President Donald Trump and congressional Republicans are rallying around what Trump has dubbed the “One, Big, Beautiful Bill”—a sweeping legislative package spanning tax cuts, energy policy, immigration, and more. At its core, it is a significant tax proposal intended to extend and expand the Tax Cuts and Jobs Act of 2017 (TCJA), which is otherwise slated to expire for individuals in 2026.
Major tax provisions: Locking in (and tweaking) the 2017 tax cuts
Of course, a lot could change before the final version of the One, Big, Beautiful Bill is codified into law. There is already contention regarding Medicaid and State and Local Tax (SALT) deductions. Nonetheless, Trump’s “big, beautiful” tax plan aims to lock in the tax breaks from 2017 and sweeten them further in certain areas. The House Ways and Means Committee has released a draft detailing the tax measures, which primarily prevent scheduled tax hikes after 2025 by making TCJA provisions permanent. Below is a summary of major elements affecting individuals, families, small businesses, and estates:
- Individual Income Tax Rates: The current marginal tax brackets and rates would be extended permanently beyond 2025. Without a new law, these would revert to higher 2017 levels in 2026. For example, the top rate would increase to 39.6 percent instead of 37 percent.
- Standard Deduction: The nearly doubled standard deduction that the TCJA introduced (currently $30,000 for married couples filing jointly in 2025) would remain permanently in effect. The draft bill calls for a temporary additional boost to the standard deduction on top of inflation adjustments.
- Child Tax Credit: Families would see the $2,000 Child Tax Credit (CTC) made permanent, rather than dropping back to $1,000 per child. Moreover, the bill temporarily enhances the CTC to $2,500 per child from 2025 through 2028, giving parents more relief for the next few years.
- Small Business (Pass-Through) Deduction (QBI): A big perk for small-business owners in the 2017 law was the 20 percent Qualified Business Income deduction for pass-through entities (S-corporations, partnerships, sole proprietorships). The new bill makes the 20 percent deduction permanent and even boosts it to 22 percent of eligible income. Without legislation, this QBI deduction would vanish after 2025, effectively raising taxes on millions of small businesses.
- Estate and Gift Tax: The 2017 tax law roughly doubled the federal estate tax exemption—currently about $13 million per person (nearly $26 million for a couple in 2023)—but that, too, would reset under current legislation.
- New Tax Breaks: Besides extending TCJA, Trump’s proposal sprinkles in several new tax incentives. These include eliminating taxes on tip income and overtime pay for hourly workers. The plan also creates a deduction for interest on auto loans for American-made cars. Another touted idea from Trump (though not included in the House draft bill) is ending taxes on Social Security benefits for retirees.
The tax package aims to prevent a scheduled $4 trillion-plus tax increase on households and businesses by keeping 2017’s tax measures in place. It also adds selective new cuts targeted at middle-class workers (overtime, tips), families (a bigger child credit), and certain favored activities (buying U.S.-made cars, small business investment). Notably absent is any relief from the SALT (state and local tax) deduction cap—a sticking point for lawmakers from high-tax states, meaning the cap of $10,000 would presumably continue indefinitely under this plan.
Economic impact: Growth boost or deficit drag?
What would these tax changes mean for the broader U.S. economy? The answer is debated, with supporters touting growth and critics warning of fiscal fallout. Here is a look at potential impacts on key economic indicators:
- GDP Growth: By preventing tax increases in 2026, the bill could help sustain consumer spending and business investment, providing a lift to economic growth. The nonpartisan Tax Foundation estimates that making the TCJA cuts permanent would raise long-run U.S. GDP by about 1.1 percent above baseline. The logic is that lower tax rates increase incentives to work, save, and invest, expanding the economy’s productive capacity. The White House’s Council of Economic Advisers (CEA) goes further, predicting that extending the tax cuts (along with other Trump policies) will boost GDP by roughly $1.1 trillion over a decade compared to letting them expire.
However, skeptics argue that the growth bump will be modest and could even turn negative in certain conditions. One concern is that with the economy at or near full employment, large tax cuts could primarily fuel demand, not supply, leading to more inflation rather than real growth. The Economic Policy Institute projects that deficit-financed tax cuts at full employment would “put a drag on growth” in the future. Additional government borrowing to finance tax relief can crowd out private investment or force the Federal Reserve to raise interest rates faster to contain inflation. If interest rates rise sharply, overall GDP growth could be dampened despite the supply-side tax incentives.
My take? If the skeptics are right, I will invest heavily in equities while avoiding Treasury bonds up front and change my allocation later. For the corporate bond market, continuing low tax rates are generally a plus for corporate earnings and cash flow, which helps credit quality. Companies, especially small and mid-sized ones that pay taxes via the individual code, will find it easier to service debt if the 20 percent (now 22 percent) income deduction sticks around.
- Wages and Employment: Proponents point to the strong labor market performance after the 2017 tax cuts as evidence that extending them will support jobs and wages. The Trump administration notes that real median household income climbed and wages grew faster than expected two years after TCJA. The bill could encourage hiring and raise take-home pay by avoiding a tax hike on employers and small businesses. The CEA forecasts that extending the tax cuts would raise real annual wages by $2,100 to $3,300 per worker and save over 4 million jobs that might otherwise be lost if taxes increase in 2026. This optimistic view holds that the tax plan would prevent a potential downturn (or “tax cliff” shock) that could occur when the current cuts expire.
Critics are less convinced that another round of tax cuts will noticeably boost workers’ fortunes. Progressive economists’ analyses argue that much of the TCJA’s corporate tax windfall went into stock buybacks and dividends rather than wages or hiring. With unemployment already low, finding millions more jobs from tax cuts may be unrealistic, and any tightness in the labor market could just translate into higher prices rather than significantly higher real wages.
My take? With the immigrant workforce being deported, it is going to be hard to find workers; wages should rise, and say, “hello, again,” to high inflation.
The economic impact of Trump’s tax package can be viewed as a short-term stimulus at the potential cost of long-term drag. Households and businesses would avoid a tax hike, likely supporting spending and growth in the late 2020s.
The bill’s passage would likely brighten investor sentiment by removing significant policy uncertainty. Businesses could plan investments knowing the tax landscape would not change in 2026. This could lead to improved business confidence readings and an uptick in company executives’ capital expenditures (capex) guidance. In turn, Wall Street analysts might upgrade earnings forecasts for sectors benefiting from consumer spending or small-business investment, supporting stock prices. For example, if overtime pay becomes tax-free, companies in leisure and hospitality or manufacturing (where overtime is common) might see improved worker retention and output, which could incrementally boost their profits.
The markets expect the One, Big, Beautiful Bill to pass in some form. If it does pass, it would be positive for stocks in the short term (one to four years). If it does not pass, the stock market will be shocked and will likely take a big hit.
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 representations that any of the securities discussed have been or will be profitable. Full disclosures here. Direct inquiries to Allen at AHarris@BerkshireMM.com.
