The massive tax policy bill the House passed Thursday would change many things in the economy. Among them, who pays for major programs like SNAP and Medicaid. In the GOP’s legislation, states would start picking up more of the tab.
Right now, the federal government sends money to states for more than 1,400 different programs, said Chris Edwards, an economist at the Cato Institute.
“So for example, with Medicaid, the states are required to cover up to 50% of the costs. And with food stamps, the states don't cover any of the costs. The federal government pays all the costs,” he said.
This legislation would change that, shifting more of the costs for Medicaid and SNAP to the states. If that happens?
“Then the states really have three choices: They could raise taxes to cover the additional costs. They could cut other spending programs … or they could find efficiencies in these programs,” Edwards said.
How much would the states have to raise taxes or cut spending?
Thomas Brosy and his colleagues at the Urban Brookings Tax Policy Center just crunched those numbers.
“We looked at by how much the state sales tax rate or the state's … personal income tax rate would increase to make up for potential cuts in either Medicaid or SNAP, or both,” he said.
They figure the loss would equal an average of more than 3% of a state’s overall spending, or 7% of what they bring in in state tax revenue. Alternatively, 11% of what comes in from income and sales taxes.
Of course, the actual number varies by state.
“In Vermont … the sales tax rate will have to go up from 6% to 8.4%. In California, from 7.2 to 9.3%,” Brosy said.
If Congress decides to move ahead with this plan, states will have to scramble to figure out next steps, said Peter Muller, a senior officer with the Pew Charitable Trust.
“One of the challenges of a moment of uncertainty is states know that there is uncertainty, but they don't know what form it will take,” he said.
Or when the changes will kick in.
State legislatures will have to decide if they want to maybe change program requirements so fewer people are eligible, or perhaps tap into a rainy day fund.
“So many states are planning … on special sessions in the fall to be able to react to whatever the federal government does change,” Muller said.
That will give state lawmakers, and their constituents a chance to decide what comes next.
