What is the effect of income stagnation on support for the welfare state? Combining novel data on the evolution of income to existing micro- and macro-level datasets, we argue that stagnation leads to greater support for spending cuts and tax cuts. We develop a simple model linking income stagnation to support for cuts via three distinct mechanisms. Stagnation reduces altruistic motives for welfare state spending, it heightens the relative perceived costs of insurance, and it leads individuals to support tax cuts to compensate for their stagnating incomes. Our micro-level empirical analyses show that individuals facing stagnant or lower incomes support spending cuts and tax cuts to a greater extent. This effect is especially strong among high-income individuals and/or people facing low unemployment risk. At the macro level, these dynamics lead to greater retrenchment in countries with lower income growth. Taken together, our findings link the literature on income stagnation to comparative political economy studies of changing welfare states. They help us make sense of why governments implement (often) economically inefficient spending cuts during economic crises, despite rising risks which should lead to larger welfare states. In contrast to previous literature claiming that the implementation of austerity is the result of democracy being subverted, we show that there are rationally based reasons why some pivotal electoral groups may support retrenchment under conditions of economic stagnation.