A Beautiful Summary

Independence Day is typically celebrated with hot dogs, hamburgers, grilling out and some tongue-in-cheek jokes about England. But this year’s celebration brought quite the pre-game.

As legislators negotiated, shook hands and surely handed out a few looks that could kill to one another, the U.S. passed a massive piece of legislation that will have lasting effects. These effects will touch the tax code, banking, health care, defense and even auto manufacturing.

For most of us, there isn’t enough time or caffeine in the world that could support reading through the details of most tax bills. In order to simplify the complex, we have summarized some key points below. Granted, some items in this bill reach further than just straight economics and the market. Like any time of change in our country, there tends to be winners and losers. In the long run, we always hope it creates more of the prior.  And like any policy change, the effects sometimes aren’t felt for years.

• Tax Cuts Stay the Same

  The tax changes from back in 2017 (under President Trump) are staying long-term. I.e. We can stop wondering what happens when the TCAJ (Tax Cut and Jobs Act) sunsets. These are now permanent (until they aren’t).

  
  

• Bigger Standard Deduction & Higher SALT Limit

  Itemizing becomes a bit less useful for many taxpayers. Raising the standard deduction reduces your taxable income right off the bat. Deductible SALT (State and Local Tax) limits have been raised from $10k to $40k for those earning less than $500k.

  
  

• Lifetime Exemption Increase

  The previous lifetime gift exemption has been increased to $15,000,000 from $13,900,000. This allows a couple to gift $30,000,000 to the next generation during their lifetime.

  
  

• Tax-Free Tips & Overtime (expires in 2028)

  For a few years, you don’t have to pay taxes on up to $25,000 of tips or extra hours you work. This could certainly be a boon for many in jobs where tips are a substantial part income (Roughly 4 Million workers collect tips as part of their income).

  
  

• Auto Loan Deduction for American Cars

  If you buy a car made in the US, you can deduct up to $10,000 in interest you pay on the loan. Given a higher-rate environment, this could have a trickle down effect. More buyers willing to borrow. Banks happy to lend. This encourages buying American-made cars and is in line with the President’s push for growing manufacturing in the US.

  
  

• U.S. Debt Ceiling Raised

  The U.S. raised its “credit card limit” to avoid defaulting on what it owes. Think of it like the government avoiding bouncing a check. Some would say they just built a bigger money printing machine.

  
  

• Big Boost in Defense Spending

  The U.S. is putting around $150 billion into military upgrades, equipment and readiness. Defense isn’t what it used to be (tanks, artillery and soldiers). A lot of defense is now technology, drones, etc. This could be a boon for some defense companies as they chase the next government defense contract.

  
  

• Clean Energy Tax Breaks Canceled

  The bill removes discounts and incentives for using solar, wind and other green energy. This seems to have to goal of leveling the business playing field between energy options. Nuclear is back on the table and oil companies have invested in many green technologies, as well. Time will tell.

  
  

• Forgiveness Programs Ended

  Most programs that wiped out student debt after years of service or hardship are gone. Many student debt holders were able to have their debt forgiven in recent years, especially those in the non-profit sector who met the requirements set over a decade ago.

  
  

• Tougher Repayment Rules

  New student borrowers will face stricter payback rules and fewer options to delay or reduce payments. In a time of rising college tuition and a sea change of needed skills in our economy, the importance of ‘investing wisely’ in further education has increased even more. The toughest question on many student’s minds is, ‘how do I future-proof myself in a career of the future?’ Typewriter mechanics and linotype operators know the challenge all too well.

  
  

Like any massive change to tax and social policy, markets will react. But, like going to the gym expecting a couple workouts to produce weight loss, muscle gain and a healthier blood panel - the only immediate difference is a mindset change. It takes time to see the effects of pulling tax and legal levers.

2025 has been an emotional and financial rollercoaster for markets - much of it due to uncertainty. Many uncertainties still exist, but a big one is now in writing. We know the new rules of the same game, getting them to work in our favor is the task at hand.

Enjoy the week ahead!

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Sources: WSJ, FRAN, RWER.Wordpress.com