Trump’s Big Beautiful Bill Act
In what some have described as a ‘dramatic’ 218-214 vote, the U.S. House narrowly passed President Trump’s US$3.4 trillion “Big Beautiful Bill Act,” a nearly 900-page tax-and-spending package that does mark a major victory for Trump and GOP (Republican Party) leaders.
It’s worth noting that, according to immediate polls, only 30 per cent of Amercians support the Big Beautiful Bill.
Pushed through after an all-night session overnight, and despite misgivings from some lawmakers, the bill cements the 2017 Tax Cuts and Jobs Act, boosts border security, and cuts social safety-net spending. Generally, the economists who have commented, predict a modest near-term economic benefit of one to 1.2 per cent Gross Domestic Product (GDP) growth by 2027 compared to letting the 2017 tax cuts expire. They also warn of longer-term risks, emanating from trillion-dollar deficits. They also highlight a potential 0.3 per cent smaller economy by 2034 due to the massive debt crowding out private investment.
For those who like a little detail, U.S. residents of high-tax states like New York or California, will receive temporary relief by the raising of the state-and-local-tax (SALT) deduction cap from $10,000 to $40,000. However, this phases out for incomes above $500,000 and reverts to $10,000 in 2030. Economists note this extends existing policy and averts a tax hike that could have dragged on an economy facing headwinds from Trump’s trade and tariff policies.
For those over 65, a new tax deduction has been introduced of up to $6,000 from 2025 to 2028 for individuals earning $75,000 or less ($150,000 for married couples), phasing out at $175,000 or $250,000, respectively. Trump claims this will spur growth, and the White House projects GDP will be 4.6 per cent to 4.9 per cent higher in four years. Independent economists aren’t as optimistic because the deductions expire after 2028, and backloaded spending reductions, like Medicaid cuts, could offset them.
Students in the U.S. face a tougher road. After July 1, 2026, income-contingent repayment plans end, replaced by a standard plan, which forms part of the bill’s spending cuts, and could limit access to higher education.
Electric Vehicle (EV) buyers are on borrowed time, with a $7,500 new EV tax credit and $4,000 used EV credit expiring on September 30, 2025. The home charging station credit ends June 30, 2026.
Starting December 31, 2026, Medicaid will impose work requirements of 80 hours per month for able-bodied adults (excluding caregivers of children under 14) and more frequent eligibility checks, potentially disqualifying millions from benefits by 2027.
Elsewhere, workers who receive tips in qualifying professions (to be listed by the Treasury within 90 days) can deduct up to $25,000 of tips from federal income taxes (not state or payroll taxes) from 2025 to 2028, phasing out above $150,000 in income. This temporary deduction, starting this year, offers immediate relief for service workers and contributes to the bill’s near-term GDP boost. However, economists note that its expiration after 2028, combined with Trump’s tariffs potentially could reduce GDP by a full percentage point in Q1 2026, and could limit long-term benefits for these workers, especially if deficits drive up interest rates.
Meanwhile, overtime workers earning $150,000 or less can deduct up to $12,500 (or $25,000 for married couples) from federal income taxes from 2025 to 2028 and is expected to be supportive of blue-collar and middle-income earners.
In summary, the Bill;
Offers tax relief: Immediate tax reductions for tip earners, overtime workers, and individuals over 64. These temporary deductions aim to boost disposable income.
Provides business incentives: Full expensing for business investments, encouraging capital spending in the near term.
Provides State and Local Tax (SALT) deductions: Expanded through 2029 at a cost of $142 billion, benefiting high-tax state residents.
Increases spending: Boosts to defence and border security spending, expected to stimulate economic activity in 2026.
And cuts future spending: Reductions in Medicaid and food stamp programs starting in 2027, potentially disqualifying millions from benefits.
The Big Beautiful Bill Act essentially locks in the 2017 tax cuts, which were set to expire on December 31, 2025, and which both parties largely supported extending, thereby averting a tax hike that could have slowed the economy. Nevertheless, it has already sparked significant debate.
While tax cuts for tips, overtime, and seniors, along with increased defence and border spending, will drive growth, and while rule governing business investment expensing supports economic activity, their influence may be offset by Trump’s proposed tariff increases. Goldman Sachs predicts they could reduce U.S. GDP by about one per cent in Q1 2026.
The net economic impact may be muted due to these counteracting forces.
Meanwhile, the bill’s structure – frontloading tax cuts and backloading spending cuts –creates a shift from short-term stimulus to potential fiscal contraction.
Most tax cuts (e.g., for tips and overtime) phase out after a few years, limiting their long-term impact. Medicaid and food stamp reductions, delayed until after the 2026 midterms, may not be implemented if future Congresses reverse them. And the bill could add US$4.1 trillion to deficits through to 2034, or US$5.5 trillion if provisions are made permanent. This could push U.S. debt to 127 per cent of GDP, raising interest rates and crowding out private investment, and thereby stunting growth.
Indeed, by 2034, the Penn Wharton Budget Model estimates the economy could be 0.3 per cent smaller due to higher debt. Over 30 years, GDP could be 4.6 per cent lower, with wages down 3.5 per cent.
For equity investors, the obvious sectors, such as defence, construction, and border security-related industries, may benefit from increased spending. However, in the longer term, rising deficits and interest rates could pressure valuations, particularly for growth stocks that are sensitive to borrowing costs. Meanwhile, tariff impacts may still affect consumer goods and import-reliant sectors.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
