Congress recently passed a major tax and spending bill that President Trump signed into law on July 4. This big new budget makes many parts of the Tax Cuts and Jobs Act permanent (meaning they won't expire), raises limits on state and local tax breaks, extends estate tax limits, and includes many other changes. To help pay for some of these tax cuts, the bill also reduces spending in areas like Medicaid.
This new law is important because tax and spending decisions in Washington have created uncertainty for many years. While politicians disagree about this budget's direction, it does remove the risk of a "tax cliff" - a situation where tax rules could have changed dramatically if certain provisions had expired at the end of this year.
On a personal level, taxes directly impact many parts of your financial planning. The specific rules in this tax bill will immediately affect household finances. From an economic standpoint, many investors also worry about how much the government spends, the growing national debt, and other factors that have affected markets over the past twenty years.
There are many ways to look at this recently passed budget. What should investors understand about their own financial plans and what this means for markets in the coming years?
The new tax bill, called the "One Big Beautiful Bill" by the administration, extends and expands several key parts from the 2017 Tax Cuts and Jobs Act (TCJA) that were going to expire. It also adds new benefits for taxpayers, which are only partly balanced by spending cuts in other areas. Here are some of the major changes that may affect households:
These and many other changes keep the relatively low tax environment that has existed for the past several decades.
Tax cuts mean the government collects less money, so it needs to either spend less or borrow more. Most government spending goes to Social Security, Medicare, defense, and paying interest on existing debt. These are hard to cut for political reasons.
The Congressional Budget Office estimates this new bill will add $3.4 trillion to the national debt over ten years. The total federal debt is already over $36 trillion, which equals about $106,000 for every American.
This creates a challenge because there's no easy solution. Tax cuts can help the economy grow, but the government has a poor track record of balancing its budget even when times are good. The last balanced budget was 25 years ago.
For investors, higher debt levels can affect interest rates and inflation over time. However, the key is to maintain a diversified portfolio that can perform well in different economic conditions rather than making dramatic changes based on policy alone.
The bill also makes permanent higher limits for estate taxes - taxes paid when someone dies and leaves money to heirs. The limit increases to $15 million for individuals and $30 million for couples in 2026.
While this mainly affects wealthy families, all families should think about how to pass assets to the next generation. This involves estate planning, tax efficiency, and long-term wealth preservation goals.