Weighing the economic winners and losers of the One Big Beautiful Bill Act

The recently passed One Big Beautiful Bill Act (OBBBA) brings together many priorities of the second Trump administration, including shrinking the government’s footprint, putting more money in the hands of the private sector, and favoring domestic investments over foreign investments. In this article, I offer a summary of key provisions of the Act and my views on some of their potential economic and industry effects.

To put the bottom line up front:

• The relative winners include defense, border security, domestic investments (capital heavy and light), nuclear energy, rural areas, small companies, middle- and upper-income consumers, and private savings. 
• The relative losers include Medicaid and other federal social spending programs (with negative downstream effects for state and local budgets), student debt, clean energy (excluding nuclear energy), international income, and foreign-sourced products.
• The broad macro effects that I expect to see in 2026 include higher nominal GDP, stronger earnings for corporate America, and a lift in cash flows for many companies. Over the longer term, I expect a more adverse trajectory for the US government deficit and debt — with a risk of even more upward pressure on the deficit down the road, given that many of the Act’s spending cuts come later and could be reversed under a different administration.
• A standout element of the Act is making permanent some changes in investment incentives, which could give companies more confidence to boost investments in the medium term, with positive spillover effects for US productivity.

With that, I offer a closer look at some of the primary areas of change.

Beefing up spending on national security and border security — The Act allocates almost $150 billion for defense spending in fiscal years 2025 – 2034, including modernizing defense systems in areas like shipbuilding and nuclear deterrence (e.g., a missile defense shield), restocking and expanding the capacity for producing munitions, strengthening American air superiority, and improving US armed forces’ readiness. 

The Act also includes $128 billion to secure the border, with allocations aimed at finishing construction of a southern border wall, adding to US Customs and Border Protection personnel and resources, and expanding detention and family residential center capacity, among other provisions. (I wrote recently about the implications of the US immigration crackdown for workers and the economy.)

Spurring investment spending and US-based production — The law restores and/or makes permanent a range of incentives for investment spending, including immediate bonus depreciation for short-lived investments (e.g., certain types of equipment), immediate expensing of domestic R&D, and more generous EBITDA-based interest deductibility. These measures are retroactive to the beginning of 2025 and even earlier in some cases. In addition, the advanced manufacturing investment credit, which is aimed at boosting US semiconductor manufacturing, goes up from 25% to 35%. Collectively, these measures should boost economic growth and investment spending in the medium term, which could drive improved productivity over time.

Additionally, a provision of the Act allows qualifying structures (e.g., factories) to be immediately depreciated in the first year of use (instead of over a 39-year depreciation schedule) if construction starts by 1 January 2029 and the structure is in use by 1 January 2031. This measure is aimed at encouraging companies to bring production back to the US. 

Supporting the job-generating small business segment — The law makes permanent the 20% deduction individuals can take for “qualified business income” from a partnership, sole proprietorship, or S corporation, and it provides for more generous limits on that deduction. The OBBBA also expands the tax exclusion on qualified small business stock, allowing for greater tax-free gains, and it preserves the pass-through-entity tax deduction that benefits business entities such as partnerships. These and other provisions should shore up the cash flows of many small businesses and proprietorships, which typically play an outsize role in powering US job creation. 

Incentivizing US companies to keep their IP and profits in the US — Several provisions, including changes to the calculation of GILTI (Global Intangible Low-Taxed Income), make it more attractive for US corporations to develop and retain intellectual property in the US and reduce incentives to “profit shift” to low-tax jurisdictions elsewhere in the world. 

Addressing the US childcare challenge — The high cost of childcare has long been an issue for the US labor market. The OBBBA boosts the employer-paid childcare tax credit from $150,000 to $500,000 per year and up to $600,000 for small businesses (up to 50% of qualified childcare expenditures) and includes a provision that allows small businesses to pool resources to facilitate providing childcare services. From an employee standpoint, the Act expands the contribution limit on dependent care Flexible Spending Accounts from $5,000 to $7,500 annually. 

Boosting consumer incomes, for a time at least — The Act avoids a large tax hike on US consumers by making permanent provisions of the expiring 2017 Tax Cuts and Jobs Act (TCJA), while also making many of them more attractive with adjustments to various limits and phaseouts. This includes provisions governing income tax rates, the standard deduction, the child tax credit, and the estate and lifetime gift tax exemptions, among others. 

High- and middle-income earners will benefit from a temporary expansion of the SALT (State and Local Tax) deduction, while middle-income earners up to certain income thresholds will get a temporary boost from cuts in taxes on tips and overtime earnings, a new senior citizen tax credit, and a new deduction for interest on auto loans. Many of the temporary changes expire at the end of 2028, creating a cliff, much like the TCJA did for the end of this year. 

In aggregate, I estimate that the average after-tax consumer income will rise 5% in 2026 as a result of these changes, with the bulk of the benefit available to consumers between February and April. Importantly, lower-income consumers will benefit from these changes but will also face headwinds from the Medicaid and SNAP (Supplemental Nutrition Assistance Plan) cutbacks I discuss below. 

Squeezing savings from Medicaid and SNAP — One of the most consequential shifts in the trajectory of federal spending comes via the OBBBA changes in Medicaid, with the Congressional Budget Office estimating cost savings of roughly $1 trillion over 10 years. The Medicaid provisions are projected to eliminate coverage for as many as 12 million people over that period, a meaningful departure from the steady expansion of prior decades (which I discussed in a recent article). The provisions include new verification requirements and coverage prerequisites for those using the Affordable Care Act’s Medicaid expansion and health care insurance exchanges and the elimination of federal coverage for certain non-citizen populations with temporary legal status, among other changes. Most of the Medicaid provisions become effective with a delay and/or are phased in, meaning the full impact will be felt in 2027 – 2030. 

The OBBBA also targets the SNAP program for cost savings, with projected spending cuts of $120 billion over fiscal years 2025 – 2034. Changes include expanding work requirements, increasing the states’ share of administrative costs, and restricting eligibility for illegal immigrants.

All of this begs the question: Will we see another shift in the party governing the US as we move closer to the time when these cutbacks become a reality for many voters?

Reducing spending on green energy — The Act accelerates the termination of or eliminates several renewable energy credits established under the Inflation Reduction Act of 2022, yielding cost savings of $500 billion. This includes early elimination of clean vehicle credits (for both new and used vehicles) and energy-efficient home improvement credits. The Act also eliminates the Energy Efficient Commercial Buildings Deduction after June 2026 and it imposes stricter eligibility criteria on many clean energy production credits. 

Reorienting trade and foreign policy — The Act eliminates the de minimis exemption that allowed packages worth less than $800 to enter the US duty free; effective July 2027, this applies to all countries (it was previously eliminated for China and Hong Kong). This underscores the administration’s determination to prevent low-cost imports from flooding the market and circumventing new tariff policies. During the negotiation of the Act, President Trump was also able to secure exemptions for US multinational companies from the digital services taxes imposed by the EU and Canada by threatening taxes on foreign income. It is also plausible that the administration will take a much harder line on tariff negotiations, having bolstered domestic economic prospects with this Act.

The big picture: Final thoughts on the US deficit and the macro impact of the OBBBA

Relative to the baseline tax and spending outlook in place prior to the OBBBA, I expect the changes in the Act will raise the US federal budget deficit by 0.4% of GDP in FY 2025 and by 0.9% of GDP in FY 2026. Importantly, the tax cuts are skewed toward middle- and upper-income groups, and higher-income individuals have a lower propensity to spend than lower-income individuals. In addition, some of the corporate tax breaks in the Act could be used to buy back stock, pay down debt, or boost savings. All of this could reduce the multiplier effect of the deficit increase — especially as the term premium in the US bond market rises to reflect the rising fiscal debt trajectory. Still, as noted earlier, investment spending incentives in the Act could lead to enhanced productivity and a supply-side boost for the economy in the medium term.

Of course, the effects of the OBBBA won’t occur in a vacuum. Other Trump administration policies, including tariff hikes and the immigration crackdown, are negative supply shocks, which could raise inflation and mitigate growth prospects. Against this backdrop, the US fiscal situation will require investor vigilance for many years to come.

This is not intended as tax or legal advice. Consult tax or legal professionals for specific details and guidance.