The centerpiece of U.S. President Donald Trump’s economic agenda is winding its way through Congress.

 

What’s inside the current legislation that’s of key interest to markets and investors, and how could this change ?

 

The tax and budget bill recently passed in the U.S. House of Representatives (“One Big Beautiful Bill Act”), has stoked rhetoric that continues to run hot.

 

Current approval rating of the House and Senate is currently at only 26 %, according to Gallop.

 

Key Bill Proposal Points:

 

• The House version of the bill extends the low tax rates for individuals that became effective during Trump 1.0
• New tax exemptions on gratuities and overtime pay
• $4,000 tax deduction for filers age 65 and older
• $1,000 cash payment for newborns in an investment account and additional investment incentives
• Higher tax credits for families with children
• Business incentives, including accelerated depreciation of capital investments

 

The stock market’s general logic is that the more money in individuals’ pockets and businesses’ accounts, the more spending on goods and services, will benefit equity markets.

 

The bond market seems to see this differently, as it has historically behaved like the adult in the room.

 

Larger Treasury market investors are taking a more guarded look at debt projections associated with the legislation. The Congressional Budget Office (CBO)—the official scorekeeper of the costs associated with such legislation—projects the bill will increase annual federal deficits over the next 10 years by $2.4 trillion cumulatively.

 

This would be in addition to America’s current $37 trillion in federal debt.

 

Previous budget bills passed under the leadership of each party and scored by the CBO, along with additional spending on other items have pushed federal government finances deep into the red.

 

The bond market is starting to show signs of being less tolerant of ultra-high deficits.

 

Expect continued terse negotiations from House Republicans before the “One Big Beautiful Bill Act” can arrive on Trump’s desk for his signature. Some Republican senators, especially those with libertarian leanings (Rand Paul, Mike Lee, and Ron Johnson), strongly disagree with the high spending levels and fiscal deficits associated with the House bill.

 

State & Local Tax (SALT) Deduction: The House bill raises the cap on the state and local tax (SALT) deduction to $40,000, which benefits taxpayers in high-tax states. Many Republican senators in low-tax states strongly oppose this.

 

Medicaid Spending: The House bill includes a work requirement for some Medicaid recipients. Some Republican senators oppose what they view as cuts to Medicaid benefits and are concerned about lower-income individuals potentially falling off the health care insurance rolls. Democrats agree with them.

 

Section 899: Focuses on retaliatory taxes on select foreign governments, overseas companies, and foreign investors in certain U.S. securities. The language is unclear in some areas, and there are disagreements between tax specialists on which securities and which foreign investors would be impacted.

 

According to the Washington based Tax Foundation, Section 899 targets countries that have instituted a global minimum tax or have digital services or diverted profits taxes. Businesses and individuals in Canada, the UK, many EU countries, and Australia could be affected if these taxes remain in place. The Tax Foundation concludes that Section 899 will ultimately be harmful to the U.S. economy due to its potential implications on foreign direct investment.

 

The legislative language currently includes a lot of gray areas and cedes wide discretion to the Treasury secretary to specify retaliatory taxes and other issues.

 

Industry and foreign lobbyists are working to get the Section 899 House language to do one of the following:

 

• Modify to minimize the impact on foreign investors and companies
• Clarify to spell out the retaliatory taxes much more clearly
• Less discretion for the Treasury secretary
• Stripped from the bill altogether

 

Also, it’s possible there will be at least one procedural challenge in the Senate to remove Section 899.

 

It’s normal for the Senate to modify controversial provisions of House bills, especially when it’s being lobbied hard.

 

Regardless of the merits and demerits of the “One Big Beautiful Bill,” House and Senate Republicans will be forced to ultimately craft compromise legislation out of political necessity. Failure to do so would see a major tax increase in 2026 on individuals – not a good set-up ahead of the midterm elections in November of that year.

 

Trump has every incentive to spend political capital to force a final compromise version of the bill in both chambers. Even if successful, concerns about climbing federal deficit and debt figures will remain.

 

If you have any questions or comments, please let me know.