On the Big Beautiful Bill

Editors’ note: MarketMinder is nonpartisan, favoring no party or politician, and analyzes legislation only for its potential market ramifications, if any.

Last Thursday, the House eked the One Big Beautiful Bill Act through on a 215 – 214 vote, sending it to the Senate. With the long-awaited budget taking a step forward, it is time to take a closer look at what is in the bill the Senate will weigh. In our view, it amounts to mostly extensions of the status quo, with a few additions, a few deletions from past legislation and a few curious inclusions. We doubt the market effects are very big from this—if it even emerges from the Senate as written. Let us explore.

The budget passed under reconciliation rules, which lets it avoid Senate filibuster for potential passage with a simple majority. The main thrust of it extends the 2017 Tax Cut and Job Act’s (TCJA’s) expiring provisions—namely, higher standard tax deductions and, for most households, lower tax rates. In this sense, it is the status quo and, if adopted, would mostly prevent higher rates from snapping back at yearend. Pretty boring stuff, really.

But the Big Beautiful Bill also includes some additional changes. The main ones:

• Raises the state-and-local tax (SALT) deduction cap from $10,000 to $40,000 for those making less than $500,000—whether individual taxpayers or those filing jointly—and gradually phases out thereafter. (This was a major point of contention within the House GOP caucus.)
• Exempts federal income taxes (not payroll taxes for Social Security and Medicare) on tips and overtime pay for workers earning less than $160,000, a provision that would sunset in 2028.
• Cuts Medicaid by roughly $700 billion and food stamps (aka the Supplemental Nutrition Assistance Program or SNAP) by about $300 billion over 10 years, while imposing work requirements for eligible participants in these programs beginning in 2027 (though some states may start earlier).
• Phases out Inflation Reduction Act (IRA) clean energy tax credits worth some $522 billion.
• Creates tax-deferred child savings “Trump accounts” seeded with $1,000 for each baby born. Parents would subsequently be able to contribute as much as $5,000 annually, with the funds invested in a US index fund. The account would be locked from withdrawal until age 18.
• Increases defense spending by $150 billion, going to naval fleet expansion, “Golden Dome” missile defense, nuclear deterrence, next-generation aircraft, munitions restocking and servicemembers’ housing, healthcare and pay among other initiatives.
• Increases border security spending $140 billion for reviving construction of the US-Mexico border wall, more Border Patrol and Immigration and Customs Enforcement (ICE) agents and detention facilities.
• Raises the debt ceiling by $4 trillion from the current $36.1 trillion cap, which Treasury is currently running up against, likely kicking the can past 2026 midterm elections.

There were a couple items we saw getting less headline attention we think are also worth mentioning. The House bill aims to eliminate the Public Company Accounting Oversight Board (PCAOB) tasked with overseeing auditors, including those abroad that audit foreign firms’ books. It would fold these responsibilities into the SEC, which currently oversees the more specialized PCAOB. It would also allow retaliatory taxes on non-US corporations headquartered in countries that impose “unfair foreign taxes” on US multinationals, like Canada’s or Britain’s “digital services tax” levied chiefly on big US Tech.

Cheer or fear such legislation, it likely gets sanded down in the Senate. First, keep in mind the GOP has a slim, 53-47 majority in the Senate.^[i] The Democrats are highly unlikely to support this bill whatsoever. And even the GOP isn’t unified, with many arguing this costs too much. Some want bigger tax breaks or to strike Medicaid and SNAP cuts, reduce SALT deductions or other tweaks. Hence, we wouldn’t get too worked up over anything yet.

Many of its provisions may change, possibly a lot, particularly for seemingly more controversial measures. Some will likely be left by the wayside. For example, reconciliation rules that circumvent the Senate filibuster and allow budget passage with a simple majority vote are limited. It isn’t clear how the PCAOB provision would work with the Byrd rule, which allows reconciliation only for measures involving the budget. The House bill proposes to defund the agency, but the agency is chiefly funded by industry fees—not tax revenue. The Senate parliamentarian will likely have to rule on this, if the measure even emerges from committee.

Meanwhile, the Senate already passed a bipartisan bill by unanimous consent to cut taxes on tips. It has some differences from the version the House passed. While there is no sunset provision, the 100% federal income tax deduction would be capped at $25,000 per year. It also expands a business tax credit “for the portion of payroll taxes that an employer pays on certain tips to include payroll taxes paid on tips received in connection with barbering and hair care, nail care, esthetics, and body and spa treatments.”^[ii]

So while the broad outlines are taking shape, there could be a long slog ahead to fill out details that will satisfy enough members of Congress for a passing vote. Uncertainty may weigh in the meantime, swinging sentiment somewhat. For instance, clean energy stocks sagged after the bill phased out tax credits more rapidly than thought—but it isn’t law yet, and the final bill could reverse the seeming shock.^[iii] Sentiment can easily swing the other way. And, regardless, clean energy is a tiny portion of the broader US market that has been extremely weak since peaking in early 2021.^[iv]

This is why we don’t see much here to upend markets—or sway investors. Tax bills generally don’t make big splashes because they are widely anticipated. Every twist and turn a bill takes to passage is pored over—and pre-priced. By the time it hits the president’s desk there is little left to shock anyone. Surprise moves markets most. While it is possible Congress could, in theory, bury changes deep within a big bill that carry some effects, things like tax rates, major deductions and spending changes are so heavily watched as to make them largely noise for markets.

Besides, the Big Beautiful Bill isn’t the huge gamechanger many make it out to be. As we noted at the outset, it mostly just extends the TCJA’s status quo over the last seven years. The rest, if they survive the Senate, are incremental relative to the size of the entire economy. Though hundreds of billions of dollars sounds big, spread out over several years, and with GDP running just under $30 trillion annualized in Q1, the government’s tax and spending decisions are mostly marginal.^[v] That doesn’t mean there won’t be any surprises—or unintended consequences—so “megabills” like this are certainly worth watching. But it is a frequent mistake to presume the budget is game changing for stocks.