Domestic Program Cuts and State Tax Hikes to Boost Spending

President Trump's $1.5 trillion defense budget request comes with major reductions in domestic programs and increased state taxes.

Apr. 4, 2026 at 1:35am

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A fractured, abstract painting of a government building or legislative chamber, with overlapping geometric shapes and waves of dark blue, charcoal gray, and muted red, conveying a sense of political upheaval and changing power dynamics.As federal spending priorities shift toward a military buildup, state governments face tough choices to balance budgets and manage rising costs.NYC Today

President Donald Trump has requested a $1.5 trillion budget for the military, a 40% increase in defense spending. To fund this, the plan involves massive cuts to domestic programs like Medicaid and SNAP, as well as increases in state taxes. This shift in federal spending priorities follows the passage of H.R. 1, a budget reconciliation measure that reshaped policy areas critical to state budgets.

Why it matters

The reallocation of federal funds is creating a new fiscal dynamic between the federal government and the states. State policymakers are now managing these changes alongside rising spending pressures, sluggish revenue growth, and declining fiscal flexibility. The transfer of these costs to states could result in tax hikes or cuts to benefits as states are generally required to balance their budgets.

The details

H.R. 1 extended and modified various provisions originally enacted during President Trump's first term in 2017. Because nearly all states that collect personal income taxes use the federal definition for taxable income, these modifications directly impact state tax codes and revenue collection. The current fiscal strategy focuses on increasing military capabilities through the proposed 40% spending jump, while reducing the federal footprint in domestic social services and shifting those financial burdens to state-level governments.

  • On July 4, 2025, H.R. 1 became law, reshaping federal spending priorities.
  • In 2025, federal revenue was 17% of the gross domestic product (GDP).

The players

President Donald Trump

The current President of the United States who has requested a $1.5 trillion budget for the military, a 40% increase in defense spending.

Cato Institute

A think tank that has analyzed the budget proposal and concluded that the plan falls short on the spending programs driving the federal debt.

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The takeaway

This shift in federal spending priorities from domestic programs to a major military buildup will have significant impacts on state budgets, forcing difficult financial adjustments like tax hikes or benefit cuts as states struggle to manage rising costs and declining fiscal flexibility.