Authored by: Nicholas Brown, CFA®, CFP®
Introduction: From Campaign Rhetoric to Legislative Reality
On May 22nd, the U.S. House of Representatives narrowly passed the “One Big Beautiful Bill Act” (OBBBA), a sweeping legislative package championed by President Donald Trump. This 1,100-page bill aims to make permanent many provisions of the 2017 Tax Cuts and Jobs Act (TCJA) and introduces new tax policies, significant spending cuts, and other reforms. While the bill awaits Senate deliberation, its potential impact on high-net-worth individuals, business owners, and affluent families is substantial.
Key Tax Provisions: What’s Inside the OBBBA
1. Permanent Extension of TCJA Provisions
The OBBBA seeks to make several permanent individual and estate tax cuts from the TCJA, which are currently set to expire at the end of 2025. This includes maintaining lower individual income tax rates and preserving the elevated estate tax exemption.
2. New Tax Relief Measures
The bill introduces additional tax reliefs, such as:
- Elimination of income taxes on tipped income and overtime pay.
- Deductibility of interest on auto loans for American-made vehicles.
- A temporary $500 increase in the Child Tax Credit, raising it to $2,500 through 2028.
- An increase in the standard deduction by $1,000 for individual filers and $2,000 for joint filers.
3. Adjustments to SALT Deduction
The State and Local Tax (SALT) deduction cap would rise from $10,000 to $40,000 for households earning up to $500,000, with the cap phasing down for higher incomes. This change aims to address concerns from taxpayers in high-tax states.
Spending Cuts and Policy Changes
To offset the cost of these tax cuts, the OBBBA proposes significant reductions in federal spending:
- Cuts to Medicaid and the Supplemental Nutrition Assistance Program (SNAP), potentially affecting millions of beneficiaries.
- Elimination of clean energy tax credits established under the Inflation Reduction Act.
- Introduction of stricter work requirements for Medicaid recipients.
- Allocation of $46.5 billion for border security and immigration enforcement.
Economic and Fiscal Implications
The Joint Committee on Taxation estimates that the tax provisions alone would reduce federal tax revenue by $4.1 trillion from 2025 through 2034. While proponents argue that these cuts will spur economic growth, critics express concern over the potential increase in the federal deficit and the long-term sustainability of such policies.
Planning Considerations for High-Net-Worth Individuals
Given the potential changes, high-net-worth individuals and families should consider the following strategies:
With the possibility of the elevated estate tax exemption becoming permanent, it may be advantageous to review and adjust estate plans accordingly. Utilizing strategies like Spousal Lifetime Access Trusts (SLATs) or Grantor Retained Annuity Trusts (GRATs) could be beneficial.
Business owners should assess their entity structures in light of the proposed tax changes. Evaluating the benefits of different business forms (e.g., S corporations, partnerships) and considering the timing of income and deductions could optimize tax outcomes.
3. Tax-Sensitive Liquidity Planning
The elimination of certain deductions and clean energy credits could shift cash flow dynamics for some investors. In response, affluent families may consider rebalancing access to liquidity between taxable accounts, tax-deferred retirement vehicles, and illiquid private investments. Ensuring adequate liquidity for tax payments, philanthropic commitments, or capital calls without triggering unwanted gains is increasingly important.
Conclusion: Navigating Uncertainty with Strategic Planning
While the “One Big Beautiful Bill” has passed the House, its future in the Senate remains uncertain. The likelihood of significant changes by the Senate remains high, where many of the provisions that are attractive to conservative members of the Republican party are less welcome by their more moderate colleagues. For this reason, it is important to stay abreast of the changes until a final bill is available.
Regardless of the outcome, the proposed changes underscore the importance of proactive financial and estate planning. Engaging with trusted advisors to navigate these potential shifts could be crucial in preserving and growing wealth in an evolving legislative landscape.
References:
- U.S. House of Representatives. (2025). One Big Beautiful Bill Act, H.R. 1, 119th Cong. Retrieved from https://www.congress.gov/bill/119th-congress/house-bill/1/textCongress.gov