Examining the President’s “Big, Beautiful Bill”
Laurence Hale, AAMS®, CRPS®
Principal/Managing Partner, Investment Advisor & Chief Investment Officer
The Republican-controlled House of Representatives has passed a huge piece of legislation that extends tax cuts from President Trump’s first term and layers on additional tax cuts and benefits for consumers. Fans of the legislation believe it will boost economic growth. Detractors warn it will increase the federal debt. It’s likely that both camps are correct. The bill still needs to make its way through the Senate before becoming a law, but if it does so successfully, here are some of the biggest impacts it will have on consumers’ pocketbooks.
Extending Existing Tax Breaks & Adding New Ones
One of President Trump’s signature pieces of legislation during his first term in office was the Tax Cuts and Jobs Act (TCJA) of 2017, which dramatically lowered taxes for businesses and individuals. The big, beautiful bill will extend the elements of the TCJA that are set to expire at the end of this year. While consumers may not feel the impact of the tax cuts being extended, they would have definitely felt the impact if the TCJA wasn’t extended and their taxes rose.
President Trump’s big, beautiful bill adds some new tax cuts that should benefit many consumers. It will eliminate taxes on tips, overtime wages and car loan interest through 2028, fulfilling a promise made by President Trump during the Presidential campaign. In addition, the standard deduction for seniors will increase by $4,000.
The new bill also boosts a real estate tax break. Under the TCJA, homeowners are only allowed to use $10,000 of their state and local taxes (SALT) as a tax deduction on their federal taxes. Prior to the TCJA, there was no limit on the SALT deduction, which benefited homeowners who owned large homes and/or lived in high-tax states. Under the new bill, homeowners who make less than $500,000 will be able to deduct $40,000 of their state and local taxes from their federal gross income. The tax break is phased out gradually for those who make more than $500,000.
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Collect the Baby Bonus
Under Trump’s big, beautiful bill, any baby born after the start of this year through December 31, 2028, will have $1,000 deposited into a Trump Account by the government. To qualify, the babies must be US citizens and have one parent with a Social Security number. The funds will be invested in a US stock index fund or its equivalent.
Families can then contribute up to $5,000 a year to these accounts. Several businesses, including Uber, Dell and Goldman Sachs, have said they will set aside billions of dollars to invest in the Trump Accounts of their employees when they become new parents. Children can access half of the funds when they turn 18 to pay for education, starting a business, or a first-time home purchase. The remainder of the funds can be disbursed when the person turns 30 and used for any purpose.
Green Tax Breaks Are Gone
In order to pay for the new legislation, the Trump administration will cut costs in some places and increase revenue generating opportunities in others. Among the cost cuts, the legislation eliminates or phases out Biden administration tax breaks that encouraged clean energy projects and the use of clean energy. Biden era tax deductions resulting from the purchase of an electric vehicle or putting solar panels on a home will be eliminated under the big, beautiful bill. The legislation would also add a new $250 annual fee on EV drivers because they use the roads but don’t pay gas taxes.
SNAP and Medicaid Affected
The big, beautiful bill makes it more difficult to receive food and medical aid. Able-bodied adults without dependents must fulfill work requirements to receive food aid until they are 64, up from today’s age of 54. The work requirement also applies to parents with children that are at least seven years old, which is more stringent than today’s benefits which are given to parents without requiring work until their children are 18.
Under the bill, able-bodied adults without dependents who receive Medicaid are required to provide at least 80 hours per month of work, education or service beginning in 2029. No such requirement currently exists. People would also have to verify their eligibility to receive Medicaid twice a year, instead of once a year and they won’t qualify if they own a home worth $1 million or more.
Understanding the impact of taxes is always tricky especially when the rules of the game are changing. WHZ advisors will continue to track Trump’s big, beautiful bill as it continues down the road to becoming a law. If you have any questions about the proposed tax changes and the impact your portfolio and tax planning, please contact us for a complimentary consultation on our website at whzwealth.com, or give us a call at (860) 928-2341.
Authored by Principal/Managing Partner Laurence Hale AAMS, CRPS®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Advisor. 697 Pomfret Street, Pomfret Center, CT 06259 and 392-A Merrow Road, Tolland, CT 06084. 860-928-2341. All indices are unmanaged, and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges, or expenses. Past performance does not guarantee future results. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your financial advisor.
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