Medicaid and SNAP cuts in congressional Republicans’ budget bill will negatively impact local economies

The budget reconciliation bill recently passed by the U.S. House of Representatives proposes to make large cuts to Medicaid, the Supplemental Nutrition Assistance Program, and other social programs to pay for the extension of the 2017 Trump tax cuts. The Senate is poised to make changes to the proposed Medicaid and SNAP cuts in the House bill, but early indications are that they will be at least as drastic, if not more so.

Most analysis of the impacts of the reconciliation bill has focused on the consequences for the 11 million people who stand to lose their health insurance and the 4.5 million people at risk of losing their SNAP benefits. But these analyses overlook an even larger group that will be affected: workers and business owners who live and operate in the communities where program beneficiaries live. These stakeholders stand to lose key customers in the form of SNAP recipients who will no longer be able to afford their grocery bills and health care workers who may lose their jobs as a result of hospital and care center closures.

When someone uses nutrition assistance to purchase groceries, that money goes directly to the grocery store, which uses it to hire employees and buy food from suppliers. Similarly, Medicaid dollars go to hospital workers, doctors, and mental health care providers, who then spend their earnings in the local economy. In this way, Medicaid, the Supplemental Nutrition Assistance Program, and other income support programs perform a similar role as industries that produce tradable goods, such as manufacturing or farming. They bring money into a region—federal funds playing the role that payments for tradable goods do in export industries—which then circulates among local businesses such as restaurants, hardware stores, and barber shops, among others.

In a new working paper, I show that these types of social programs are a major part of the local economic lifeblood across the country. In total, I find that Medicaid amounts to an average of 11.2 percent of the economic base of regions nationwide. In other words, Medicaid contributes roughly as much to metropolitan Detroit as the auto industry, more to Houston than chemical manufacturing, and more to Boise than the electronics industry.

Though I find that SNAP benefits contribute a smaller amount, at an average of 1.36 percent of the total economic base of local regions, the program is still worth more to Nashville than the music recording industry—and is worth twice as much to McAllen, Texas, as pipeline transportation, the largest private-sector industry of that region’s economic base.

On average, my research suggests, each additional dollar of economic base income (from government transfers or traded-goods industries) generates roughly another dollar in wages paid and sales made by local businesses. Cutting Medicaid and SNAP by $1.2 trillion over 10 years, as the Republican budget bill proposes, is likely to cause an additional $120 billion per year in lost local income, as grocery stores lay off cashiers, restaurants close, and housing construction slows down. At the national average annual wage of around $75,000 per job—likely an overestimate, since local jobs tend to pay less than jobs in manufacturing or other traded-goods industries—that works out to about 1.6 million local jobs lost.

Of course, the tax cuts in the bill are likely to prompt some additional spending from those who receive them—or, rather, continue to receive them, as most of the proposed cuts simply extend current law. Yet that additional spending is unlikely to offset the extent of the job losses for two reasons.

First, according to the Joint Committee on Taxation, about 70 percent of the tax cuts will go to tax filers earning more than $150,000 per year. Because high-income households spend a smaller portion of their income than low-income households, the additional dollars these affluent households take home from the tax cuts will likely stimulate less total economic activity than the medical and nutrition support programs they replace.

Second, the households that stand to benefit the most from the tax cuts don’t live in the same places as current Medicaid and SNAP beneficiaries. Medicaid beneficiaries are concentrated in places such as New Mexico, Louisiana, Arkansas, and Kentucky, in addition to parts of New York and California, while incomes are highest in large metropolitan areas, especially on the coasts. This means that the congressional Republicans’ reconciliation bill features not just economic but also spatial redistribution, funneling billions of dollars from less affluent districts to places such as Boston, San Francisco, and Washington, DC.

The economic fallout from this bill would be especially large in parts of the United States where Medicaid and other transfers form a greater portion of the economic base. (See Figure 1.)

Figure 1

Share of local economic base made up of Medicaid and other government public assistance medical care transfers, by U.S. congressional district

U.S. Rep. Hall Rogers (R-KY), for example, who voted for the bill, represents a district where Medicaid makes up more than one-fourth of the local economic base. My calculations show that the projected cuts to federal Medicaid spending, combined with a 27 percent cut to SNAP benefits—the CBO estimate of the bill’s effect—would be the economic equivalent of losing more than one-third of all private-sector traded-goods industries in this district, all at the same time.

Similarly, Rep. Monica De La Cruz (R-TX) also voted for the bill, which does the equivalent of eliminating the pipeline transportation industry from her district—the second-largest private-sector industry there. The bill’s impact on Rep. Dan Bacon’s (R-NE) district would be as large as losing 85 percent of the farming industry in his district, while that on Rep. Tom Kean’s (R-NJ) district is about as large as losing its food manufacturing industry.

At the state level, the cuts to Medicaid and SNAP benefits would be the equivalent of losing 60 percent of the oil and gas extraction industry in Alaska, the entire logging and paper manufacturing industries in Maine, the plastics and rubber manufacturing industry in Ohio, and the machinery manufacturing industry in Pennsylvania. In North Carolina, it would be akin to losing all of the remaining textile and furniture manufacturing industries, while in Missouri, it would be as though 80 percent of military bases closed at once.

As my research makes clear, not only will the bill adversely affect beneficiaries of important social programs that bolster middle-class and low-income households, but its cuts to social programs will have a major impact on local economic activity as well. As the contours of the bill continue to be debated in the halls of Capitol Hill, policymakers should keep these broader economic impacts in mind.

Want to know how the proposed cuts compare to industries where you live? You can download a full searchable and filterable file listing the contribution of Medicaid and SNAP to the economies of each U.S. congressional district and state, as compared to their leading private-sector industries, along with my working paper.

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