“Some of those [Medicaid] mandates, or some of those requirements, are going to force our hand,” said Missouri GOP Rep. John Simmons, where the budget process is still ongoing. Simmons opposes proposed cuts to disability services and foster care but acknowledges that “certain areas are gonna have to take a haircut.”

The Iowa House, meanwhile, passed a bill last week that would institute a one-time tax increase on health maintenance organizations to cover a shortfall in the state’s Medicaid budget.

“A lot of [the shortfall] has been through H.R.1 not taxing overtime, not taxing tips,” said Republican lobbyist Phil Jeneary, executive director for Iowans for Affordable Healthcare, a nonpartisan group opposing the health care tax. Jeneary says the legislature is “in between a rock and a hard place, really, because they don't want to raise taxes but they also need to balance the budget.”

The proposal received bipartisan backlash from a handful of Republicans who voted against the bill and from voters and patient organizations. In addition to the new tax, the most recent version of the bill would transfer $347 million from a state surplus fund to cover megabill-related tax cuts.

“Many Iowans rely on HMO plans, and I saw this tax as the wrong approach at the wrong time,” Iowa GOP Rep. Mark Cisneros, who voted against the legislation, said in a statement. “I believe solutions should be considered by looking at the entire state budget as a whole, rather than addressing issues in pieces. Raising taxes is often not the answer.”

While many Republican legislators say they ideologically agree with Trump’s conservative tax policies, the timing of the megabill, in a year when states are facing deficits driven by previously passed state cuts and lower than anticipated revenues, poses the bulk of the difficulty facing red states.

When Idaho passed $450 million in state tax cuts in 2025, Guthrie said, he cautioned fellow legislators that Trump had similar plans.

“The right answer for a conservative is, ‘yeah, I love tax cuts. I always vote for tax cuts, whatever,’” Guthrie said. “That's all great, but still, there's got to be some balance to it.”