Likely Impacts Of The One Big Beautiful Bill Act On Investors

Forbes

4 days ago

Investor looking at a chart
2017's Tax Cuts and Jobs Act was set to sunset in the end of 2025, necessitating either the passage of a new tax bill this year or a reversion to our tax law from prior to 2017. While the 2025 bill that was signed into law on July 4th certainly rhymes with the 2017 bill, there are some key changes for investors to be aware of with both short and long-term consequences. Here are the likely impacts of the One Big Beautiful Bill Act of 2025 on investors.
Higher Margins For Businesses
In addition to reinstating some of the tax breaks from the original 2017 tax bill, the 2025 bill adds additional deductions and credits for corporate America, manufacturers, and small businesses. With less taxes and more credits, corporate margins should increase if all else stays the same. Increases in corporate margins can lead to increases in profit, which can mean a greater return on company stock. For investors with a stock-based portfolio, they would see higher investment returns in this case.
Slight Net Income Boost For Middle-Income And Higher
Like in the 2017 bill, the lowest income individuals will see a negative impact from the bill. Penn Wharton estimates that among those earning less than $18,000 per year, their net income would decrease by 1.1% as a result of the 2025 bill. However, everyone earning above $53,000 per year could see a marked increase in their after-tax income. Those living in high-tax states should also benefit for the next five years because limits on state and local tax deductions will be temporarily lifted.
One impact I observed among investors after the passage of the 2017 bill that may likely increase in frequency is the number of individuals who opt for the standard deduction on their taxes. Before 2017, I saw a lot more people deducting their primary residence interest and seeking other itemized deductions. Now, for many Americans, the $15,000 standard deduction for singles and $30,000 for married filing jointly makes itemizing a moot point.
The bill also benefits those earning tips and overtime, allowing deductions of tip and overtime wages subject to limits.
Increasing After-Tax Inheritances For High Net Worth Individuals
As a result of the 2025 bill, the estate and gift tax lifetime exclusion has increased to $15,000,000 for individuals and $30,000,000 for married couples, subject to inflation adjustment. This means that on a federal level, most Americans will not need to worry about how much money or other assets they gift while they are living or pass on after death. Only people who exceed those lifetime exclusions would be subjected to the federal gift or estate tax of 40%.
It's still important to note that there can be inheritance taxes on a state level so planning for lower limitations may still be necessary depending on the state.
Loss Of Safety Nets
The 2025 bill plans to either entirely defund or create gaping inefficiencies in certain social safety nets, including Planned Parenthood, Medicare, Medicaid, public schools, and food assistance programs for those in poverty. While this will disproportionately affect the impoverished, it will also have a negative impact on hospitals across the US, severely limiting access to care and potentially increasing costs to everyone. Loss of Medicare funding could also mean that insurance costs astronomically increase for Americans across the board as they age.
Interest Rate Hikes
The Congressional Budget Authority estimates that the 2025 bill will increase the federal deficit by $3.4 trillion over the next decade. Though the relationship between the deficit and interest rates is complicated, increases in the deficit often lead to an increase in interest rates over time. An increase in interest rates has several marked impacts:
Conclusion
The One Big Beautiful Bill Act of 2025 presents mixed implications for investors. While businesses may experience higher margins and middle-to-high-income individuals could see income boosts, the bill also risks increasing interest rates and defunding social safety nets. Investors should weigh these factors carefully to understand both the opportunities and challenges in the evolving financial landscape.