Top of main content

Special Coverage: Big Beautiful bill: more fiscal policy clarity, but still awaiting results from tariff agreements

4 July 2025

Jose Rasco

Chief Investment Officer, Americas, HSBC Private Bank and Premier Wealth

Michael Zervos

Investment Strategy Analyst, HSBC Private Bank and Premier Wealth

Key takeaways

  • On 3 July 2025, the US Congress passed the landmark One Big Beautiful Bill Act (H.R.1), a sweeping package that brings significant tax changes, new border security funding, major spending cuts, and broad policy shifts across Energy, Healthcare and more. This historic legislation reflects the current administration’s policy priorities and is already reshaping expectations for households, businesses and markets.
  • While the bill increases the deficit and could cause some bond market nervousness, we think bond valutions adequately compensate for this risk. The rising deficit could also weigh on the USD but this should be limited if the tax cuts help economic growth.
  • We maintain our overweight US equity positioning. This is mostly because earnings remain strong even as economic growth slows somewhat. However, the US government’s policy shifts remain a source of volatility as trade negotiations are ongoing. Tariffs are the first leg of President Trump's "three-legged" policy agenda. The second leg, which has now been concluded, includes extending the debt ceiling, cutting personal and corporate taxes, and providing fiscal stimulus. The third leg focuses on deregulation, targeting the Financial, Healthcare, Technology and Energy sectors, which could be another positive for stocks. Regardless, implementation risks remain, so we continue to focus on building resilient portfolios through diversification and a focus on quality assets.

What happened?

The One Big Beautiful Bill Act is a sweeping budget reconciliation package encompassing tax cuts, border security funding, spending reductions, and various policy changes. It was narrowly approved by the Senate on 1 July 2025, in a 51-50 vote (with Vice President J.D. Vance casting the tie-breaker). The House of Representatives concurred on 3 July 2025, by a 218-214 vote to adopt the Senate’s amended version. The legislation now is on its way to President Trump’s desk and is expected to be signed on 4th of July. 

Below is a comprehensive overview of the bill’s key provisions:

  • Permanent 21% corporate tax rate: The bill would ensure the 21% corporate tax rate, established in the 2017 tax cuts, remains in place, preventing a return to the previous 35% rate.
  • Individual tax cuts: New targeted tax benefits include eliminating federal taxes on tips and overtime pay (a temporary relief for workers), and a deduction of USD6,000 for seniors over 65 with income up to USD75,000 (phased out above that). The Child Tax Credit is increased from USD2,000 to USD2,200 per child, though the increase is not fully refundable for lower incomes.
  • State and Local Tax (SALT) deduction: The cap on SALT deductions is raised four-fold to USD40,000 for joint filers (under USD500,000 income) for five years. After 2030, the cap would revert to USD10,000 in absence of further legislation. This provides temporary relief to high-tax state filers.
  • Other tax measures: The bill allows a deduction for automotive loan interest, expands a tax credit for metallurgical coal, and repeals the USD200 federal excise tax on firearm silencers. It also creates a tiered excise tax on large private university endowments, above certain per-student thresholds. Additionally, it imposes an excise tax on foreign purchases of US farmland (to deter Chinese land acquisitions).
  • Potential impact on effective tax rates: While the corporate tax rate would remain at 21%, the bill's provisions could lead to lower effective tax rates for some businesses due to expanded deductions and tax breaks.
  • Business investment incentives: It restores 100% bonus depreciation for business property and allows immediate expensing of R&D costs. These changes, aim to spur capital investment and innovation.
  • Changes to FDII and GILTI: The bill would also make permanent the deductions for Foreign-Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (GILTI), potentially lowering the effective tax rates on these types of income.
  • Provisions for manufacturers: The bill includes provisions that would allow businesses to fully and immediately deduct the cost of building new manufacturing facilities.
Source: Trading Economics, HSBC Private Bank and Premier Wealth as at 3 July 2025.

On the flip side, the bill tightens work requirements for Medicaid and Supplemental Nutrition Assistance Program (SNAP), which could mean millions can lose access to health or food benefits in the years ahead. The law also raises the federal debt ceiling by USD5 trillion, adding to long-term debt concerns.

Investment implications

For fixed income investors, given higher than anticipated deficits, long-term yields could rebound, pressuring bond prices and elevating borrowing costs. If demand falters, we can expect higher rates, which could impact mortgage, corporate, and consumer loans, potentially cooling broader markets. This pressure is offset by rising expectations of Fed rate cuts and inflation for now being more benign than investors feared. As a result of the tug-of-war between those factors, fixed income volatility may continue. That said, the real yield and the term premium remain relatively elevated, so there is value in high quality fixed income.

While any rise in yields may temporarily buoy the dollar, growing deficits and twin deficits (fiscal + current account) could be potential headwinds, but most of the USD weakness is probably priced in. The removal of section 899 from the bill will also ease some investors’ reservations to hold USD assets.

For US equity investors, there’s near-term support for Technology, Defense, Industrials and Energy, thanks to tax relief and boosted spending. Rollbacks on green energy credits dampen the investment outlook for renewables. Cyclical and value stocks could benefit, as well as the secular themes of the technology revolution, the re-industrialisation of the US, and the near/onshoring of jobs in the US.

The Big Beautiful Bill delivers near-term boosts, especially in cyclical sectors and some more investment certainty for corporates (trade uncertainty remains an obstacle). However, the bill also potentially magnifies long-term fiscal and inflation pressures, stickier long-term yields, and a weaker dollar.

We maintain our overweight US equity positioning. This is mostly because earnings remain strong even as economic growth slows somewhat. However, the US government’s policy shifts remain a source of volatility as trade negotiations are ongoing. Tariffs are the first leg of President Trump's "three-legged" policy agenda. The second leg, which has now been concluded, includes extending the debt ceiling, cutting personal and corporate taxes, and providing fiscal stimulus. The third leg focuses on deregulation, targeting the Financial, Healthcare, Technology and Energy sectors, which could be another positive for stocks.

Regardless, implementation risks remain, so we continue to focus on building resilient portfolios through diversification and a focus on quality assets.  

Related Insights

The geopolitical conflict in the Middle East has caused oil prices to spike, while gold...[1 Jul]
The Federal Reserve left interest rates unchanged at 4.25%–4.50%, marking the fourth...[19 Jun]
The past few months have given investors plenty to ponder, with US trade tariffs causing...[22 May]

Disclaimer

This document or video is prepared by The Hongkong and Shanghai Banking Corporation Limited (‘HBAP’), 1 Queen’s Road Central, Hong Kong. HBAP is incorporated in Hong Kong and is part of the HSBC Group. This document or video is distributed and/or made available, HSBC Bank (China) Company Limited, HSBC Bank (Singapore) Limited, HSBC Bank Middle East Limited (UAE), HSBC UK Bank Plc, HSBC Bank Malaysia Berhad (198401015221  (127776-V))/HSBC Amanah Malaysia Berhad (20080100642 1 (807705-X)), HSBC Bank (Taiwan) Limited, HSBC Bank plc, Jersey Branch, HSBC Bank plc, Guernsey Branch, HSBC Bank plc in the Isle of Man, HSBC Continental Europe, Greece, The Hongkong and Shanghai Banking Corporation Limited, India (HSBC India), HSBC Bank (Vietnam) Limited, PT Bank HSBC Indonesia (HBID), HSBC Bank (Uruguay) S.A. (HSBC Uruguay is authorised and oversought by Banco Central del Uruguay), HBAP Sri Lanka Branch, The Hongkong and Shanghai Banking Corporation Limited – Philippine Branch, HSBC Investment and Insurance Brokerage, Philippines Inc, and HSBC FinTech Services (Shanghai) Company Limited and HSBC Mexico, S.A. Multiple Banking Institution HSBC Financial Group (collectively, the “Distributors”) to their respective clients. This document or video is for general circulation and information purposes only.

The contents of this document or video may not be reproduced or further distributed to any person or entity, whether in whole or in part, for any purpose. This document or video must not be distributed in any jurisdiction where its distribution is unlawful. All non-authorised reproduction or use of this document or video will be the responsibility of the user and may lead to legal proceedings. The material contained in this document or video is for general information purposes only and does not constitute investment research or advice or a recommendation to buy or sell investments. Some of the statements contained in this document or video may be considered forward looking statements which provide current expectations or forecasts of future events. Such forward looking statements are not guarantees of future performance or events and involve risks and uncertainties. Actual results may differ materially from those described in such forward-looking statements as a result of various factors. HBAP and the Distributors do not undertake any obligation to update the forward-looking statements contained herein, or to update the reasons why actual results could differ from those projected in the forward-looking statements. This document or video has no contractual value and is not by any means intended as a solicitation, nor a recommendation for the purchase or sale of any financial instrument in any jurisdiction in which such an offer is not lawful. The views and opinions expressed are based on the HSBC Global Investment Committee at the time of preparation and are subject to change at any time. These views may not necessarily indicate HSBC Asset Management‘s current portfolios’ composition. Individual portfolios managed by HSBC Asset Management primarily reflect individual clients’ objectives, risk preferences, time horizon, and market liquidity.

The value of investments and the income from them can go down as well as up and investors may not get back the amount originally invested. Past performance contained in this document or video is not a reliable indicator of future performance whilst any forecasts, projections and simulations contained herein should not be relied upon as an indication of future results. Where overseas investments are held the rate of currency exchange may cause the value of such investments to go down as well as up. Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in some established markets. Economies in emerging markets generally are heavily dependent upon international trade and, accordingly, have been and may continue to be affected adversely by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These economies also have been and may continue to be affected adversely by economic conditions in the countries in which they trade. Investments are subject to market risks, read all investment related documents carefully.

This document or video provides a high-level overview of the recent economic environment and has been prepared for information purposes only. The views presented are those of HBAP and are based on HBAP’s global views and may not necessarily align with the Distributors’ local views. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination. It is not intended to provide and should not be relied on for accounting, legal or tax advice. Before you make any investment decision, you may wish to consult an independent financial adviser. In the event that you choose not to seek advice from a financial adviser, you should carefully consider whether the investment product is suitable for you. You are advised to obtain appropriate professional advice where necessary.

The accuracy and/or completeness of any third-party information obtained from sources which we believe to be reliable might have not been independently verified, hence Customer must seek from several sources prior to making investment decision. 

The following statement is only applicable to HSBC Mexico, S.A. Multiple Banking Institution HSBC Financial Group with regard to how the publication is distributed to its customers: This publication is distributed by Wealth Insights of HSBC México, and its objective is for informational purposes only and should not be interpreted as an offer or invitation to buy or sell any security related to financial instruments, investments or other financial product. This communication is not intended to contain an exhaustive description of the considerations that may be important in making a decision to make any change and/or modification to any product, and what is contained or reflected in this report does not constitute, and is not intended to constitute, nor should it be construed as advice, investment advice or a recommendation, offer or solicitation to buy or sell any service, product, security, merchandise, currency or any other asset.

Receiving parties should not consider this document as a substitute for their own judgment. The past performance of the securities or financial instruments mentioned herein is not necessarily indicative of future results. All information, as well as prices indicated, are subject to change without prior notice; Wealth Insights of HSBC Mexico is not obliged to update or keep it current or to give any notification in the event that the information presented here undergoes any update or change. The securities and investment products described herein may not be suitable for sale in all jurisdictions or may not be suitable for some categories of investors.

The information contained in this communication is derived from a variety of sources deemed reliable; however, its accuracy or completeness cannot be guaranteed. HSBC México will not be responsible for any loss or damage of any kind that may arise from transmission errors, inaccuracies, omissions, changes in market factors or conditions, or any other circumstance beyond the control of HSBC. Different HSBC legal entities may carry out distribution of Wealth Insights internationally in accordance with local regulatory requirements.

Important Information about the Hongkong and Shanghai Banking Corporation Limited, India (“HSBC India”): HSBC India is a branch of The Hongkong and Shanghai Banking Corporation Limited. HSBC India does not distribute or refer investment products to those persons who are either the citizens or residents of United States of America (USA), Canada or any other jurisdiction where such distribution or referral would be contrary to law or regulation.

HSBC India is an AMFI-registered Mutual Fund Distributor of select mutual funds and a referrer of other 3rd party investment products. HSBC India will receive commission from HSBC Asset Management (India) Private Limited, in its capacity as a AMFI registered mutual fund distributor of HSBC Mutual Fund. The Sponsor of HSBC Mutual Fund is HSBC Securities and Capital Markets (India) Private Limited (HSCI), a member of the HSBC Group. Please note that HSBC India and the Sponsor being part of the HSBC Group, may give rise to real, perceived, or potential conflicts of interest. HSBC India has a policy in place to identify, prevent and manage such conflict of interest. For more information related to investments in the securities market, please visit the SEBI Investor Website: https://investor.sebi.gov.in/ and the SEBI Saa₹thi Mobile App. Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Issued by The Hongkong and Shanghai Banking Corporation Limited India. Incorporated in Hong Kong SAR with limited liability. HSBC Bank ARN - 0022 with validity from 19-Feb-2024 to 18-Feb-2027. Date of initial registration: 19-Feb-2002.

The following statement is only applicable to HSBC Bank (Taiwan) Limited with regard to how the publication is distributed to its customers: HSBC Bank (Taiwan) Limited (“the Bank”) shall fulfill the fiduciary duty act as a reasonable person once in exercising offering/conducting ordinary care in offering trust services/ business. However, the Bank disclaims any guarantee on the management or operation performance of the trust business.

The following statement is only applicable to PT Bank HSBC Indonesia (“HBID”): HBID is licensed and supervised by Indonesia Financial Services Authority (“OJK”). Investment products that are offered in HBID are third party products, HBID is a selling agent for third party products such as Mutual Funds and Bonds. HBID and HSBC Group (HSBC Holdings Plc and its subsidiaries and associates company or any of its branches) do not guarantee the underlying investment, principal or return on customer’s investment. You must read and understand the investment policy of each investment product to see if a product contains ESG and sustainability elements and is classified as an ESG and sustainable investment. Investment in Mutual Funds and Bonds are not covered by the deposit insurance program of the Indonesian Deposit Insurance Corporation (“LPS”).

Important information on ESG and sustainable investing

Today we finance a number of industries that significantly contribute to greenhouse gas emissions. We have a strategy to help our customers to reduce their emissions and to reduce our own. For more information visit www.hsbc.com/sustainability.

In broad terms “ESG and sustainable investing” products include investment approaches or instruments which consider environmental, social, governance and/or other sustainability factors to varying degrees. Certain instruments we classify as sustainable may be in the process of changing to deliver sustainability outcomes. There is no guarantee that ESG and Sustainable investing products will produce returns similar to those which don’t consider these factors. ESG and Sustainable investing products may diverge from traditional market benchmarks. In addition, there is no standard definition of, or measurement criteria for, ESG and Sustainable investing or the impact of ESG and Sustainable investing products. ESG and Sustainable investing and related impact measurement criteria are (a) highly subjective and (b) may vary significantly across and within sectors.

HSBC may rely on measurement criteria devised and reported by third party providers or issuers. HSBC does not always conduct its own specific due diligence in relation to measurement criteria. There is no guarantee: (a) that the nature of the ESG / sustainability impact or measurement criteria of an investment will be aligned with any particular investor’s sustainability goals; or (b) that the stated level or target level of ESG / sustainability impact will be achieved. ESG and Sustainable investing is an evolving area and new regulations are being developed which will affect how investments can be categorised or labelled. An investment which is considered to fulfil sustainable criteria today may not meet those criteria at some point in the future.

THE CONTENTS OF THIS DOCUMENT OR VIDEO HAVE NOT BEEN REVIEWED BY ANY REGULATORY AUTHORITY IN HONG KONG OR ANY OTHER JURISDICTION. YOU ARE ADVISED TO EXERCISE CAUTION IN RELATION TO THE INVESTMENT AND THIS DOCUMENT OR VIDEO. IF YOU ARE IN DOUBT ABOUT ANY OF THE CONTENTS OF THIS DOCUMENT OR VIDEO, YOU SHOULD OBTAIN INDEPENDENT PROFESSIONAL ADVICE.

© Copyright 2025. The Hongkong and Shanghai Banking Corporation Limited, ALL RIGHTS RESERVED.

No part of this document or video may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of The Hongkong and Shanghai Banking Corporation Limited.