Trump's proposed legislation, the 'Big Beautiful Bill,' and its potential impacts on the United States economy explained.
The US Congress has passed a significant tax and spending package, known as the One Big Beautiful Bill (OBBB), marking a significant shift in tax policy. Here's a breakdown of the key changes and their impact on individuals and businesses.
Individual Tax Changes
The OBBB permanently increases the standard deduction amounts, with single filers enjoying a deduction of $15,750 and married couples filing jointly receiving a deduction of $31,500, starting from 2025. This move eliminates the need for personal exemptions, except for certain exceptions for seniors. However, the bill does not explicitly restore state and local tax (SALT) deductions limits put in place by the Tax Cuts and Jobs Act (TCJA); thus, SALT deductions remain capped at $10,000 as under TCJA rules.
Business Tax Breaks
The OBBB restores and makes permanent several business tax breaks. This includes 100% bonus depreciation for qualifying property, encouraging immediate expensing of short-lived assets, and the permanent reinstatement of immediate expensing for U.S.-based research and development (R&D) costs. The bill also introduces a 1% floor on corporate charitable deductions, limiting deductibility unless contributions exceed 1% of taxable income.
The qualified business income (QBI) deduction is also made permanent, though with some modifications to phase-in limitations. The bill expands the qualified small business stock (QSBS) exclusion cap from $10 million to $15 million and increases the asset threshold for qualifying small businesses, enhancing tax breaks for small business investors.
Impact on the Economy
While the OBBB is expected to add $3 trillion to the US national debt over the next 10 years, according to the Congressional Budget Office (CBO), its impact on the economy remains a subject of debate. Pantheon Macroeconomics is sceptical about whether corporate tax breaks will unlock new investment for businesses in the short term due to tariff uncertainty. On the other hand, BlackRock believes that US equities will regain global leadership due to the AI theme providing near-term earnings support, and its investment institute remains "overweight" on US equities.
Analysts at BlackRock see scope for overall corporate earnings to stay solid, even if US growth is dented by tariff-induced disruptions and corporate caution. However, investment plans are still depressed due to tariff uncertainty, according to Pantheon's chief US economist Samuel Tombs.
Other Provisions
The OBBB also includes provisions for increased tax breaks on social security income for over-65s and allows workers to deduct up to $25,000 in tips and $12,500 in overtime from their taxable income. The bill provides an additional $150 billion for defence spending and $100 billion for border spending. US President Donald Trump signed the tax and spending package into law on 4 July.
In summary, the OBBB represents a significant pro-business tax policy shift focused on domestic production incentives while stabilizing individual tax rates and simplifications. The bill's long-term economic impact remains to be seen, with analysts divided on its potential to boost investment and consumer spending.
- The One Big Beautiful Bill (OBBB) includes provisions for finance-related changes, such as permanently increasing standard deductions for individuals and restoring business tax breaks, like bonus depreciation and research and development expenses, which are likely to influence business investing.
- The OBBB also has provisions that could impact politics and general news, as it adds $3 trillion to the US national debt over the next 10 years, according to the Congressional Budget Office (CBO), sparking debate about the bill's impact on the economy. Analysts at BlackRock and Pantheon Macroeconomics have different views on whether corporate tax breaks from the OBBB will spur immediate investment or not due to tariff uncertainty.
- Furthermore, the OBBB offers tax breaks on social security income for over-65s and allows workers to deduct certain income from their taxable earnings, with provisions for increased defense and border spending as well. This political-economic package, aimed at boosting domestic production and stabilizing individual tax rates, is expected to have long-term implications for business, investment, consumer spending, and the overall economy.
