The Dividend Cafe - A Referee’s Take on the Big, Beautiful Bill

Episode Date: July 11, 2025

Today's Post - https://bahnsen.co/44Cuq1w Analyzing the One Big Beautiful Bill Act: Tax and Spending Implications In this week's Dividend Cafe, David delves into the 'One Big Beautiful Bill Act,' an omnibus tax and spending bill recently signed into law. The episode covers its investment and market ramifications, debunks myths surrounding the bill, and offers both praise and criticism for its various provisions. The discussion emphasizes the bill's five major components: the extension of prior tax cuts, new campaign tax changes, pro-growth business tax changes, spending cuts, and an increase in the debt ceiling. David provides an objective analysis while acknowledging his personal political biases, stressing the importance of a non-uniform approach to investing and policy assessment. Additionally, the episode underscores the negative and positive impacts of the bill on different economic sectors, with a particular focus on its long-term fiscal implications. 00:00 Introduction to the One Big Beautiful Bill Act 01:35 The Political Landscape and Personal Views 05:50 Breaking Down the Bill: Five Major Categories 12:23 Debunking Myths About the Bill 19:43 Pro-Growth and Non-Growth Elements 28:53 Final Thoughts and Market Implications Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Hello, and welcome to this week's Dividend Cafe, where I get to once again delve into the territory that gets my inbox the most activity. I don't mean that in a positive or exciting way. I am going to talk today about the One Big Beautiful Bill Act, which is literally the name of the bill and this sort of omnibus tax and spending bill that has now been signed into law.

We're sending this out on Friday, July 11th. It was signed into law one week ago, Friday, July 4th, but it's been a topic that's been discussed for quite some time. And I want today to talk about the investment ramifications, the market ramifications, what we like about the bill, what we don't like about the bill, what myths are out there that are negative interpretations of the bill that I want to debunk. There's one myth that's a positive interpretation of the bill that I also want to debunk. But I think just by generally walking through our overall assessment of this significant

piece of legislation and doing so on a regular basis, I think we by generally walking through our overall assessment of this significant piece of legislation and doing so objectively and with a very sincere and genuine curiosity and inquiry about what it means economically, it will dilute a lot of the political heat around the discussion. What I won't do, and I said this back with a lot of my pre-election coverage and certainly a lot of my post-election market commentary, I won't do this by pretending that I am a politically neutral actor. I don't believe anyone reading this is politically neutral or watching or listening. I don't believe that the person who has put these thoughts together, me, should pretend

to be neutral either. I have a point of view. The problem with that, and if you've been a reader or listener of Divinity Cafe for a long time and you're tired of me saying this, I apologize, but I have to continue making this point. The reason that these things have to be said so much is because we are in a moment where there's a high expectation to wear a uniform, to get in line around a side. And that side may be very favorable in the Biden administration, in the Trump

1.0 administration. I noticed a lot of this very high tribalism during the Obama administration. And I suspect that this is going to outlast the Trump 2.0 administration as well. So I think that's a very good thing. And I think that's going to outlast the Trump 2.0 administration as well, where the notion that somebody like myself would be a political conservative that I've been my whole life and more or less generally find myself aligned with more often than not Republican voting concerns and yet be critical of certain things that may come about from a policy standpoint,

the economic agenda here around this particular president, and at the same time also have things that I'm not critical of, that I'm supportive of. This is the worst thing an investor could do, is decide they need to pull themselves one way or the other. If your natural ideological inclinations are to have points of view that sometimes you believe it's a ball and other times you believe it's a strike, I would not resist that in your portfolio. I actually wouldn not resist that in your portfolio. I actually wouldn't resist it outside your portfolio either. I think there's something very liberating about believing what you believe and saying

what you believe and not feeling the need to align it with a particular uniform. But that's not what people come to the Dividing Cafe for, my own commentary on our cultural divides. The hyper polarization of the moment is what it is. And I get mail reflecting it and I fully expect to get a lot of it after today. And look, don't say it arrogantly or to be overly flippant, but it doesn't bother me. I don't care that much. It, some of it's very predictable, but I provided to be a little funny in dividend cafe today. But the written dividend cafe, there's one of two letters you could pick from

if you want to just cut and paste and send it. And the point being that these are two totally polar opposite letters. Like I can't possibly be just constantly hating on Trump, as some people say, and at the same time, constantly carrying water for Trump as others say, but I get those sentiments all the time and they obviously are contradictory from one another. So my point is I love getting feedback from people. We get a lot of questions that we interact with in the

Divinity Cafe daily blurb. But this is what it is. Okay. My points of view could be wrong. There are certain elements that are subjective in terms of one's opinion about political philosophy or economic worldview. I don't expect everyone to agree with all my personal opinions, but my point is that where I'm expressing various frustrations with this bill and various commendations of the bill, that's not contradictory. It's only contradictory if you're looking to force somebody into one team all the time and I don't accept those rules of engagement. So with that long intro, let's get into what we're here for.

I would encourage you to think about this bill, even though there's so many granular and detailed things at play. I would encourage you to think of the bill as five major categories. The reason why it really got done as an omnibus bill, and as opposed to trying to break it up as a series of a lot of different legislative efforts is that there was a broad agenda and there were certain components in that agenda that would be less politically saleable if they were disconnected from other political points.

And so the bill sought out to do five things and I think if some of them were standalone, they would not have gotten the votes but by connecting them to other things, it was able to rally just enough people in the Senate and House to make it become law. First was, of course, the extension of the prior tax cuts. The tax cuts in JOBS Act, the TCGA 2017, had a number of provisions in it that were sunsetting. And I should say right off the bat that that's one of the big problems right now is that we continue to have to pass things that we intend to be permanent,

but do it with sunsetting provisions, assuming that the future legislative body would be unwilling to sunset various things because that would be unpopular to do so. That assumption is accurate all the time. And this is a bipartisan thing. It's been done with Democrat and Republican administrations, but the reason it's done is because getting legislation done with 60 Senate votes that are filibuster proof is very difficult. Bipartisanship is dead. And so the years when Reagan and Tip O'Neill worked together and when Biden and Biden were votes that are filibuster proof is very difficult. Bipartisanship is dead. And so the years when Reagan and Tip O'Neill worked together and when Bill Clinton and Newt Gingrich worked together to get legislation done, and nobody thought a bill was perfect,

but everybody had enough in it to get it across the finish line, that doesn't happen anymore. So to get budgetary-oriented bills, fiscally-oriented bills done, they are able to do such with only 50 Senate votes through something called the Burt Amendment that allows it to be done filibuster proof if it is attached to a budget window and reconciled as part of a budget action. So if you open a budget for a certain deficit impact, pass that, then you can pass legislation that is consistent with that budget window and not have to go to the 60 vote burden. But to pass legislation that sometimes does the things you want it to do and stick within

this budget window that is part of the point I want to make. I think the first thing that we need to do is to make sure that we're not just going to have to do this, but we're going to have to do this. And I think that's a very important point. And I think that's a very important point. And I think that's a very important point. And I think that's a very important point.

And I think that's a very important point. And I think that's a very important point. It happened with the Bush tax cuts as well, that they were sunsetting for the same reason. So I'm on a tangent right now, but I think this is an important part of the point I want to make, that the sunsetting provisions from prior legislation is what creates some of the challenges in the new legislation. So number one component was extension of the prior tax cuts. There is a chart at Dividend Cafe that shows what the rates were over the last several years and what they're going to continue to be, but what they would have been had it not passed. If we were going back, if we were sunsetting back to the pre-2017 tax bill, what those

rates were. And so you have that chart there at Dividend Cafe. So extension of tax cuts was a big deal. Had no action been taken, the net tax impact would have been a tax increase for 62% of American tax filers. So there was a lot on the line, and my estimate is that number equaled something in the range of $2 trillion. So extension of the tax cuts was agenda number one. Agenda number two, campaign tax cut changes. These were not part of the 2017 bill, but new things such as no tax on tips, no tax on overtime, no tax on social security.

And then what kind of got added after the election but has become sort of a talking point for the president since was this tax break for the deduction of interest on auto purchase. So these are political tax cuts that were not related in 2017, but were needed to be part of this bill for the president's own agenda. Number three would be pro-growth business tax changes. And again, I'm going to walk through what some of those details were, but there was at least some nod to a supply side agenda in the tax bill, and that was almost entirely covered under the business side of the equation. Number four were spending cuts.

Now there were also some spending increases in allocations, but overall, to have a budget impact of some of the tax cuts, you were going to have to get to a point of spending reductions to stay within an approved budget window. And in order to make that happen, there were adjustments to the rate of growth of Medicaid, to student loan provisions, to renewable energy deductions. And so the reductions of planned increases really equals something in the range of $150 billion a year. So we spend $6.8 trillion a year.

This is one and a half trillion of reduced growth of spending over 10 years, not a meaningful amount. And then number five was the increase of the debt ceiling. Just to get all this done, they needed more leeway and Congress gets tired of having to have this fight all the time. It's a complete charade. They always end up extending. If anybody ever wanted to not increase the debt limit, all they have to do is not continue to spend in the way that is increasing the debt, but they can't. So the the debunking of some of the myths. First and foremost, no matter how political this sounds, I'm just simply doing math for

you. It is untrue that the bill is going to be a political debate. It's going to be a debate that's going to be a political debate. It's going to be a debate that's going to be a debate that's going to be a debate that's going to be a debate that's going to be a debate that's going to be a debate that's going to be a debate that's going to be a debate that's going to be a debate that's looking to do. Well, let me start off with the debunking of some of the myths. First and foremost, no matter how political this sounds, I'm just simply doing math for you. It is untrue that this bill primarily extends tax cuts for the wealthy. Okay? The marginal, the top marginal rate in the pre-2017 was 39.6. And this brings the top marginal rate to 37, where it's been. But you have to remember that the salt deduction went away, it was limited to $10,000 in the 2017 bill. And the salt deduction

is largely used at the biggest impact for the wealthiest taxpayers that have the biggest houses, most expensive houses, highest property taxes, they had unlimited deductibility on that before. And if they were in a state of high state taxes, they were, because they earn a lot, had a huge deduction against their federal taxes. And that has now gone away. Now the new bill is bringing it back up 39.6% top rate to 37, but a 15% increase in the last year, that's a huge increase.

And that's because the tax payers are going to be able to get a lot of money from the tax payers. And that's going to be a huge increase in the tax payers. And that's going to be a huge increase in the tax payers. But here's the thing, you can do the math on the percentage difference of when it went from 39.6% top rate to 37, but a 15% rate, which is the second lowest tax bracket, had been, it went to 12. Okay, so that's a 25% difference going from 12 to 15, the 3% difference. The next rate, 22 to 25, 24 to 28.

So the biggest percentage difference is on the second, third, and fourth lowest tax brackets. And then there was no change at all for the sixth tax bracket, 35 to 35% of minimal change at the fifth from 33% to 32%, my point being that the percentage move where the largest amount of savings were on the line in these tax cuts was for lower income and middle class taxpayers. And on the lowest of income tax filer, the standard deduction had doubled and it was going to go all the way back. So it had been increased from $8,350 to $15,000 for single filers. A 16,700 deduction went to $30,000, almost $31,000 for joint filers.

And then now with this new bill, they even added an additional $1,000 on top for single and 2,000 married. But my point is that standard deduction is clearly something that brings a lot of people together. And then now with this new bill, they even added an additional thousand dollar on top for single and 2000 married. But my point is that standard deduction is clearly something that primarily impacts lower income filers. So whether you like it or not, whether you think it's a good idea or not, whether you would have liked to split the baby and extended the tax cuts only for lower income or middle class, but not for hire, that's all fine. I'm just saying mathematically it is untrue. I know firsthand that my taxes went up dramatically under the 2017 Trump tax bill because of the loss

of the salt deduction. And I'm totally unaffected by the salt deduction changes now. So that's true of a lot of people. And again, it doesn't necessarily change what people like or don't like about the bill, but I bring it up to debunk the myth. Now myth number two, and this is going to upset a lot of my friends on the right, including friends of mine in the administration that are saying something very different, but this narrative that, well, the CBO is underestimating what the growth will be, this isn't going to really add three trillion to the national debt because at the end of the day, we're going to get more growth.

They always underestimate growth, and so we're going to do better than that, and then therefore the impact will be less. Where they're wrong is that, first of all, they're correct, that historically the CBO's projections, Congressional Budget Office, have underestimated what growth impact there will be from tax cuts. That's been true of the last four tax cuts that CBO had to score, that their dynamic scoring did not fully capture the level of growth that would be created after the fact. In this case though, we're primarily talking about status quo, not pro-growth new tax cuts, but just simply extending tax cuts that are already in play.

So no, it is untrue that you get additional stimulus from leaving tax rates the same. It's true you could have hurt growth if you didn't extend those taxes, if you had a big tax cut, but you didn't have a tax cut. additional stimulus from leaving tax rates the same. It's true you could have hurt growth if you didn't extend those taxes. If you had a big tax increase, that could have hurt growth. But that's not what some of the folks are saying. Others are saying, including Kevin Hassett at the National Economic Council, that we're going to get higher growth because of extending the tax cuts. And I don't think that makes a lot of sense. But I also would point out that just as much as CBO often has underestimated growth impact,

they've underestimated the growth of spending too. First of all, these projections don't account for if we have a recession. They don't account for the fact that some of these programs are supposed to sunset and are not going to end up sunsetting or at least have a very high political chance to not sunsetting, meaning the spending will be higher than what the current spending bill says. So the full 10-year scoring of this, if it were done realistically, it would be closer to 5 trillion, not 3 trillion, let alone closer to zero, which is what some in the White House would want you to believe. Myth number three, by the way, is, and I'm going to try to go quickly here because

it's a little bit toxic of an issue, but there are many who are saying, well, this bill is just slashing medical coverage, slashing what we're spending on medical care. So I put a chart in Dividend Cafe showing how what it is doing is getting the rate of growth back in line to what the original projection had been from CBO five years ago. So that now 10 years out, it meets at the same place it was as opposed to this higher elevated level that took off post-COVID. So yes, it is reigning in some of that growth of spending with ACA, the Affordable Care Act, and Medicaid, but not reducing the actual spending, reigning in the rate of growth of spending that was elevated post-COVID. So there's about a trillion dollars over 10 years of spending increases that have been curtailed.

There is still net spending increases in Medicaid. And so people could like that, not like it. It's looking to address what portion the states pay, and it's certainly looking to limit ineligible enrollees from participating in Medicaid. It added some other worker community requirements. It seeks to avoid illegal immigrants from receiving Medicaid, but the narrative that's out there is inaccurate as a matter of fact, and the charts and the data are provided at DivinityCafe.com to show it.

So what is the growth ramification of the bill? Well, let me just say, first of all, objectively, that no tax on tips, no tax on overtime, auto loan interest, those are not pro-growth things. You could like them or not like them, but they're not supply side. They're not incentivizing production of goods and services. They're not broad-based benefits, okay, which is what supply-siders traditionally like. So, I think that's a good point. I think that's a good point. I think that's a good point. I think that's a good point. I think that's a good point. I think that's a good point. I think that's a good point. I think that's a good point.

I think that's a good point. I think that's a good point. I think that's a good point. I think that's a good point. I think that's a good point. I think that's a good point. I think that's a good point. I think that's a good point.

I think that's a good point. I think that's a good point. I think that's a good point. I think that's a good point. I think that's a good point. I think that's a good point. I think that's a good point. I think that's a good point.

I think that's a good point. I think that's a good point. I think that's a good point. I think that's a good point. I think that's a busboy. I don't believe that a factory line worker who works overtime versus another blue collar worker who doesn't have an overtime structure, that there should be gamesmanship or arbitrage or inequity in how those things are taxed. I think ultimately these lines of work, they're ought not to bet more favorable tax situation for one than the other when they make the same amount of money in the end. I think it's largely a political issue and that has always been something that people like myself have not been very comfortable with. Many on the right were really critical of the Biden administration's student loan forgiveness,

viewing it as sort of a politically targeted objective. And I would say that President Trump always said the no tax on tips thing, it was going to have to be a big priority. And he did end up winning the state of Nevada. He always was hitting this point in Clark County where there's a lot of service workers that live off of tips. I'm all for reducing taxes where it's the right thing to do broad-based. If we want to bring down everybody's marginal rates together.

But I think that when you are having the government pick winners and losers and say, well, you are in a position in a restaurant that doesn't get tips, and you're in a position in a restaurant that does get tips, and you're both going to earn the same money, but you're going to have different tax treatment, I just think it's bad policy. But I will say this, it isn't a big fiscal impact, and it's also not a growth impact. So like it or don't like it, the way they did it is there's a deduction for TIP income up to $25,000. So it's a workaround where it effectively makes up to $25,000 of TIPs non-taxable. But it goes away at the end of President Trump's term. This

is only through 2028. Similar with overtime, up to $12,500 overtime wages are deductible. That's how they got around that. Okay, now on the social security side, I always said there was no way they were going to make social security non-taxable just because the fiscal impact was so big, but they did a little work around and there's income thresholds, but they essentially are giving a bonus standard deduction on top of the regular standard deduction to get another $6,000 standard deduction if you're over 65 and under certain income thresholds. So it's a way of giving anywhere from $1,000 to $2,000 back to senior tax filers.

Again, obviously not pro-growth in any way whatsoever. People can like the policy or dislike the policy, but we cannot call those elements pro-growth. The auto loan issue. Now, this one I just as a matter of policy find outrageous. I do not believe that we should be encouraging people to take more debt. I do not believe that we should discriminate against those who decide to buy a car in cash or buy a used car as opposed to those who decide to finance a new car. I don't think that giving tax treatment to one who made a particular consumer choice versus another makes a lot of sense. I also think it just gets priced into the price of the car, which is, of course, a point

many on the right made when Vice President gets priced into the price of the car, which is of course a point many on the right made when Vice President Harris was proposing the government subsidizing a down payment on a home for first-time home buyers. I shared in the argument that that would just simply get priced in to what the home cost. I think that this auto loan deduction is guilty of the same thing and not pro-growth. Now, none of those things cost a ton. They do cost some. They're not free, but I disagree with them.

But my critique is not really fiscal. It's more growth-oriented. What I would say here, I'm gonna quickly go through four things that I think are very favorable pro-growth in terms of being supply side. There's a 20% small business tax break that was provided after the 2017 tax bill because the corporation tax rate went from 35% to 21%. And so they needed some way to make it fair for LLCs and S-Corps. So they gave a 20% tax

addition for pass-through entities. That was going to expire at the end of the year. They extended that, made it permanent. I think that was pro-growth. They take out certain sectors with it, including financial services, I should add. But I would rather see be broad-based across all pass-through entities. But my point is that where this tax issue existed for what is a vital part of the economy, LLCs, partnerships, and sub-chapter S-corps, they made that permanent. I think that's pro-growth. The Section 179 deduction, full deduction of equipment and capital investment is extremely pro-growth.

Likewise, bonus depreciation for putting productive property, let's call it factories or whatnot, new factory construction, getting that bonus depreciation is very supply side. A permanent deduction now for research and development in the United States is also pro-growth. So I would say at the end of the day, there are individual tax rate extensions that I like a lot, but do not believe they're pro-growth, but they are necessary. But as far as the growth side of it, I think it's on the business side. And I do not think the campaign tax cuts are pro-growth, but I think the business side has an impact. And I'm not sure the market is fully appreciated.

I think the business side. And I do not think the campaign tax cuts are pro-growth, but I think the business side has an impact. And I'm not sure the market has fully appreciated how beneficial that will be for capital investment, public equity, but private equity as well. All right. The things that I do not like about the bill are primarily focused on what it doesn't do. There are some things that the bill does do I don't like. I'm not a believer in the salt deduction.

Even though losing the salt deduction had a huge fiscal impact to me, I simply philosophically don't agree that two people should be paying drastically different federal taxes when they make the same amount of money based on the size of their home or the state that they live in. But all that to say, the salt thing that they did is very, very muddied and really benefits almost nobody and was bad policy to begin with. But what I basically am most concerned about with the bill is what it doesn't do, which is address the fiscal health of the country.

We are right now, government spending is running almost 24% of GDP. We've been somewhere between 18 and 20% pre-COVID for a long time. That's the number I think we need to be at. The budget deficit as a percentage of GDP should be in line with GDP growth, roughly about 3%. We're running 5%, 6%, 7%, and are projected to continue doing so as far as the eyes can see. That's what bothers me about the bill. I basically believe it needed to do more to reduce our deficit burden. I've already said what I like the most is basically entirely on the business side.

I certainly appreciate avoiding a recessionary tax increase on the individual side, but what I like the most is on the individual side, but what I like the most is on the business side. Now this leaves some people dissatisfied. Why not just come out and hammer the bill? Very candidly, I'm never ever, ever, ever going to be in Congress, so I don't have to say what I would have done if I were in Congress, but I would not have voted for the bill because of the fact that I really believe as much

as there's a lot in the bill I like, I think we have to accelerate the point at which we take the national debt seriously. I do not believe that we are being honest when we say, let's just tax rich people more, that that would do anything about the debt. I do not believe we're being honest if we say, let's go cut a wasteful government program. We're going to do something about the national debt. If we're going to do one big, beautiful bill, I think we have to tackle spending with far more sobriety and judiciousness than this bill does. So that's what my criticism is. But I think that the main event of pro-growth business and extension of the individual tax

code cuts was the right thing to do. But there are plenty of other things in the bill that I find to be problematic. So is this a market mover? Of course not. We've now seen throughout the last several months, it didn't have any impact in markets at all. The tariff issue, trade issue, AI, CapEx, earnings season, there's all sorts of things that are going to move markets. And ultimately, this bill long-term has impact

to the fiscal state of the country. And there's always ability to pass new legislation that makes things better or new legislation that makes things worse, but tethering one's market view to what they like or don't like about the president or their market view to what they like or don't like about a bill is absurd. It has never panned out. And I could tell you three different legislative endeavors in the Obama administration that I found contemptible that were not good bills and have had a lasting negative impact. And most of those were done when the stock market was at around 8,000 Dow. It's now at 45,000.

So it just isn't true that bills you like and don't like move markets up when you like them or down when you don't. Now that's totally different than saying that we can afford to never address the fiscal health of the country. This bill has a chance to do it and it didn't. There's good things in the bill, bad things in the bill, and there are all the data points and charts. Go to DivenCafe.com to capture more of it. But if that is a dissatisfying conclusion, I will tell you this, it's because this is a dissatisfying state in the process. But that is a dissatisfying conclusion, I will tell you this, it's because this is a dissatisfying state in the process.

But that is where we are now. And we will be putting out a piece, by the way, at the Bonds and Group with more detail on the tax ramifications. There's a lot of nuances individually we want to get to for clients. I'm trying to do a high level summary for you here today. Let me leave it there. In the Dividing Cafe, I appreciate as always those of you watching, listening, or reading. I certainly appreciate those of you that forwarded around.

We are always welcoming new readers and viewers and listeners. And I welcome your questions despite my sarcasm about the hate mail that I get because generally there's a lot of very thoughtful questions I love interacting with it. Have a wonderful weekend. Thank you so much for being a part of the Dividend Cafe. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC member FINRA and SIPC with Hightower Advisors LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities LLC.

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