Frank Kelly Special | July 7, 2025

Congress did last week what most grizzled congressional observers (including us) thought was impossible – Finalized the One Big Beautiful Bill Act (OBBBA) and pass it in the House of Representatives only days after the Senate had passed its version. Considering how the Senate version differed from the original House version passed in May and the decibel level of complaints from House Republicans about the Senate bill, most of Washington and a good portion of Wall Street is somewhat dazed today seeing how it somehow all came together for President Trump to sign it into law on the July 4th deadline he had set months ago for Congress.

However, before we discuss what exactly is in OBBBA, there is something we believe the markets have not yet fully understood: OBBBA, which was passed via the special legislative process known as Reconciliation, is not a “one and done” Reconciliation bill.  Indeed, it now appears that OBBBA is the first of three large reconciliation bills that the White House and Republican leadership in Congress plan to introduce over the coming year.

Twice in recent weeks, Speaker of the House Michael Johnson (R-LA) has publicly stated his intention to introduce another Reconciliation bill in early October, tied to the 2026 fiscal budget.  Johnson also said he hopes to have a third reconciliation bill in the Spring of 2026.

It is worth reminding readers that a reconciliation bill cannot be filibustered in the Senate and only needs a simple majority to pass.  However, reconciliation bills are limited to addressing tax, budget, or federal deficit issues.  It cannot specifically address policy issues.

What will be included in the two forthcoming bills?
So, what is the White House and congressional Republican leadership planning to include in the two forthcoming Reconciliation bills?  Speaker Johnson did not give details, but it makes sense that the upcoming fiscal 2026 budget would be the primary component of an October reconciliation.  Congress has just begun working on that budget.

But we also believe one of the reasons the House of Representatives so quickly coalesced last week in support of the Senate version of OBBBA was because House Republicans who opposed the bill were promised fixes and refinements to OBBBA in the upcoming Reconciliation bill.  We believe that will include Medicaid cuts, as well as possible additional refinements to state and local (SALT) tax deductions.

But we also have reason to believe the Office of Management and Budget (OMB) – which has taken over the DOGE (Department of Government Efficiency) effort led by Elon Musk – is preparing deeper cuts to federal government operations and funding, continuing the efforts of DOGE in a more surgical but likely significant way.

We would note that there are a number of congressional sources we have spoken to who are skeptical that Johnson and Senate Majority Leader John Thune (R-SD) could get another Reconciliation bill introduced and passed again.  However, we have learned our lesson from OBBBA’s passage, which has led us to take Johnson seriously regarding his intentions and timelines.

As for what would be included in a potential Spring 2026 Reconciliation bill, it is too soon to begin predicting its contents.  But markets should expect the possibility of two more big, beautiful bills in the coming year.

What did we get in OBBBA?
With any legislation as comprehensive and broad as OBBBA, it will take weeks, if not months, before we fully understand all the details and the full impact of the bill.  Part of this is due to the arcane way legislation is written and part of it is because the Treasury Department has to write all the detailed tax regulations and guidance that are required for any new tax law.

We will be providing updates as Treasury issues those regulations and guidance notes in the weeks and months to come.  But broadly speaking, here are highlights of the 1000+ page bill:

Tax provisions

• Makes permanent lower tax rates, with an additional year of inflation adjustment to the 10 percent and 12 percent brackets, letting Americans keep more of their hard-earned money.
• Provides permanent increased and enhanced standard deduction.  Beginning in 2025, the standard deduction, claimed by 90 percent of taxpayers, increases by $1,500 for married couples, $1,125 for a head of household and $750 for individuals.
• Provides a $6,000 bonus exemption to millions of low- and middle-income seniors.
• No tax on tips for tipped workers.  Creates a deduction of up to $25,000 for qualified tips for millions of tipped workers like waitresses, barbers, hairstylists, and taxi drivers.
• No tax on overtime for hourly workers. Creates an above-the-line income deduction for overtime premium payments of up to $12,500 for hourly workers who work overtime and keep America running.
• No tax on auto loan interest of up to $10,000 for new cars made in the U.S., allowing hardworking families to fully deduct auto loan interest on American-made cars.
• Enhances 529 education savings accounts, making education expenses more affordable and accessible for families.
• Establishes savings accounts for newborns and children up to age 18, building financial security for the next generation.
• Extends paid family and medical leave credit to all 50 states and lowers minimum employee work requirement to six months from one year.
• Enhances the child and dependent care credit and the dependent care assistance program, making child care more accessible and affordable for working families.
• Repeals IRS reporting requirements on gig workers who rely on third-party payment processors like Venmo and PayPal for transactions.
• Increases the 1099-MISC threshold, reducing the paperwork burden for small businesses and workers.
• Expands health savings accounts, allowing taxpayers to save and invest more of their own money tax-free to use for health care expenses.
• Permanent deduction on charitable contributions for non-itemizers.  Establishes a permanent deduction of up to $1,000 for single filers and $2,000 for joint filers who do not itemize deductions.
• Makes the 20 percent small business deduction permanent and includes a new, inflation-adjusted, minimum deduction of $400 for taxpayers who have at least $1,000 of qualified business income (QBI).  Ensures small business owners with a certain QBI level are entitled to an enhanced baseline deduction, enabling job creation and spurring local economic activity.
• Restores and makes permanent full expensing for domestic R&D to encourage domestic innovation.  Permanently allows businesses to immediately expense 100 percent of the cost of qualified property acquired on or after January 19, 2025.  Without restoration of immediate 100 percent expensing, businesses were only allowed to immediately expense 40 percent of the cost for 2025 before it was scheduled to fall to 20 percent in 2026.
• Makes permanent full expensing for new capital investments.  Permanently allows businesses to immediately expense 100 percent of the cost of qualified property acquired on or after January 19, 2025.  Without restoration of immediate 100 percent expensing, businesses can only immediately expense 40 percent of the cost for 2025, and this percentage would fall to 20 percent in 2026.  It also increases the maximum amount a taxpayer may expense under Section 179 to $2.5 million.  Permanent expensing for investments in machinery and equipment will boost domestic production.
• Makes permanent interest deductibility.  Permanently restores the ability of businesses deducting net interest payments to include depreciation and amortization costs for taxable years beginning after December 31, 2024.  Since 2017, the amount of interest deductions that businesses can take became limited to only using earnings before interest and taxes, representing a significant tax increase on firms.  Restoring and making the deduction permanent at a globally competitive standard will help finance critical domestic investments.
• Includes full expensing for new factories and factory improvements to accelerate domestic manufacturing.  Under current law, businesses must deduct the cost of nonresidential real property over a 39-year period.
• Permanently renews and enhances the Opportunity Zone program, driving $100+ billion of investment to rural and distressed communities.
• Qualified religious institutions may be exempt from the excise tax.
• College endowments will see the 1.4% excise tax is replaced with a tiered system based on "student-adjusted endowment," which is endowment assets per eligible student.  The tax rates are 1.4% for a student-adjusted endowment between $500,000 and $749,999, 4% for $750,000 to $1,999,999, and 8% for $2,000,000 or more. The definition of eligible students excludes international students on temporary visas, potentially affecting institutions with many international students.

Medicaid cuts/reform and Supplemental Nutrition Assistance Program (SNAP) and child tax credit:

• Prevents Medicaid payments for beneficiaries who have died, are enrolled in multiple states or do not qualify for the program.
• Increases the frequency of eligibility verifications for able-bodied adults.
• Prohibits states from waiving asset tests for long-term services, removing individuals from Medicaid rolls who have homes worth over $1 million.
• Ensures illegal immigrants do not receive Medicaid benefits.
• Ends Medicaid financing gimmicks that increase federal spending by freezing and reducing provider taxes.
• Prohibits taxpayer-funded Medicaid payments for abortion services.
• Ensures Medicaid payments are fiscally responsible and align with other federal government programs.
• Shifting SNAP costs more to states to fund the program if their error rates are above 6%.
• Changes the requirements for able-bodied adults to qualify for SNAP benefits (setting the age requirements from18 to 64, up from age 54) with exemptions for parents.  Alaska and Hawaii were given exemptions.
• The current $2,000 child tax credit will be increased to $2,200.

Border security and immigration:

• $46.6 billion for border wall construction and related expenses.
• $45 billion to expand and build new detention capacity for illegal immigrants held in custody.
• $30 billion for hiring/training of U.S. Immigration and Customs Enforcement.

Energy policy provisions:

• Eliminates hundreds of billions of dollars of Biden’s unnecessary Green New Deal subsidies, such as ending the commercial EV tax credit and its “lease loophole.”
• Stops penalizing fossil fuels in favor of intermittent green energy.
• Boosts investment in nuclear energy and critical technologies, giving American companies a competitive edge over China.

The debt limit:

• The debt ceiling is raised by $5 trillion.