It has been a year since President Trump signed the 2025 Republican tax and spending megabill (the OBBBA) into law. The bill is guaranteed to lead to some of the largest short-run increases in inequality in American history. It included large tax cuts tilted toward higher-income households and spending cuts tilted against low-income households. The main targets for spending cuts were Medicaid and the Supplemental Nutrition Assistance Program (SNAP, often referred to as foods stamps). The Congressional Budget Office projects the OBBBA will reduce Medicaid enrollment by 7.5 million people, cut Medicaid spending by more than $900 billion, cut SNAP by $186 billion, and will require states to pay for a portion of the SNAP program. These large cuts will have far-reaching implications for low-income families.
Defenders of the OBBBA cuts claim that, because a large share of these cuts result from introducing new bureaucracy around work-reporting requirements for “able-bodied adults without dependents” (ABAWDs), they will not fall on more vulnerable populations like children or retirees. This is not true. The OBBBA has many near-direct cuts to vulnerable populations’ participation in these programs. More importantly, these cuts will have large spillover effects through families and communities that will harm vulnerable populations—including children.
This post highlights how important Medicaid and SNAP spending is to children, with a particular focus on how these programs support public education. It then outlines some ways that the legislated cuts in the OBBBA will damage this support, either directly or through clear spillover effects through damage to local economies.
The importance of Medicaid and SNAP to children and schooling
Around 40% of school-age children are covered by Medicaid for health insurance, and nearly 30% of school-age children live in families that receive SNAP benefits. Medicaid funding is key for public education. It provides an estimated $7.5 billion annually to public schools to fund essential health and learning and development services. As a share of total K–12 student revenue, Medicaid provides up to 2% of school funding to some states and up to $325 per pupil in revenue in some states.
Medicaid is particularly crucial for special education. Public schools are required by law to provide appropriate care and services for individualized education plans, and Medicaid is a big source of funding for these plans. In a recent survey of school districts, 86% reported they use Medicaid funds for school health staff salaries, and 59% use the funds for contracted services for mental and behavioral health. When asked what they would have to cut if they lost Medicaid funding, 8 in 10 school district staff predicted reductions in school health personnel and services.
How Medicaid and SNAP cuts will still harm children through direct fiscal pressures
While the OBBBA cuts to Medicaid and SNAP do not directly harm children through cuts in children’s health insurance or their food stamp eligibility, changes to eligibility criteria and cost pressures on state budgets will make it onerous to maintain current spending levels for one of the main public institutions that support children: public schools. For example, if states want to maintain coverage for any ABAWDs who lose coverage because of the work requirements stipulated in the OBBBA, states will have to come up with funding for it themselves. Additionally, the SNAP legislation requires that states now pay for 25% of their administrative costs that previously were fully funded from federal sources. With less federal money, states will either have to cut spending elsewhere in their budgets or (preferably, but politically difficult) raise revenue. None of these are easy political choices, and they all have some spillover effects. As one of the largest budget items in states, K–12 education funding will likely be squeezed in any state looking to maintain any of the services cut in the OBBBA without raising revenue.
How Medicaid and SNAP cuts will harm children through damage to local economies
Beyond these direct budgetary impacts, the OBBBA Medicaid and SNAP cuts could also reduce purchasing power in local economies and put upward pressure on unemployment rates, which could reduce economic security and opportunity for children in those areas. Adults who receive Medicaid and SNAP don’t have to use their household budget to pay for health care or (some) groceries. Medicaid and SNAP allow them to maintain access to these necessities while also purchasing other goods in their local economy, such as electricity, child care, or rent. When these programs are cut, people face higher health and food costs, which can force them to cut back on purchases and reduce demand throughout the local economy.
Moreover, areas particularly dependent on Medicaid and SNAP funding are least likely to be able to weather a reduction in aggregate demand for goods and services. Figure A shows that there is a clear positive relationship between a county’s unemployment rate and the income from Medicaid and SNAP. In other words, counties with high unemployment levels are also counties where a large share of their total income comes from Medicaid and SNAP funding.
To be fair, at the national level, it is possible that the reduction in spending caused by Medicaid and SNAP cuts will be neutralized by policies that raise incomes and demand elsewhere (say, by the tax cut provisions of the OBBBA or a Federal Reserve interest rate cut). But areas that are already facing high unemployment are missing out on positive trends in the U.S. economy. For these counties, the demand shock caused by Medicaid and SNAP cuts could be large, leading to job loss in these counties.
Damage to local economies hurts students and workers
Job loss from the spillover effects of the OBBBA cuts to local economies will create stress and financial insecurity for families, a catastrophe that research has shown can harm student achievement.
Parental job loss plays a key role in reducing parent and child well-being and has been shown to reduce a child’s likelihood of grade completion. Moreover, parental job loss is associated with a lower likelihood of obtaining postsecondary education, particularly in Black families. Causal evidence on community level job losses found a reduction in test scores for students, following the closing of a business. The effects were stronger for older children and for children in lower-income households. Even if the Medicaid cuts mostly target adults (ABAWDS), the reduction in local aggregate demand stemming from these funding cuts will hurt all families in a given region, and particularly for children, stand to harm their educational achievement.
Conclusion
The cuts to Medicaid and SNAP mandated by the OBBBA will harm children. Medicaid and SNAP currently fund key health and food services for public education, and while these functions aren’t directly threatened under the OBBBA, the cost pressures states will face from federal funding cuts will threaten the ability of these programs to serve students. Moreover, there are clear spillover effects through damage to local economies. By reducing the amount of available income in these areas, Medicaid and SNAP cuts run the risk of imposing a sharp anti-stimulus to local economies. This effect could be large in demand-constrained counties (studies on the multiplier effect of Medicaid consistently show it has large effects on spending). The claim that OBBBA won’t harm children is patently wrong, and the harms from it will plague children for a long time to come.