Implications for the U.S. deficit, plus portfolio moves to consider heading into the second half of 2025.
On July 1, in a 51 to 50 vote, with Vice President J.D. Vance casting the tiebreaker, Senate Republicans passed the $3.3 trillion tax and spending package dubbed the “one big beautiful bill” by President Trump.
The bill combines $4.5 trillion in tax cuts—including new tax breaks for tips, overtime work and car loans—along with $1.2 trillion in spending cuts on items such as Medicaid, renewable energy tax credits, food stamps and federal student loans.
It makes permanent the tax rates Trump signed into law in 2017 for individuals and corporations, increases the state and local tax (SALT) deduction and the child tax credit, and provides scores of business-related tax cuts, including allowing businesses to write off 100% of the cost of equipment and research immediately.
Other provisions budget some $350 billion for Trump’s border and national security agenda, including funds for the U.S.-Mexico border wall and for 100,000 migrant detention facility beds, as Trump aims to fulfill his promise to carry out the largest mass deportation operation in U.S. history. For the Pentagon, the bill provides billions for shipbuilding, munitions systems and quality of life measures for servicemen and women, as well as $25 billion for the development of the Golden Dome missile defense system.
According to the Congressional Budget Office, the Senate bill will add more than $3 trillion to the deficit over the next 10 years. The bill also increases the debt ceiling by $5 trillion, likely extending our country’s ability to borrow until 2028 without additional lawmaker approval. While this increase avoids the political brinksmanship on this topic that has roiled markets in recent years, it is a stunning reversal of the typical Republican agenda promoting fiscal accountability.
As I write this note, the bill is set to advance to the House floor for a vote today, following a day and long night of debate and discussion. Trump hopes to sign the bill on Friday, July 4.
One notable item removed from the legislation was a proposal meant to deter states from regulating artificial intelligence, which had AI-themed stocks sliding some following their recent meteoric rise.
Meanwhile, nonfarm payrolls reportedly rose by 147,000 in June, a two-month high for job creation that surpassed the 106,000 job gains expected. The three-month average, meanwhile, increased from 141,000 to 150,000, the strongest pace in four months. May payrolls were revised from a 139,000 gain to a larger 144,000 increase. With additional revisions to previous months, the overall change in nonfarm payrolls (June data plus net revisions) was 163,000.
In the details of the report, job gains were strong in most categories, other than manufacturing and professional and business services. The unemployment rate unexpectedly fell to 4.1% in June, a four-month low. This report likely removes the possibility of a quick move by the Federal Reserve to cut interest rates, but markets did not seem to mind as job strength signals the economy is weathering the economic uncertainty of tariffs well despite the headlines.
Next week will be busy with the kickoff of earnings season and tariff discussions coming to a head as we reach Trump’s deadline for deals. Heading into July Fourth celebrations this weekend, the mood is high for investors who like the general direction of policy at this moment, with the one major exception of debt and deficits. Will economic growth allow us to overcome the higher national deficit this bill could create? Maybe in the short term, but long term there will be a price.
We look forward to our discussions with you about second-half financial planning items, where we’ll be focusing on the final provisions of the “big beautiful bill” and how it will impact you and your tax planning looking ahead. As for investment strategy, diversification is working well in 2025 with the dollar still at a three-year low and our preferred short- and intermediate-term bonds offering juicy yields. It is not a bad time to consider making charitable gifts and taking required minimum distributions with markets trading at these high levels and using those gifts and cash-raising efforts to reset allocations within your equities for the second half following the first-half roller coaster.
We wish you and your families and friends a happy, healthy and safe celebration as we mark 249 years of America.