President Donald Trump’s megabill was signed into law on July 4, 2025, and is now the One Big Beautiful Bill Act (OBBBA). There is a lot to like and dislike about the act.
Democrats and Republicans agree that any big bill will include something they hate, including the ones on which they vote “yea.” This one is no different.
For example, the OBBBA favors high earners instead of taking opportunities to help the disenfranchised. The economy would benefit more if the net effects were to shift to lower-income groups, as they have a greater propensity to spend those extra savings.
The marquis component of the OBBBA made the tax cuts from the Tax Cuts and Jobs Act of 2017 (TCJA) permanent; if the TCJA had been allowed to expire, as it was set to do at the end of 2025, households would have seen a tax hike.
The OBBBA helps every income group when it comes to tax changes; however, higher earners will receive the bulk of those breaks. According to the Yale Budget Group, approximately 80 percent of the tax cuts are allocated to the top 10 percent of earners.
The lowest quintile of earners will enjoy tax benefits, but the overall effects of the OBBBA are negative for them; those households will see an overall decline of $695 per year, representing a 2.9 percent decrease in after-tax income.
The middle 20 percent of earners will see a gain of $660 per year, or 1.3 percent of their after-tax income. The top 20 percent get a $5,735 increase, or 2.2 percent of their after-tax income. The top 1 percent, those making $650,000 or more, get a tax cut of $29,585 per year, or 2.3 percent of after-tax income. (Estimates vary; let’s focus on them being directionally accurate, even if not precisely correct.)
How does the lowest quintile of earners end up worse off after receiving tax breaks? The reductions in Medicaid and SNAP (Supplemental Nutrition Assistance Program, formerly known as “food stamps”) will overwhelm their tax breaks.
The top 10 percent of earners pay 70 percent of all income taxes, so it makes mathematical sense that the highest earners save larger dollar amounts. But where do some of those other savings come from? The OBBBA offers additional cuts through SALT (state and local tax) deductions and child tax credits.
The SALT cap is raised from $10,000 to $40,000, with automatic annual inflation adjustments. Full benefits apply to households earning up to $500,000; after this threshold, the deduction phases out based on adjusted gross income (AGI). However, the increased SALT cap is temporary, reverting to the current $10,000 limit in 2030. The OBBBA also raises the maximum child tax credit to $2,200 per child, effective 2025, and makes it permanent with future indexing to inflation.
Also notable is the treatment of the standard deduction under the OBBBA. The standard deduction is the amount that taxpayers can deduct from their income if they do not itemize deductions on the Internal Revenue Service (IRS) form Schedule A (Form 104). If the TCJA had expired, the standard deduction for a married couple filing jointly would have reverted from $27,700 to about $17,000. Instead, the OBBA increased that deduction to $31,500, making it permanent and indexing it to inflation going forward.
Additionally, there is some clarity on the estate tax. For 2025, the estate tax exemption is a whopping $13.99 million per person. If the TCJA were to expire, it would drop to approximately $7 million in 2026. Now, starting in 2026, the amount will be $15 million per person, with annual inflation adjustments. However, that does not help people avoid state inheritance taxes. For example, as my colleague Holly Simeone points out, you will need more sophisticated strategies if you live in a state like Massachusetts that squeezes households with significantly smaller net worths.
The OBBBA eliminates most taxes paid by seniors on Social Security benefits. The law does not specifically target Social Security; instead, it introduces a $6,000 “senior deduction” (per person aged 65 and above) from taxable income, in addition to the standard deduction. The deduction phases out for single seniors with AGI over $175,000 and couples over $250,000. This deduction, plus the higher standard deduction, should allow 88 percent of seniors to pay no federal income tax on their Social Security benefits. Before the OBBBA, approximately 56 percent of senior citizens paid federal income taxes on these benefits.
Workers in recognized tipped occupations (servers, bartenders, hair stylists, delivery drivers, personal care, etc.) are eligible to take an above-the-line deduction (so they do not have to itemize) for up to $25,000 in cash tips per year. Workers making more than $25,000 in tips would face phased deduction limits. This provision expires after 2028.
Single tax filers who receive qualified overtime compensation (meaning overtime paid under the Fair Labor Standards Act) can deduct up to $12,500 per year (married filing jointly can deduct $25,000). There are income phaseouts starting at the $150,000 and $300,000 AGI levels, respectively. This provision expires after 2028.
Also expiring after 2028 is an above-the-line deduction of up to $10,000 per year for auto loan interest on personal-use passenger vehicles assembled in the U.S. The income phaseouts are $100,000 and $200,000 for single filers and those who are married filing jointly, respectively. The deduction applies only to auto loans incurred after December 31, 2024.
CNBC provides a convenient chart comparing the old law (labeled “current law” in the graphic because it was compiled prior to being signed into law) and the benefits under the OBBBA (labeled “final legislation”).
According to the Congressional Budget Office, the Tax Policy Center, and the Tax Foundation, there should be negligible additional growth in U.S. Gross Domestic Product (GDP) in 2025.
However, the OBBBA could boost GDP by approximately 0.6 percentage points in both 2026 and 2027 and about 0.5 percentage points through 2034. After that, projections become negative as the gains fade and deficits mount, crowding out capital. But the good news is that by then, the productivity boom from artificial intelligence (AI) could overwhelm those concerns. (Credible mainstream models from the likes of Goldman Sachs, the Federal Reserve Bank of St. Louis, the Dallas Fed, the IMF, and the OECD put the incremental lift to U.S. real GDP growth from AI at about 0.2 to one percentage point a year until the mid-2030s.)
Feel free to send this article to your accountant before your next tax-planning meeting. Understanding the benefits of OBBBA enables households to maximize their financial positions, ensuring long-term stability in a continually evolving economic landscape.
Allen Harris is an owner of Berkshire Money Management in Great Barrington and Dalton, managing more than $700 million of investments. Unless specifically identified as original research or data gathering, some or all of the data cited is attributable to third-party sources. Unless stated otherwise, any mention of specific securities or investments is for illustrative purposes only. Advisor’s clients may or may not hold the securities discussed in their portfolios. Advisor makes no representation that any of the securities discussed have been or will be profitable. Full disclosures here. Direct inquiries to Allen at AHarris@BerkshireMM.com.
