The Big Beautiful Bill and You

“The One Big Beautiful Bill is a win for the working class.” —House Ways and Means Committee

“The GOP budget undeniably takes from the working class and gives to the rich.” —Josh Bivens, Economic Policy Institute

“The One Big Beautiful Bill Act represents the kind of forward-looking, pro-growth policy that is vital to maintaining America’s prosperity and competitive edge.”
—U.S. Chamber of Commerce

“[The Big Beautiful Bill is] a disgusting abomination.” —Elon Musk

Much has happened already this year. In our last two commentaries (one & two), we explored the evolution of tariffs, noting that developments have largely fulfilled our expectations of the self- styled “Tariff Man” and market participants. With markets reaching new highs, another anticipated event has materialized: the passage of the “Big Beautiful Bill” (BBB), a sweeping tax package that largely extends the provisions of the 2017 Trump tax reform—with a few important twists.

In this commentary, we offer a level-headed overview of the BBB’s key features and illustrate practical strategies through three client case studies.

At its core, the BBB cements lower individual income tax rates for all but the lowest earners (those earning under ~$12,000). Even they may benefit from reduced effective tax rates, particularly if they qualify for child tax credits, senior deductions, or use the standard deduction.

The estate tax exemption—already generous—rises to $15 million per person. Key features from the 2017 tax law have been extended, including:

– The doubled standard deduction
– Preferential capital gains thresholds
– Lower business pass-through income taxes – Increased gift exclusions

Conversely, more restrictive provisions also remain, including:

– The $10,000 SALT deduction cap (temporarily increased to $40,000 for some filers) – The $750,000 cap on mortgage interest deduction
– Elimination of miscellaneous itemized deductions

The below chart summarizes the permanent tax rate changes, where “Current Law” is what tax rates would have returned to in 2026 and “Provision” is the rate that has been made permanent from the provisions of the BBB

Several short-term, targeted benefits have been added. Although, these benefits phase out for joint (single) filers between $150,000 ($75,000) and $500,000 ($250,000), depending on the benefit:

– Tax-free treatment of overtime and tip income up to $25,000 per year – An additional $6,000 deduction for seniors (65+)
– A five-year SALT cap hike to $40,000
– Up to $10,000 in deductible interest on U.S.-assembled auto loans

In sum, Government estimates suggest roughly 90% of Social Security recipients will pay no federal tax for these next four years.

As anticipated, the BBB increases funding for defense, agriculture, and immigration enforcement. Surprisingly, it also allocates meaningful resources to air traffic control infrastructure and NASA.

On the flip side, it reduces spending on low-income programs such as Medicaid and SNAP. The net result: a net $1 trillion drop in government spending, offset by $4 trillion in lost tax revenue (i.e., assuming taxes would have reverted next year to the higher pre-2017 tax rates)—producing a $3 trillion projected cost over the next decade. The following chart from the Economist shows the breakdown of all the total costs and savings from the BBB

While critics highlight this fiscal burden, proponents argue that growth effects may offset the debt expansion. Time will tell.

For context, consider the historical trajectory of U.S. deficit spending

From Reagan through George W. Bush, deficits never exceeded $500 billion. The Obama era saw a surge driven by the global financial crisis. As Biden came to power, pandemic-related stimulus resulted in back-to-back years of almost ~$3 trillion in new debt.

Source: Author using FRED data

Of course, while presidents propose, Congress disposes. But visualizing deficits by administration still provides useful context.

The primary fiscal concern is not annual deficits, but cumulative debt, as shown in the below chart:

The raw figure—$25 trillion—is staggering. Adjusted for inflation, that’s closer to $7 trillion in Reagan-era dollars, still well beyond anything seen in his time.

Even more troubling is that interest costs as a percentage of GDP remain below their 1990 peak, but they are expected to rise sharply:

Debt service now consumes just over 3% of GDP, but projections exceed 5.5% by 2050. Then again, we heard similar forecasts before in 1990 when that current trajectory was forecast to continue—but reality has often been more forgiving.

Still, basic economics holds: unchecked debt implies upward pressure on interest rates, slower growth, and elevated inflation.

Let’s bring this back to 2025. With the BBB now law, what should you do? Here are three case studies illuminating different opportunities:

1. Leverage Roth Conversions

Many retirees face the paradox of being forced into higher tax brackets through unwanted Required Minimum Distributions (RMDs). Consider a California couple, both age 65, with the ability to itemize and claim the temporary $40,000 SALT deduction.

They convert $200,000 from IRAs to Roth accounts over five years—sheltering the income with the expanded deduction values (note: expanded SALT is for 5 years versus the senior deduction is for 4 years). At 8% return, $200,000 of contributions would be worth over $250,000 after the five years and available tax-free. Alternatively, in 20 more years, also assuming 8% annualized growth, the $250,000 grows to roughly $1.2 million, entirely tax-free. Result: ~$400,000 in avoided taxes and a 50% boost in after-tax wealth, assuming a 33% combined tax rate.

2. Rethink Borrowing Strategy

The BBB maintains the $750,000 mortgage interest deduction cap, limiting its utility for high-end borrowers. An alternative: asset-backed lending.

Example: A $3 million property loan. Via a traditional mortgage, only $53,000 of first-year interest is deductible. With an investment-backed loan—where the interest is deductible against investment income—the figure jumps to $210,000. Rates are assumed 7% in both cases, and yet the tax advantage is substantial.

3. Front-Load Charitable Giving

New for 2026: a 0.5% AGI floor on charitable deductions. This means for a taxpayer earning $200,000, the first $1,000 of giving will no longer be deductible. While modest, this change encourages strategic timing.

Enter the Donor Advised Fund (DAF). Consider a couple with $600,000 AGI and $100,000 in appreciated stock (basis: $40,000) who gift $10,000 annually. Donating the stock to a DAF now eliminates ~$44,000 in combined income tax, avoids ~$20,000 in capital gains tax, and avoids the new floor for the next 9 years (i.e., $27,000 in total missed deductions). Invested at 8% annually, the DAF could generate $71,000 in tax-free growth over 10 years—while still disbursing $10,000 annually to charities. After a decade, $71,000 remains for future gifts. Total 10-year benefits of $100,000 DAF contribution: ~$90,000 tax savings + $100,000 donated to charity + $71,000 left to donate or grow for future gifting.

We like this strategy so much, I’ve set up two DAFs for myself. I named them “The Minor Charitable Fund,” a name that reliably earns a chuckle from recipients—especially when the donation exceeds $100.

The Road Ahead

With tariffs easing, taxes dropping, and Federal Reserve rate cuts likely ahead, the economy is poised for further twists and turns.

Meanwhile, if you’d like to explore any of the strategies above, don’t hesitate to reach out. We’ll also review your specific opportunities during our next planned visit.

Enjoy the rest of your summer but stay tuned… —Your Omega Team