Well, he did it. Against improbable odds, President Trump strong-armed a historic, sweeping, ginormous new law across the finish line on the Fourth of July, despite razor thin Republican margins in Congress.
Say what you will about Trump, it was a remarkable political feat; the law’s reach will touch everyone, financially speaking.
It is dumpster full of populist campaign promises – limited tax relief for overtime and tip income, a new temporary senior citizen tax deduction, plus tax cuts and gratuitous business tax incentives.
Before getting too lathered up about the bill’s partisanship, recall the last two massive fiscal bills that Biden bullied into law used the same budget reconciliation tactics. It’s wrong - and it’s bipartisan.
Congress is no longer a deliberative body but rather two tribes battling for total conquest. James Madison would be pissed to witness what passes as American politics today.
Politics aside, there are legitimate questions whether BBB represents good fiscal policy. Again, your view of the legislation likely depends on your political persuasion. As always, we’re evaluating it apolitically, focused on its impact on capital markets and its financial planning implications.
There’s much to unpack in BBB, so let’s dive in, looking at key provisions and how they may impact your personal finances.
2017 Tax Cut Now Permanent - The sweeping personal income tax cuts from Trump 2017 law were set to sunset in 2025. Its repeal would have triggered a damaging tax hike in 2026 and caused real economic pain.
For the tax cut naysayers, it’s historical fact that personal income tax revenue grew substantially after the 2017 tax cuts. However, government spending growth far outstripped the higher tax receipts, driving mind-numbing budget deficits and a staggering debt load.
Spending Cuts: This was a major whiff. Republicans face-planted with the insignificant DOGE-related spending cuts championed by Musk and his circus sideshow. Medicaid, which is health insurance and elder care for the poor, was singled out for scalping, citing the same “waste, fraud and abuse” DOGE trope to fund Republican spending priorities – business tax breaks, defense spending and border walls.
There was zero attention to Social Security and/or Medicare in BBB, which in tandem with interest expense are the sinkholes swallowing the federal budget.
Healthcare – As expected, the current rich ACA health insurance premium subsidies will expire after 2025. Absent new law, the subsidy rules will revert to pre-COVID levels with much lower income eligibility levels and no graduated premium subsidies.
The 2026 enrollment season will send shockwaves to folks spoiled by heavily subsidized individual health policies in recent years. Moreover, higher health insurance costs will complicate retirement planning before age 65 (Medicare eligibility).
Estate Tax – Individual federal tax exemption was set at $15 million, $30 million if married, indexed for inflation and now permanent law; no other changes were enacted. Obviously, Federal death tax is not an estate concern; inheritance, gifting and cost-basis tax planning remain at the top of the death planning agenda.
Energy – In classic Trump fashion, BBB smashes Biden’s climate policies instead of thoughtfully recalibrating them. Note that if you want a federal EV tax credit, hustle to the dealership as they are set to expire on September 30th.
Sure, Biden’s “no new gas cars by 2035” was preposterous. However, summarily gutting energy credits and green investment incentives will wreak havoc, especially since many businesses are investing heavily in clean energy initiatives, including in many Red states.
Ironically, we’ll need more clean energy to support AI growth and stabilize our decrepit electricity grid, not less. Trump may need to walk this back.
Medicaid – Boomers facing elder care challenges won’t like the blunt damage to Medicaid nursing home benefits due to BBB. The historic future cuts to Medicaid funding is expected to force many nursing homes to shutter.
On the patient side, a new disqualifier in 2028: ownership of a home with equity of one million dollars or more will eliminate eligibility for Medicaid nursing home benefits, irrespective of financial assets.
SALT – A controversial element of the 2017 tax bill was a cap on state and local tax (“SALT”) deduction at $10,000. The revised SALT provision is pure sausage: A $40,000 deduction cap effective for 2025 but sunsetting after 2029 (back to $10,000).
The higher deduction will enable more taxpayers to again itemize their tax deductions, which would make mortgage interest more affordable for the next few years.
Student Debt – BBB meaningfully tightens both eligibility and repayment rules for federally sponsored student loans. College planning, especially for non-wealthy families, just became more complex.
Senior Deduction – Here’s an oddball new break: starting in 2025, taxpayers age 65-plus can claim a $6,000 special bonus deduction ($12,000 if married). The deduction phases out at gross income of $150,000 individuals / $250,000 married and sunsets after 2028.
This populist gimmick is framed as an offset to Medicare premiums and the taxable portion (15%) of Social Security benefits.
Back to the bigger picture, the thrust of BBB is permanent tax cuts, stimulative business write-offs, and more spending on defense and border security. The only real offset is a steep Medicaid haircut delayed to 2028.
Nonpartisan analysts are sounding the alarm. They predict the federal deficit will rise from an already alarming six percent of GDP to an astounding eight percent through the rest of Trump’s term.
I imagine that bond market “vigilantes” are cleaning their weapons, bracing for a showdown over the financial fallout from BBB.
Supporters counter that tariff revenue isn't factored into the dire budget projections. Fair, but Trump's tariff policy is wholly unpredictable – he can’t stop himself from moving the goalposts - and even optimistic forecasts fall short of plugging yawning government budget deficits.
I’ve joked that the only white-collar job tougher than a financial advisor these days is customs agent. BBB won’t help—it seems like another irresponsible fiscal bill accelerating our march toward a debt reckoning.
This is no time for complacency in your investment strategy.
Until next time, be well….Tim