How the Senate Is Shaping Trump’s Big, Beautiful Bill

Editors’ note: MarketMinder is nonpartisan, favoring no party nor any politician, and assesses political developments solely for their potential effects on the economy, markets and personal finances.

On Monday, the Senate Finance Committee released its version of the One Big, Beautiful Bill Act (OBBBA) the House passed in May. A new poll showed Americans disapprove of the bill two to one ... but also don’t know what is in it.^[i] If there is a better indicator of today’s prevailing pessimism, we are hard-pressed to find it. It also highlights the uncertainty hanging over markets lately, but clarity is gradually arriving. As the wrangling continues, markets continue digesting it and weighing all the probabilities, sapping surprise power. So what are markets digesting? Here is a rundown of the items most relevant to investors.

The Senate’s bill hews closely to the House blueprint, chiefly—and permanently—locking in current federal tax brackets and standard deductions from 2017’s Tax Cut and Jobs Act set to expire at yearend. But there are some differences:

• Perhaps most notably, the House’s $40,000 cap on state-and-local tax (SALT) deduction—up from $10,000 currently—is so far absent in the Senate’s bill, which keeps it at $10,000 as a placeholder. This doesn’t rule out a higher SALT deduction but highlights a major sticking point to be negotiated, which extends uncertainty for households in high-tax states.


• Another big change makes more business tax breaks permanent, including tax deductions for R&D and new equipment expenses and expanded debt interest write-offs. These breaks would expire in 2029 under the House bill, which focused more on populist cuts than measures to support private investment.


• The Senate would also bring a more gradual end to clean energy tax credits: for solar and wind by 2028 and for hydropower, nuclear and geothermal by 2036. The House’s version, if enacted, would cut them off 60 days after the bill’s passage.


• While the Senate’s $2,200 child tax credit is less generous than the House’s $2,500, the upper chamber would adjust it for inflation after 2028, whereas the lower chamber’s reverts to $2,000 in 2029.


• The Senate would limit “no tax on tips” to $25,000 per person and tax-free overtime to $12,500 ($25,000 for joint filers), phasing out at $150,000 of income, whereas the House’s version didn’t have a cap (with an income phaseout at $155,000). And for tax-free Social Security benefits, the Senate would raise the House’s $4,000 deduction to $6,000.


• Instead of the House’s $4 trillion debt ceiling increase, the Senate’s packs a bigger $5 trillion can kick.


• The Senate’s proposal caps the so-called “revenge tax” on foreign corporations and investors from countries that impose “unfair” taxes on US multinationals at 15% versus the House’s 20%. (More on this shortly.)


• The Senate also proposes bigger Medicaid cuts and stricter work requirements for eligibility.


• As for new spending, the Senate would raise the Pentagon’s budget by $156 billion, $6 billion more than what the House offered, but competing senators’ border security, immigration and enforcement plans either slash what representatives would fund—or keep them intact.

The Senate aims to pass its OBBBA version next week, get House approval and then put it on the president’s desk by July 4. That is possible, but not set in stone, as lingering differences and details in need of ironing could stall the bill or even throw a spanner in the works. With only slim majorities in both chambers and competing priorities among them (e.g., on SALT), Republicans’ threading the needle could be challenging, though the enormous pressure to pass the Trump administration’s signature legislation probably wins out.

Still, uncertainty persists. While the Senate bill adds a little more clarity, there are enough sticking points that it is impossible to say which provisions in which version will get sanded down. It wouldn’t surprise us if this, along with tariff uncertainty, was contributing to a “wait and see” mentality among investors as uncertainty discourages risk taking.

This uncertainty isn’t unique to this particular bill. All legislation creates winners and losers, and this one is likely no different. Yes, it broadly preserves 2017’s tax cuts, which conventional wisdom says people like. But there are still plusses and minuses in the details, and it isn’t clear how those will shake out. When society broadly senses legislation will create winners and losers but doesn’t know who those will be, everyone considers the risk that they will lose out, which prospect theory tells us outweighs the hope they will win. In time, this should clear, but it can weigh on sentiment in the short term.

As for what had been less-noticed provisions we touched on when the House released its OBBBA—but which have received more widespread attention since—the Senate still slates the Securities and Exchange Commission (SEC) to take over Public Company Accounting Oversight Board (PCAOB) functions like the House bill does. While some have warned this will compromise audits of foreign firms’ books, the SEC’s preparing to assume PCAOB’s responsibilities should help assuage concerns.^[ii] (Another wrinkle: It remains unclear whether Senate budget reconciliation allows such agency restructuring under its so-called Byrd Rule.)

Then on the “revenge tax,” which lets Treasury impose taxes on individuals and companies from countries it declares a “discriminatory foreign country,” many fear unintended consequences from it applying to foreign Treasury holders, which could impede demand and raise US interest rates more than otherwise. But a clarifying footnote says it “does not apply to portfolio interest.”^[iii] The scope of its effect doesn’t match the sensationalism this issue has garnered, in our view. Note, too, that the bill doesn’t actually implement this tax. It merely gives the executive branch the power to do so, which could simply be a negotiating tool in ongoing trade talks. So while investors in the UK and EU are understandably concerned about higher taxes on their US stock holdings, given the UK’s digital services tax and the EU’s efforts to implement the same, that seems premature to us. Even if a tax were to take effect, taxes are just one variable affecting returns. At any rate, we think patience is the watchword.

Above all, we think investors do well to remember markets’ day job is to assign probabilities and largely pre-price passage of such bills. In our experience, they are very good at this. Yet it is often a slow grind—so slow, few realize it is happening. We suspect this is a big reason tax changes aren’t inherently bullish or bearish. To the extent cuts bring economic benefits by keeping more money in private hands to spend and invest, stocks register those expectations well before the legislation is passed or effective. Ditto for tax hikes. 2017’s tax cuts didn’t bring a big stock market boom. We doubt extending them is massively bullish.

When all is said and done, as legislation this scrutinized finally passes, there is little left to surprise—which is what moves stocks most. So keep apprised for how it affects your tax situation. But when it comes to the broader market implications, whether you cheer or fear the legislation, as sanded down and pored over as it has been, it likely won’t shock stocks, for good or ill.