Beyond Taxes: What the One Big Beautiful Bill Means for Your Investments

By: Katie Klingensmith, Chief Investment Strategist

On July 4, President Trump signed into law a sweeping new tax and spending bill known as the One Big Beautiful Bill Act. While we at Edelman Financial Engines are focused on the new elements of the tax code, there are also important economic and investment implications. Our key takeaway: This law introduces spending, regulatory and tax changes touching wide swaths of the economy, with implications that will take time to unfold. Given the controversy around its long-term economic scenarios, as well as the many implications for different parts of the U.S. economy, it’s critical to have an all-weather, well-diversified portfolio.

Let’s start with the primary policy implication: the OBBBA cuts taxes for many households and businesses. Tax cuts leave more money in people’s and businesses’ pockets, increasing spending, at least in the short term. More consumer spending – especially in the U.S., where nearly 70% of the economy is from personal consumption – makes for higher levels of growth. Some analysts expect this growth impact to be large while others expect it to be small and fleeting – but all agree that, at least initially, the law will provide economic stimulus. While many other factors will also influence how fast the economy is growing, we anticipate the OBBBA will give it a boost.

Higher growth from higher spending also tends to cause higher inflation. The increase in available income allows households to buy more, driving up demand for goods and services, which can lead to higher prices. The Federal Reserve is already anticipating higher inflation from tariffs, which push up the costs of imported goods. The Fed is charged with two mandates: Keep inflation and unemployment low. This additional source of inflation makes the Fed’s job all the trickier; it may want to cut rates to stimulate the economy to support more jobs but may simultaneously need to keep rates high to combat rising inflation.

While the OBBBA did include cuts to some government programs, namely medical and food assistance, these reductions are modest compared to the size of the tax cuts. The Congressional Budget Office and the Committee for a Responsible Federal Budget project that making all provisions permanent would result in $6.2 trillion in foregone tax revenue and $1 trillion in new spending or $7.2 trillion in total deficit-increasing measures relative to prior law.¹ In comparison, spending cuts total $2.5 trillion. The U.S. government has been running an annual deficit – spending more than it brings in – every year for the past 50 years, except from 1998-2001. This new law makes permanent the lower tax rates initiated under the first Trump administration, as well as adds additional cuts. The result? U.S. deficits are expected to grow. Some estimates for the long-term debt (accumulated annual deficits, or the total amount the U.S. government has borrowed) associated with this bill are upward of $30 trillion, which amounts to additional debt the size of nearly the entire U.S. economy in 2024.²

Some suggest that the tax cuts, deregulation and other changes will more than offset the decreased tax rate as the base on which taxes are collected will go up dramatically (“dynamic scoring”). White House projections represent one perspective, assuming substantially stronger and sustained economic growth as a result of the bill, leading to an optimistic estimate of a budget surplus by 2034. Others argue that as the government debt burden grows, not only will the government have to start using more of its budget to pay interest on it, but long-term interest rates will rise with serious consequences for the rest of the economy. While all this will take time to play out, most agree that deficit spending will continue – and per the official nonpartisan Congressional Budget Office – it is likely to grow from current high levels, reaching levels only seen twice since World War II, briefly during the great financial crisis and Covid.

The U.S. government has already been spending in a deficit – spending more than it brings in every year in taxes and other revenue. The new legislation lowers anticipated effective taxes more than it cuts spending, so official projections are for deficits to grow, contributing to the overall debt of the U.S. government. The chart below illustrates those deficit projections.

Source: Congressional Budget Office estimated budgetary effects of an amendment in the nature of a substitute to H.R.1, the One Big Beautiful Bill Act, relative to CBO's January 2025 baseline. Analysis as of June 27, 2025.

Why would higher U.S. government debts matter to you? The U.S. has a special place in the global economy, with our currency and government debt used as the reference point and safe harbor (reserve currency). This has allowed the U.S. government to borrow liberally without having to pay higher rates, as investors the world over have assumed we would pay back our debts and we wouldn’t have high inflation. While the chance the U.S. loses this status is low, global investors are starting to fret that the U.S. is not without its flaws, and if we keep asking to borrow more money, there’s a chance that we might not pay it back – at least with dollars that haven’t been depreciated by higher inflation.

If the U.S. government must pay higher interest rates, this means rolling over its own debt gets more expensive – just like a credit card, this debt compounds. What the U.S. Treasury pays is the basis for what the rest of us pay too, so higher official borrowing costs could spill over into what we pay for loans for everything else, from mortgages to credit cards to student loans, as well as lending for businesses. The Yale Budget Lab projects that, under the fiscal path outlined by the OBBBA, interest rates on 10-year Treasury securities could rise by approximately 1.2 percentage points over the next three decades. Even with this risk, we think there is little chance of an acute crisis. Other countries have maintained higher levels of debt, and the U.S. continues to have a special role in the global financial system.

Outside of this fiscal controversy, there are other changes in the legislation that matter to investors across the economy. The bill includes additional spending on defense and border protection, which will benefit associated companies and regions. Rural hospitals and other health care providers may be hurt by the rollback of health care coverage. Cuts to subsidies on electric vehicles will hurt some carmakers and help others. Banks – especially small ones – will see regulatory relief. There are implications for other individual companies, sectors and regions, but these changes are already widely expected. The implication of other modifications will take time to unfold. The bottom line? It’s hard to identify all the winners and losers, making it more important than ever to maintain a well-diversified portfolio.

With so many different changes, there could be a wide array of short- and long-term implications across sectors, asset classes and regions. Having a robust financial plan and a thoughtful, all-weather portfolio is critical. Whatever is ahead, Edelman Financial Engines is keeping tabs on every development, so we can help you make the most of any opportunities while managing your risk.

¹ This includes the extension of the Tax Cuts and Jobs Act of 2017, which would have expired.

² Committee for a Responsible Federal Budget. The 30‑Year Cost of OBBBA. CRFB. July 15, 2025.