Trump’s Big Beautiful Bill Explained: Key Tax Law Changes

Introduction

Hello and welcome, everyone, to this month’s Market Update for July 2025. My name is Steve Latham, and I am the Chief Investment Officer for Bernicke Wealth Management.

Today, we are going to be covering a very timely topic, which is the “One Big Beautiful Bill” act that was just signed into law by President Trump on July 4th. We wanted to give you a high-level overview of what was included in this bill and look at some of the aspects that could impact you from a planning perspective.

Top-line Overview of the Bill

When we look at the top line of what this bill includes, as you can see here in front of you, it’s roughly costing about $4.5 trillion over the next ten years. Now, this is an estimate by the OBOR, which is a bipartisan group within the United States government that tries to determine what the overall spending course of any legislative measure looks like.

Their estimate, based off of the extension of the Tax Cuts and Jobs Act, which was passed by President Trump in 2017, making those tax cuts permanent, is going to cost around $3.8 trillion over the next ten years. There were additional provisions put into the bill that also increase the cost to the tune of roughly $700 billion over the next ten years.

Now, these spending measures are offset to some extent by spending cuts specifically to Medicaid. The OBR predicts that over the next ten years, the cuts to Medicaid will amount to around $1.2 trillion. $1 trillion of that is specific to Medicaid, and then the other $0.2 trillion or $200 billion is specific to some other green energy and EV funding initiatives that are going to be rolled back early.

The third key provision in this bill, again, at a high level, it increases the debt ceiling by $5 trillion. Currently, the debt ceiling is at $36.1 trillion. By increasing it by $5 trillion, this almost ensures that there will not be any fights to include or increase the debt ceiling limit over the next number of years. The $5 trillion increase should cover much of the spending from a budgetary standpoint, effectively to 2028.

Major Items in the Bill

Permanent Tax Brackets

If we want to look at the specifics and some of the major items that are in this bill, this includes the current tax brackets, which range between 10% on the low end and 37% on the very high end. Again, these were passed in the 2017 Tax Cuts and Jobs Act bill. These are now made permanent. So Congress no longer needs to work towards an end for any sort of tax breaks where they’ll have to renegotiate at some point in the future. The current bill stipulates that these tax breaks are now permanent. This is the new tax legislature that will be working off of; those percentages are codified, which means that any changes to those percentages will then be a new bill that will have to be passed by both the House and the Senate and signed into law by any future president.

State and Local Tax (SALT) Deduction

The other big piece for individuals that live in higher tax states like New York and California, the state and local tax deduction has been increased to $40,000 annually. And this sunsets in 2030. Now, this is phased out for households that are earning more than $500,000 a year, so it may not be applicable to everyone. After that five-year period in 2030, the SALT tax deduction reduces back to $10,000.

Medicaid Changes

Some of the cuts come in from Medicaid. This comes from states that enacted a cap on where Medicaid coverage was going to be taxed at. So this creates new work requirements for individuals that are on Medicaid. And all of this goes into effect in 2027. This is one of the more fungible pieces of the bill, because Congress needs to adapt new measures in order to determine how this funding is going to be adjusted in 2027.

So this isn’t something that takes effect immediately, and it will be very closely watched by spending hawks and fiscal hawks going forward to not only ensure that the spending is reduced, but determine how it’s going to be implemented on a state-by-state basis or at the federal government level. Once 2027 hits, in order to offset some of these costs, there’s a $50 billion fund that is meant to support more rural hospitals. Those hospitals tend to get reimbursements from Medicaid spending. So if Medicaid spending is cut, the rural hospitals could be in peril. This fund is set to help those hospitals in need once the spending cuts do take place.

Tax Deduction for Older Taxpayers

The two other major things here that I want to go over: a $6,000 tax deduction for taxpayers over 65 years old. This is meant to offset Social Security taxes paid for those individuals between 65 and older. This means that while you can’t explicitly cut taxes with the way the reconciliation bill was passed, this is meant to offset those Social Security taxes paid by individuals who are taking Social Security over the age of 65.

Estate Tax Threshold

Lastly, the estate tax threshold has now been permanently increased to $50 million for an individual. This is annually adjusted for inflation. One of the larger concerns for some of the bigger households out there was that this was set to sunset back to a much lower level in 2026. This bill permanently increases that level to $15 million. And then going forward, it is adjusted for inflation. So no longer do we need to worry about an estate tax cliff at the federal level going forward.

Charitable Donations Deduction

And then lastly, this is a good one for anyone who is donating to charity. You can now write off $2,000 as a couple for charitable donations, in addition to taking the standard deduction. Previously, in order to get any deductions for charitable donations, you would have to itemize your tax return. Now, you can deduct up to $2,000 for charitable donations, even if you are taking the standard deduction. So the standard deduction is set to increase by $1,500 for a household next year, which means it will be at $31,500. This ultimately means if you donate $2,000 to charity, you can have your deduction increased to $33,500.

Final Thoughts

Now, there’s plenty of other provisions in this bill. Like I mentioned before, there’s a lot that can still be worked out. Based off of the spending cuts that are coming into place up until 2027, many provisions are now codified, just like the tax extension, and other measures therein.

So if you have any questions specific to what’s in the bill, how it impacts you from a planning perspective, please don’t hesitate to reach out. We’re always happy to answer your questions. Thank you very much.