What are Potential Tax Law Implications of OBBBA for Investors?

In the wake of the 2024 general election, Republican lawmakers set out to reform the tax code and avert the expiration of key provisions from the Tax Cuts and Jobs Act (TCJA) by the end of 2025. Their efforts culminated on July 4, 2025, with the final passage of the One Big Beautiful Bill Act (OBBBA), a landmark law with far-reaching implications for individual and corporate taxes as well as the economy and financial markets.

While the new tax law is likely to drive growth in certain sectors, it also poses challenges, particularly in the context of potentially rising deficits and interest rates. Here’s what investors should know about the risks and opportunities.

Corporate and individual tax cuts

The law’s biggest beneficiaries appear to be U.S. corporations. The legislation not only reinstates business-friendly TCJA provisions, such as 100% bonus depreciation and immediate deduction of domestic research and development (R&D) expenses; it also introduces new measures like expanding the Advanced Manufacturing Investment tax credit¹ and full expensing of factories. All told, these provisions could reduce the corporate tax rate from a statutory 21%, to as low as an effective 12%, the lowest rate in U.S. history.

For individual taxpayers, the tax law also temporarily increases the state and local tax (SALT) deduction cap to $40,000—from $10,000 previously—for households with modified adjusted gross incomes below $500,000. This provision, along with others, like the $6,000 Social Security benefit for seniors and the “no tax” agenda, which includes no federal income tax on tips and overtime pay, are set to sunset after four years. As such, the tax cuts are front-loaded, while spending cuts are backloaded in the bill, positioning the greatest fiscal stimulus to occur in fiscal year 2026. 

The law also permanently extends provisions that were set to expire at the end of 2025:

• Current individual tax rates, including the 37% top ordinary income tax rate.
• Increased estate and gift tax exemptions, which rise to an inflation-adjusted $15 million for single filers and $30 million for married couples filing jointly.
• The increased standard deduction enacted under the TCJA.

Fiscal challenges

All of these tax cuts come with a cost. The law increases government spending by some $3.8 trillion over 10 years, offset by about $500 billion in revenues—adding around $3.3 trillion to the U.S. deficit, or the annual gap between revenue and spending. When considering additional interest on new government borrowing, the law’s total addition to the U.S. debt—the sum of all annual deficits—could reach $4 trillion. 

This fiscal expansion comes at a time when the U.S. debt stands at $36 trillion and additional spending is projected to push the deficit-to-GDP ratio to more than 7% by 2026, more than double the historical average of 3% prior to the 2008 financial crisis.

Tariff revenue may help offset some of the deficit impact, though tariffs remain highly dynamic and unreliable. Nonetheless, lawmakers will need to carefully weigh the outsized debt load in budget decisions, as rising interest expenses and other constraints may crowd out other spending priorities and limit the government’s ability to respond to future crises.  

Stock opportunities and risks

The tax law could be a boon to U.S. equity sectors with high capital expenditure (capex) needs. For example, a lower corporate tax burden is likely to support capital spending in advanced tech sectors, like semiconductors and artificial intelligence (AI) data centers. It could also benefit domestic industrials, communication services and energy infrastructure stocks with elevated capex needs and U.S.-based revenues.

That said, the law also creates challenges for certain sectors. For example, it phases out some clean energy tax credits, likely delivering a blow to industries reliant on these incentives (though clean energy stocks have continued to outperform the broader market amid expectations of Federal Reserve rate cuts and more modest than expected tax credit rollbacks). In addition, the bill’s spending cuts to Medicaid and programs to help low-income families buy food could shift health care costs to state and local governments. This could affect the credit quality of municipal bonds, particularly those issued by state and nonprofit hospitals.

Bond yield pressures

To accommodate higher U.S. government borrowing needs, the legislation authorizes a $5 trillion increase in the U.S. debt limit, necessitating a significant rise in Treasury issuance. This potential flood of Treasury bills into the market could lead to a supply-demand mismatch that lowers bond prices and puts upward pressure on yields. Higher yields typically mean elevated borrowing costs and interest rates, which can create challenges for stocks and bonds alike.

What’s more, investors in longer-term Treasuries typically demand some amount of extra yield, known as the “term premium,” often to compensate for risks associated with an uncertain fiscal outlook – and this, too, could contribute to upward yield pressure.

Bottom line: The One Big Beautiful Bill Act delivers significant tax benefits to businesses and individuals. It lowers the corporate tax burden, which could boost certain U.S. equity sectors, but it also raises concerns over rising U.S. deficits. Investors should consider the changes and work with a trusted advisor to review their financial goals and portfolio strategy.