MIKE TOWNSEND: Over the last couple of months, debate over the so-called One Big Beautiful Bill Act has dominated the nation's capital.
The legislation—and, yes, the One Big Beautiful Bill Act is actually its official name—is a massive tax and spending bill that encompasses much of the president's domestic policy agenda. It includes trillions of dollars' worth of tax cuts and more than a trillion dollars in reductions to discretionary spending, while also increasing spending for defense and border security and raising the debt ceiling.
Last month, the bill passed the House of Representatives by a single vote. Now it's working its way through the Senate, where senators are proposing some significant changes that could upend that fragile balance of support in the House. And the clock is ticking for a resolution, with President Trump and Republican leaders on both sides of Capitol Hill pushing for the bill to pass by July Fourth.
The decisions being made over the next couple of weeks in Washington have massive implications for every taxpayer as well as the markets. So what's in the One Big Beautiful Bill? Can it pass Congress? And what will it mean for investors?
Welcome to WashingtonWise, a podcast for investors from Charles Schwab. I'm your host, Mike Townsend, and on this show, our goal is to cut through the noise and confusion of the nation's capital and help investors figure out what's really worth paying attention to.
Over the last few episodes, I've given a high-level overview of the One Big Beautiful Bill as it's been moving its way through Congress. But as the bill nears the finish line in the Senate, I thought it would be worth a more in-depth examination of what's in this bill and its implications for all of us.
But first, there are a lot of other things going on in Washington right now, so here's a quick rundown on what else I am following.
To start, the Federal Reserve met this week and, to absolutely no one's surprise, the committee left the fed funds rate unchanged for the fourth consecutive meeting. After a 50-basis-point cut and two 25-basis-point cuts at its final three meetings of 2024, the Fed has not moved the rate at all in 2025. Chairman Jerome Powell and other Fed governors have been consistent in saying that they will wait for more data on inflation, jobs, consumer confidence, and the broader economy before making any move on rates. There are some signs that tariffs could start to impact inflation numbers in the next couple of months, and the administration's deportation efforts are contributing to some softness in the labor market. But consumer sentiment improved this month for the first time this year, with consumers responding positively to the administration's easing of some tariffs, especially with China. The University of Michigan's closely watched Consumer Sentiment Index jumped 16% over the last month, though it is still down 20% from where it was in December.
A key date to watch is July 9. That's when the current 90-day pause on the so-called "reciprocal" tariffs expires. Those are the individualized tariffs that the president put on about 90 countries back in early April, on top of the 10% across-the-board tariffs on all imports, which remain in place. The reciprocal tariffs kicked in on April 9, but the president paused them later that day after a strong negative reaction in both the equity market and the bond market. The administration had hoped to use the 90 days to negotiate a flurry of trade deals with each country, but that process has been slow, and only one formal deal, with the United Kingdom, has been announced so far. It's not clear what will happen on July 9—whether the president will extend the pause for another few months or begin imposing specific tariffs on imports from various countries on the original list. But the markets—and the Fed—will be watching.
For now, with the economy generally holding up better than expected, most Fed watchers seem to be eyeing September as the most likely time for a rate cut, though there is one additional meeting between now and then, on July 29 and 30.
Another element of intrigue surrounding the Fed in recent months has been the president's occasional threats to fire Chair Powell. There has long been uncertainty about whether firing the Fed chair is even legal, since the statute creating the central bank says that the chair may only be fired "for cause" and not for political reasons. The president himself has ratcheted back his rhetoric, saying that he has no plans to fire Powell despite regular social media posts excoriating the chair for not lowering rates faster.
But there was an interesting development last month on this topic. On May 22, the Supreme Court issued a ruling about whether the president could fire the heads of independent agencies. The specific case dealt with the president's decision to fire Democratic members of the National Labor Relations Board and the Merit Systems Protection Board. The Court ruled that the firings were permissible. But buried in the decision was a line that signaled that the justices did not think their decision applied to the Federal Reserve. The decision called the Fed a "uniquely structured, quasi-private entity" that did not fall in the same category as the two labor relations boards. That seems to take any possibility of the president firing Jerome Powell off the table—and removed any worry the markets may have had over the unprecedented possibility.
President Trump will, of course, get to choose the next Fed chair. Powell's term ends in just 11 months—in May of 2026. There has been considerable speculation about who the president might tap as his successor. Former Fed Governor Kevin Warsh has been near the top of the list. But in recent weeks another name has been getting increasing buzz here in Washington: Scott Bessent. The Treasury secretary has been one of the most prominent administration officials in the first five months, running point on tariffs, taxes, and regulation and providing a voice of calm that markets seem to have appreciated. He's clearly a favorite in Trump's inner circle right now and a strong communicator for the president's policy agenda. Those communications skills were on display last week, when Bessent testified at hearings before three different congressional committees. While Bessent has been saying he's happy in his current job, it's hard to believe he wouldn't jump at the chance to move to the Fed if given the opportunity. The president said recently that he would make a decision on Powell's successor soon, but it's more likely that he won't make a final choice for the role until early next year, which gives the president more time to see Bessent in action.
The other notable recent development at the Fed was Senate confirmation earlier this month of Fed Governor Michele Bowman to be the vice chair for supervision at the central bank. Bowman, who has served as a governor since 2018, was sworn in as vice chair on June 9. She succeeds Michael Barr, who stepped down from the vice chair slot in February but remains on the seven-member Fed Board of Governors. The vice chair for supervision position was created by the Dodd-Frank Act in the wake of the great financial crisis in 2008 and 2009. The vice chair develops and oversees policy for the supervision and regulation of large banks.
Bowman gave a major policy speech less than 48 hours after she was confirmed by the Senate, in which she outlined what she called a more "pragmatic" approach to bank regulation. She said that the Fed would be publishing a policy proposal that reduces capital requirements for large banks, a top priority for the banking industry after proposals in the Biden administration to increase the amount of capital banks would need to hold. Bowman also highlighted simplifying and making more transparent both the Fed's requirements for mergers and acquisitions in the banking industry, as well as the periodic stress testing of large banks that the Fed performs. Overall, banks are anticipating a lighter regulatory touch, something that is very much in keeping with the broader de-regulatory mindset of the current administration.
Speaking of regulators, last week the Senate Banking Committee held a confirmation hearing for the president's nominee to head up the Commodity Futures Trading Commission. The CFTC is responsible for overseeing the country's sprawling derivatives markets—futures and options, primarily. It's also in line to play a major role in the regulation of the cryptocurrency space. The president has nominated Brian Quintenz, who served as a commissioner at the agency during the first Trump administration and has since been working in crypto policy, to be the new chair. His confirmation hearing did not contain any big surprises, and he's expected to win confirmation from the full Senate later this summer. But the agency he is slated to head is in complete turmoil.
Like the SEC, the CFTC is supposed to have a five-member commission, with three commissioners from the majority party and two from the minority party. Last month, two of the four current commissioners resigned from the agency. The other two have announced their intentions to resign. If and when Quintenz is confirmed, it appears he will be the only commissioner, with four vacancies. What power the agency will have to act with only one commissioner seems to be an open question. The president has not announced nominees for any of the four open or soon-to-be-open seats. It's just a really strange situation, and I'll be keeping my eye on it.
There were also two notable votes on Capitol Hill I want to mention. Last week, the House narrowly voted to approve what is known as a "rescissions bill" that would claw back about $9.4 billion in funding that had been approved by Congress. Under this unusual and infrequently used process, the president sends Congress a request to roll back specific allocations of funding. Both the House and the Senate then have 45 days to vote on the request. If Congress rejects the request, or if the 45 days elapse without any action, then the president is prohibited from requesting those cuts again.
In this case, the president sent over a package that would rescind about $8.3 billion in foreign aid funding and about $1.1 billion in funding for the Corporation for Public Broadcasting, which oversees public television and National Public Radio. It's the first attempt of what could be several by the administration in the coming months to codify specific examples of spending cuts identified by the Department of Government Efficiency.
The package was approved on a razor thin vote of 214-212 in the House. It's likely to be considered by the Senate in July, and the outcome in that chamber isn't clear. But if it's successful, expect the administration to send up more requests to claw back funding for programs it doesn't like.
Finally, I have also been watching progress on two cryptocurrency-related bills, as Congress has prioritized crafting a regulatory framework for digital assets. This is one of the few issues right now that has genuine bipartisan support, as members of both parties grapple with the fact that there is no regulatory structure and few investor protections in place for cryptocurrency. Earlier this week, the Senate approved a bill that would regulate for the first time stablecoins, which are a type of cryptocurrency pegged to the dollar. And two key House committees approved legislation that would create a regulatory framework for all sorts of cryptocurrencies, not just stablecoins. Both of these bills still have a long way to go in the legislative process, but it's notable that both chambers are focusing on these issues. I'll be exploring the effort to craft some regulatory parameters for cryptocurrency in more depth on a WashingtonWise episode next month, so be sure to tune in for that.
On my Deeper Dive today, I want to focus on the One Big Beautiful Bill, the massive tax and spending legislation that forms the heart of President Trump's domestic policy agenda. The bill passed the House of Representatives by a single vote on May 22, but it was always clear that the Senate was going to make some changes. The scope and scale of those changes is critically important, because the more the Senate changes the House-passed version, the more difficult it will be to get it approved by the House once it returns to that chamber for a final vote.
Earlier this week, Senate leaders unveiled their plan. It hews pretty closely to the House bill in lots of ways, but it also makes some significant changes—changes that could derail the bill, or at least slow it down.
As a reminder, Republicans are pushing this bill forward under a process known as "budget reconciliation," a commonly used parliamentary procedure that allows for expedited consideration of budget-related legislation. The process limits time for debate, limits amendments, and, most importantly, it can be passed by a simple majority vote in both chambers. That means it cannot be filibustered in the Senate and does not require a 60-vote supermajority to pass the Senate. With narrow majorities in both the House and Senate, Republicans do not need any Democrats to support the bill—they just need to make sure virtually every Republican is on board and votes for the bill in the end.
So let's take a look at some of the key similarities and differences between the two bills—with the giant caveat that the Senate bill is very much still a work in progress that is likely to change further in the coming days.
The catalyst for this legislation has always been the fact that the 2017 tax cuts that were approved during the first year of the first Trump administration are set to expire at the end of 2025. The House bill makes those provisions permanent, most notably the lower individual income tax rates. Those rates will go up without this legislation. The Senate version also makes the expiring provisions permanent.
Both chambers also increase the standard deduction to $16,000 for individuals and $32,000 for couples beginning in 2026, and they index the deduction amount to inflation in future years.
Both bills increase the Child Tax Credit, but they differ in the amount. The House-passed bill would set the credit at $2,500, while the Senate proposal would set it at $2,200. The House credit would only be available for the next four years, while the Senate plan would make the credit permanent.
The two bills take the same approach with regard to the estate tax. Beginning in 2026, the amount of assets that can be inherited without triggering the estate tax will be increased to $15 million per person and indexed to inflation in future years.
Both bills seek to implement three promises President Trump made on the campaign trail in 2024: no taxes on tip income, no taxes on overtime hours, and making the interest on auto loans tax deductible. All three provisions would be in effect for four years, beginning this year and running through 2028. Each provision would have a cap on the total amount of the deduction and would phase out once taxpayers reach certain income thresholds. Those details are slightly different in the House bill, but the overall goal is the same in both bills.
The president also campaigned on ending the tax on Social Security benefits, but it turns out that the parliamentary rules governing the legislation prohibit changes to Social Security. Instead, the House-passed bill creates a special $4,000 deduction for seniors 65 and over, which is designed to offset the taxes seniors pay on their Social Security benefits. The Senate bill bumps that deduction up to $6,000. In both bills, the provision begins to phase out for seniors with incomes over $75,000.
One of the most contentious elements of this bill is the state and local tax deduction, which is usually referred to as the SALT deduction. In 2017, the amount of the deduction was capped at $10,000. For individuals in high-tax states, that was a big hit—prior to 2017, there was no ceiling on the deduction at all. Raising the cap has been a real line in the sand for a handful of House Republicans who represent districts in or near high-tax cities, in states like California, New Jersey, and New York. After weeks of negotiating with Republican leaders in the House, advocates agreed to an increased SALT deduction cap of $40,000 for individuals earning less than $500,000. That agreement won the votes of a handful of the most vocal members of Congress on the issue, and ultimately those votes were the difference in the bill passing the House. Supporters have repeatedly told the Senate not to alter the provision, saying that any changes would mean they could not support the bill when it comes back to the House for a final vote. But senators, at least so far, don't appear to be listening.
The Senate bill leaves the cap at $10,000, but committee documents indicate that is not a final number and that negotiations are ongoing. It does seem likely, however, that those negotiations will yield a number smaller than the $40,000 cap in the House bill. The reality is that the Senate just doesn't care much about this provision. There are no Republican senators representing the key states of California, New Jersey, or New York. This is one of the issues I'll be watching most closely as the bill moves forward, because the House and Senate are not at all on the same page. Earlier this week, one senator told reporters, "There is just no appetite at all for this number that five people in the House want." That may be true, but those five people in the House could sink the entire bill.
A few other interesting tax provisions. Both bills would eliminate the $7,500 tax credit for purchasing an electric vehicle, as well as tax credits for making energy efficient improvements to your home and a variety of other green-energy tax incentives that were passed as part of the Inflation Reduction Act in 2022. There is some tension here, as some of the green-energy tax incentives have promoted clean energy projects that have already begun—in red and blue states around the country. There are differences of opinion among lawmakers depending on how some of those incentives impact their constituents, so there could be additional changes in this area of the bill as negotiations continue.
On the charitable side of things, the Senate bill restores a deduction for charitable contributions by taxpayers who do not itemize their deductions. This echoes a popular provision that was available in 2020 and 2021 during the COVID crisis. For those two years, non-itemizers could claim a deduction of up to $300 per person for charitable contributions. The House bill restores that deduction for 2025 through 2028, setting the level at $150 for individuals and $300 for couples. But the Senate bill has a much more generous provision, allowing a deduction of up to $1,000 per person and making it permanent. The bill also raises the floor on the amount of charitable contributions an individual must make in order to be eligible for the charitable deduction when using itemized deductions.
The House version of the legislation includes increased taxes on private foundations. It replaces the current 1.39% tax on net investment income by private foundations with a tiered system that has four levels of taxation, depending on the amount of assets in the foundation. The top rate, for the largest foundations, would be 10%. Interestingly, however, there is no provision at all on private foundations in the Senate proposal. The Senate version would just leave the rate as it is today.
The two chambers also take different approaches to a new tax on college and university endowments. The House bill would increase the current 1.4% tax on net investment income for university endowments, creating four tax tiers depending on the size of the endowment. The top rate would be 21%. The Senate also has four tiers, but the top rate is just 8%.
I've focused mostly on individual tax provisions because that's the bulk of the bill, but the Senate legislation would also make permanent several business tax breaks that the corporate world will be thrilled about, including a tax credit for domestic research and development and one for capital investments in new machinery and equipment.
With regard to spending cuts, the most controversial elements of the legislation are cuts to Medicaid and SNAP, the food stamps program. The challenge has been that some lawmakers want larger cuts and others want smaller cuts to these programs. House leaders managed to thread the needle, planning for significant cuts that elicited considerable grumbling but eventually attracted enough votes to pass the bill. The Senate proposal includes even more Medicaid cuts, which is already generating internal pushback. This is an area where it seems Republicans still have some work to do to find the right balance.
More broadly, there remain significant divisions within the Republican party about the bill's impact on the federal budget deficit and the national debt. The non-partisan Congressional Budget Office said recently that it estimates that the House-passed bill will add $2.4 trillion to the national debt. For deficit hawks on Capitol Hill, who saw this bill as a huge opportunity to slash spending and ease the country's fiscal problems, that's just not cutting it. But moderates in the party already think some of the cuts in the bill are too draconian. It's a bit of a tug-of-war within the party, as every change in one part of the bill has implications for another part of the bill.
Finally, there is one other really important element in both bills—an increase in the debt ceiling. According to Treasury Secretary Bessent, the United States will hit the so-called "X date," the date on which the country will run out of cash to pay its bills and default for the first time in history, as soon as mid-August. With Congress traditionally in recess for the month of August, lawmakers will need to agree to a debt ceiling increase by the time they depart Washington at the end of July. The House bill includes a $4 trillion increase in the debt ceiling, while the Senate plan calls for a $5 trillion increase. Either way, that should be enough to ensure the debt ceiling is off the table until early 2027—or, importantly, after the 2026 midterm elections. Not everyone is happy about this—Senator Rand Paul of Kentucky is expected to oppose the bill because of the debt ceiling increase. With a 53-47 margin in the Senate and Paul likely to oppose the bill, Republicans can only afford to lose two more votes and still be able to pass the massive package.
So that's a summary of what I think are the most important elements of this legislation. The question now is what happens from here.
Three big thoughts:
First, the goal of Senate leaders is to hold the debate and votes on the bill during the week of June 23. If the Senate were to pass the bill late that week, it could go back to the House for a final vote right before July Fourth—remember that both chambers must pass the exact same legislation in order to send it to the president for his signature. But the July Fourth deadline is a self-imposed one, and given the complex negotiations that are still going on, it's looking increasingly likely that the bill won't reach the finish line until after the July Fourth holiday break. As I noted with the debt ceiling situation, the end of July is the real deadline.
Over the next week or so, the Senate version of the bill is going to continue to see revisions. Republican leaders will tweak a provision here and a provision there to meet the demands of individual senators, whatever it takes to get at least 50 Republicans to vote for it. That's the minimum needed to pass the legislation, since the vice president would cast the deciding vote if the Senate is deadlocked at 50-50.
While there will undoubtedly be a few twists and turns between now and the final vote, I think the Senate gets it done.
Second, I believe the House will ultimately agree to whatever the Senate passes. There will be lots of complaining and threats to vote against the bill by House members. But President Trump wants the bill to pass. And ultimately, I don't think there are many Republicans in the House who will vote against the president's wishes. As with the Senate, it will be all about getting to the minimum number of "yes" votes to get the bill across the finish line. In the House, that number is 217. There are 220 Republicans in the House, so there's not much wiggle room.
And third, the market reaction to this bill will be fascinating to watch. Generally speaking, equity markets like clarity and like tax cuts. This bill offers both—it will provide clarity on the tax landscape for years to come. Businesses will be able to better plan their investments from a tax perspective, though the changing tariff landscape will continue to make long-term planning challenging for many companies.
But markets are also growing increasingly concerned about the country's overall fiscal picture—especially the bond market. The bond market sent a strong message about its concern with tariffs back in April, and that volatility was a key factor in the president's decision to put in place a 90-day pause on the reciprocal tariffs. And the bond market is sending signals that it is increasingly worried that the U.S. debt trajectory is unsustainable. The One Big Beautiful Bill Act would further increase the budget deficit and add to the debt, raising the cost of government borrowing and likely driving bond yields higher.
There is also a provision in the bill known as Section 899 that has Wall Street concerned because it would increase taxes on foreign investors from countries with discriminatory tax regimes against the United States. The worry is that this could make the U.S. a less attractive place to invest, at a time when tariffs and other U.S. policies are already acting as a disincentive for foreign investors to continue to purchase our debt. Bond yields have been rising as investors demand more for what they see as a higher-risk investment.
In other words, what the One Big Beautiful Bill offers in clarity and certainty may be offset by concern over its implications for the longer-term fiscal health of the United States. And that's a puzzle that investors will have to sort out in the coming months. It's something I'll be talking about with our market experts at Schwab here on the podcast once this bill is finalized.
That's all for this week's episode of WashingtonWise. We're going to take a break for our usual cadence because of the July Fourth holiday, so we will be back with our next episode on July 17.
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For important disclosures, see the show notes or schwab.com/WashingtonWise, where you can also find a transcript.
