The One Big Beautiful Bill (OBBB), signed into law on July 4, 2025, represents a sweeping legislative package with significant implications for taxation, capital formation, and economic policy. It arrives amid a backdrop of market resilience, geopolitical tensions, and evolving monetary policy. Despite the anticipated substantial increase in national debt, the bill also incorporates several pro-growth provisions that aim to stimulate investment and entrepreneurship.
Overall, while there are provisions in the bill that are unclear and the tailored tax benefits are unquestionably complicated and potentially misaligned with full economic stimulus, the effect on the economy is a net positive vs. not passing anything. Caprock believes the latter point is the most important, with the US economy having been in line for a fiscal shock from the Trump Tax Cuts expiring without any replacement. Lower income tax rates, greater child tax credits and generous deductions for businesses are all net positives for the economy in the short and medium term while at the same time potentially stretching our budget deficit in the long term.
Market Considerations
The administration believes they are preventing a major fiscal contraction by renewing expiring tax provisions. This will continue the fiscal stimulus we saw under the first Trump administration. In addition, tax provisions like enhanced bonus depreciation for capital investments should stimulate business investments over the next few years, albeit at the potential expense of investment post the Trump administration. According to an analysis by The Budget Lab at Yale, the OBBB will have both short-term and long-term economic impacts. In the short run, the bill is expected to boost GDP growth by an average of 0.2 percentage points per year from 2025 to 2027. However, in the long run, the debt load from the OBBB will raise interest rates and result in crowding out, leading to a slower GDP growth rate. We are pulling forward stimulus at the expense of potential fiscal discipline down the road.
| Market Positives | Market Watchpoints |
|---|---|
| Tax Certainty for Businesses The bill makes permanent the tax cuts from Trump’s first term, enabling long-term planning and investment by corporations. | Debt Concerns The increase in deficit spending (potentially $4T over 10 years) is substantially negative to long-term U.S. Dollar strength. Federal deficits are expected to stay around 7% of GDP through the next decade, about 1 percentage point above previous estimates. Federal debt as a percentage of GDP is now anticipated to grow from 100% in 2025 to 125% by 2034, relative to 117% before the OBBB was passed, according to some estimates. |
| Accelerated Depreciation Incentives The bill includes over $50 billion in accelerated depreciation benefits, which primarily benefit capital-intensive sectors like manufacturing and industrials. | Inflationary Risks Although inflation has remained tame so far, the combination of fiscal stimulus and tariff-related disruptions could eventually trigger inflationary pressures. |
| SALT Deduction Expansion High-net-worth individuals in high-tax states gain from a $30 billion expansion in the deductibility of state and local taxes. | Policy Uncertainty While the bill provides clarity in some areas, it does not address broader fiscal discipline or long-term entitlement reform, leaving open questions about future policy direction. |
| Enhanced QSBS Provisions Changes to Qualified Small Business Stock (QSBS) rules significantly improve tax treatment for founders, employees, and investors in startups, encouraging innovation and capital formation. | |
| Market Confidence Despite initial volatility, markets responded positively to the bill’s passage, viewing it as a source of clarity and stability in fiscal policy. |
Conclusion
Overall, the passage benefits clients’ portfolios in the short and medium term by extending fiscal stimulus, expanding tax credits and cuts, and enabling private funds to continue their business operations, potentially benefiting from increased debt capacity. The bill reflects a pro-growth stance that markets have welcomed, especially in the face of geopolitical and economic uncertainty. While we are unsure of the long-term implications—especially regarding debt accumulation and inflation—averting a tax increase (which would have occurred if this was not passed) is a direct counterweight to potential economic headwinds from some trade and domestic policies. As such, the bill should catalyze near-term economic activity and market optimism.
Contact a Caprock financial advisor to discuss specific impacts on your portfolio.
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