The “One Big Beautiful Bill Act” (OBBBA), passed by the U.S. Congress in 2025, is widely seen as the hallmark legislation of Donald Trump’s second term. This sweeping bill merges tax reform, national defense, border security, social welfare adjustments, and energy policy into a single legislative package, representing an unprecedented level of policy integration. It not only continues the spirit of the 2017 Tax Cuts and Jobs Act (TCJA) but also restructures fiscal spending and social programs—making a profound impact on the U.S. economy, public finances, and income distribution.

Legislative Timeline

Background

Political Context

With Republican control of both chambers of Congress, Trump’s administration fast-tracked the bill using the budget reconciliation process—a legislative mechanism that allows budget-related bills to bypass Senate filibusters with a simple majority (51 votes).

Trump aimed to fulfill key campaign promises through this legislation, including major tax cuts, welfare reductions, and support for fossil fuels. This move reflects his long-standing opposition to global climate pacts and renewable energy policies typically favored by Democrats, and serves to reinforce support from his core voter base.

Fiscal Rationale

From a fiscal perspective, the Trump administration was motivated to lock in the tax cuts enacted in 2017 and avoid future rate hikes. The bill reallocates federal funds away from green energy and welfare programs toward defense and border security. To support these priorities and prevent a near-term debt crisis, the administration also raised the debt ceiling significantly.

Key Provisions (Final Version)

1. Tax Reform: Extension and Expansion of TCJA Policies

Corporate Tax

• Keeps the corporate tax rate at 21% permanently, avoiding a reversion to 35%
• Restores full expensing for domestic R&D costs, with accelerated deductions for 2022–2024 expenditures
• Boosts tax credits for semiconductor manufacturers that break ground before 2026—from 25% to 35% (originally 30% in the House version)
• Small business incentives:
  • Raises eligibility threshold (from $50M to $75M in total assets), and increases tax exemption cap (from $10M to $15M)
  • Allows retroactive R&D expensing for businesses with revenue under $31M
  • Expands the Qualified Business Income (QBI) deduction from 20% to 23%, and makes it permanent
  • Increases Section 179 expensing cap from $1.25M to $2.5M, enabling full deduction of equipment purchases in the first year; the phase-out threshold rises to $4M and will adjust for inflation

Individual Tax

• Raises the SALT (state and local tax) deduction cap from $10,000 to $40,000 (for those earning under $500,000), with a 1% annual increase for five years—mainly benefiting high-tax states such as California and New York
• Extends Social Security tax breaks, offering a $6,000 deduction for seniors earning under $75,000
• Allows income under $150,000 to deduct tips and overtime wages between 2025–2028 (up to $12,500)
• Permanently increases the estate tax exemption to $15M per estate
• Increases child tax credit to $2,200 per child, inflation-adjusted from next year
• Establishes “Trump Accounts” with a one-time $1,000 deposit for children born between 2025–2028, for education, training, or first-time home purchases
• Cuts tax on remittances by non-residents from 5% to 3.5%, encouraging capital repatriation

2. Expanded Defense and Border Security Funding

• Adds $150B in defense spending, including $25B for developing the “Iron Dome” missile defense system; also allocates funds for cyberwarfare, naval and air force upgrades
• Strengthens border security:
  • $45B for ICE, including new detention facilities; $14B for deportation enforcement
  • $46.5B for facility upgrades and surveillance tech, possibly extending the U.S.-Mexico border wall
  • $30B to hire 10,000 immigration officers by 2029
  • Sets an annual deportation cap of 1 million individuals

3. Welfare Reductions

• Cuts nearly $700B from Medicaid
  • Imposes work/volunteer requirements (80 hours/month) for recipients
  • Increases eligibility audits from annually to biannually
  • Gradually reduces provider tax rates from 6% to 3.5% by 2032
  • Includes a $50B Rural Hospital Stabilization Fund
• From 2028, states with SNAP overpayment rates above 6% must cover 5%–15% of the cost (currently federally funded)
  • Adds work requirements for food assistance; projected to remove 3.2 million recipients from SNAP over 10 years

4. Energy and Environmental Policy Shift

• Repeals clean energy subsidies from the Inflation Reduction Act (IRA):
  • Eliminates the $7,500 EV tax credit after Sept. 30
  • Gradually phases out tax credits for wind, solar, bioenergy, and EVs
    • 100% credit for projects started in 2025
    • 60% in 2026, 20% in 2027, fully eliminated by 2028
• Reopens public lands for fossil fuel drilling and loosens federal/state environmental review standards

5. Other Measures

• Raises the debt ceiling by $5 trillion
• Imposes taxes (up to 8%) on investment income from universities with large endowments, unless they disclose fund usage
• Bans federal scholarships and grants for citizens of “hostile nations” (e.g., China, Iran), unless cleared through security review

Fiscal Impacts by Category

Impact Analysis

According to the Congressional Budget Office (CBO), the bill is expected to boost U.S. real GDP by an average of 0.5% over the next decade, with the most significant effect in 2026 (0.9% growth).

However, this impact is likely to fade after 2026. The tax benefits mainly favor middle- and upper-income households, while the welfare cuts will disproportionately affect low-income groups—potentially intensifying social inequality and political polarization.

Industry Impacts

Industries Likely to Benefit

Industries Likely to Be Hurt

Summary

The One Big Beautiful Bill Act represents an ambitious and sweeping policy package that touches nearly every major area of U.S. domestic policy. Its main components include:

1. Tax reform to extend and expand TCJA benefits
2. Increased defense and border security funding
3. Major cuts to social welfare programs
4. A sharp policy shift favoring fossil fuels over renewable energy
5. Debt ceiling hikes and other structural measures

This legislation is likely to reshape America’s economic landscape, fiscal trajectory, and social contract in the years to come.