After a busy few weeks of haggling, headlines, and holdouts, Congress delivered a sweeping piece of legislation for President Trump’s signature prior to a self-imposed July 4th deadline.
Nearing a thousand pages, the law has major implications for taxes, healthcare, government social programs, defense, and immigration. Parsing through the messy politics and into the policy details is key to understanding how you may be affected, and if so, how we can best plan for the changes together.
The bill, originally known as the One Big Beautiful Bill Act (“OBBBA”), includes $4.5 trillion in tax cuts as well as significant funding increases for the Trump administration’s areas of focus. The cost is partially offset by redirecting funds from safety net programs, such as Medicaid and SNAP (food stamps), as well as by reversing a number of the previous administration’s climate-focused initiatives. According to the Congressional Budget Office, the OBBBA is projected to increase the national debt by $3.3 trillion over the next decade.
Here is a non-comprehensive list of notable provisions:
Understanding the Tax Changes
For individuals, the new law permanently extends the current tax rates and higher standard deductions as provided in the 2017 Tax Cuts and Jobs Act. The estate tax exemption will also remain at historically elevated levels, increasing to $15 million per person for 2026 and continuing to adjust for inflation in future years. For reference, the 2017 tax provisions were set to expire at the end of 2025.
The law also creates new deductions, expands certain credits, and provides for a new savings tool for minors – including, but not limited to, the following:
- Expanded Child Tax Credit. The child tax credit rises to $2,200 per child. The final figure came in at $300 less than the House’s original draft. However, unlike the initial version, the change is permanent.
- Bolstered Standard Deduction. In addition to making the current standard deduction levels permanent, the law now enables individuals over 65 years of age to receive an additional $6K deduction, subject to income limits.
- State and Local Tax (“SALT”) Deduction. The cap on deducting your state and local taxes increases from $10K to $40K. The increase phases out for those with over $500K of income. The change is also temporary, with the cap reverting to $10K in 2030.
- “No Tax” on Tips. Individuals are now able to deduct up to $25K of tipped wages, subject to a $150K income limit. Of note, tips are still subject to state, local, and payroll taxes. This change is set to expire in 2028.
- “No Tax” on Overtime. Individuals are now able to deduct up to $12,500 of overtime wages. Much like the above, the change will expire in 2028 and only applies to federal income taxes.
- Qualified Small Business Stock. Entrepreneurs and small business investors will see an already existing tax benefit become even more impactful. Originally, those who invested in qualifying small businesses – where small businesses were defined as having $50 million or less in total assets, along with other eligibility factors – were able to exclude the greater of $10 million or 10 times their original investment from their taxable gains. The legislation expands this benefit by increasing a small business’s definitional asset limit to $75 million, while also increasing the maximum exclusion amount for investors to the greater of $15 million or 10 times their original investment.
- Trump Accounts. The law creates a new type of tax-deferred investment vehicle for minors, aptly named Trump Accounts. Parents are allowed to contribute $5K/annually, and children born between 2025 and 2028 will receive a one-time deposit of $1K from the federal government. When children born during these years reach the age of 18, withdrawals they make for college tuition, first-time home purchases, and small business loans/expenses will receive long-term capital gains tax treatment until they reach the age of 31. After their 31st birthday, withdrawals will be taxed at ordinary income rates – a requirement that seems counterintuitive to encouraging long-term saving and investing.
For businesses, the new law includes a number of beneficial provisions such as the extension of bonus depreciation of certain property and a more generous deduction treatment of research and development expenses. According to the Tax Foundation, these two changes may boost long-run GDP by 0.7%.
Beyond the Taxes
True to its original name, the OBBBA also addresses President Trump’s other key priorities. An additional $350 billion is allocated for border security and immigration. Included in this total is $46 billion to complete the U.S.- Mexico border wall, $45 billion for mass migrant detention facilities, and $25 billion for the development of a “Golden Dome” missile defense system – modeled after Israel’s Iron Dome. A provision sets aside a portion of the funds for hiring 10,000 new ICE agents as well as an additional $10 billion to facilitate mass deportation efforts.
Initial versions of the bill included a 10-year ban on state regulation of artificial intelligence. However, this was ultimately removed from the bill in a 99-1 Senate vote.
Who Will Pay for the Bill?
In order to offset the costs of the tax cuts and increased immigration & defense spending, the legislation includes $1.2 trillion of funding reductions to social safety net programs.
Medicaid now has tighter eligibility with new work requirements that in some cases apply to older Americans and some parents of disabled individuals. According to the Congressional Budget Office, the change will result in approximately 12 million Americans losing their coverage. The legislation also limits the amount states can tax Medicaid providers. As that tax revenue has historically been used to provide funding for hospital systems, $1 trillion is expected to disappear from the health care system. In order to support rural hospitals that may otherwise have to shut down, the bill creates a $50 billion fund that will start in 2028 and pay out over 5 years.
The legislation also has the federal government scaling back on their participation in the Supplemental Nutrition Assistance Program (“SNAP”). SNAP, which currently provides food aid to more than 40 million low-income Americans, now has stricter work requirements for eligibility. Approximately 22.3 million Americans are expected to lose some or all their SNAP benefits. Regarding this provision, a handful of governors have warned that their states cannot support the program entirely without federal funding support.
Outside of the safety net programs, the bill scales back on the previous administration’s climate-focused initiatives. The $7,500 electric vehicle tax credit expires this September, and clean energy projects will see their wind and solar tax credits phased out. These changes will reduce the overall cost of the bill by $440 billion.
What Now?
Some of the provisions will kick in immediately, while others are to be phased in over the next few years. Similarly, some of the provisions will have an immediate impact on markets and Americans, while others will have much longer-term implications, such as the increased federal deficit.
We continue to focus on how economic, geopolitical and policy-related forces can affect your financial picture. This update is one such example, as we believe that information and preparation help navigate changing environments.
As always, we ask that you let us know of any changes to your financial situation or anticipated cash needs for the next 12-18 months. Please do not hesitate to reach out to your Howland Capital team should you have any questions or wish to discuss anything in further detail.
