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Dissecting the OBBBA: A front-loaded fiscal boost

November 12, 2025 | 7 min read

Christian Floro, CFA, CMT

Market Strategist

Key takeaways

Short-term stimulus: The One Big Beautiful Bill delivers front-loaded fiscal support by introducing new household tax breaks and business investment incentives. It is expected to boost GDP by 0.2–0.4 percentage points annually through 2027.
Household impact: The average household in 2026 is expected to see a meaningful increase in average cash tax refunds of approximately $700, lifting the typical refund to around $3,800 per filer. Benefits are skewed toward middle- and high-income earners while lower-income households face limited gains.
Business incentives: Generous tax deductions could reduce the effective corporate tax rate from its current 21% to potentially as low as 15% by 2026. There is potential for substantial second-round investment effects that can boost growth, contingent on monetary policy and trade stability. Larger companies and those with significant capital expenditures (capex) and research and development (R&D) needs, including communication services, industrials, and energy, are expected to benefit the most.
Investment implications: The near-term policy environment is constructive for risk assets. Long-term risks, including the expiration of temporary cuts and potential crowding out of private investment, could weigh on growth and market sentiment beyond 2027.

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, includes several tax cuts and fiscal spending provisions that are poised to generate benefits to both households and businesses. The modest near-term fiscal impulse created by the bill is likely to help offset against ever-evolving tariff headwinds and contribute to a more optimistic U.S. growth outlook.

Summary of the legislation

One of the most significant provisions in the OBBBA is the permanent extension of the 2017 Tax Cuts and Jobs Act (TCJA), originally enacted during President Trump’s first term. The move makes household tax cuts indefinite, avoiding the fiscal cliff the U.S. economy would have faced if these measures had expired at the end of 2025.

Beyond maintaining existing tax relief, the bill introduces additional short-term tax reductions designed to support middle-income households. These include new deductions for tips and overtime pay, as well as a higher cap on state and local tax (SALT) deductions.

Businesses also stand to benefit. The legislation preserves the 21% corporate tax rate and expands incentives for capital investment, research and development, and interest deductibility, thereby reducing the effective corporate tax rate. Together, these measures are designed to stimulate business spending and maintain U.S. competitiveness.

On the spending side, the bill increases funding for border security, defense, and agricultural programs. However, these gains are more than offset by cuts to several social programs, particularly healthcare, student loan repayment assistance, and food aid, making the overall fiscal balance contractionary despite the headline tax relief.

Aggregate macroeconomic impact

According to projections from the non-partisan Congressional Budget Office (CBO), which provides the official budgetary estimates of any bill’s impact, the OBBBA would increase the federal budget deficit by $3.4 trillion over the next decade, with nearly all that cost stemming from the permanent extension of the 2017 tax cuts (estimated at $3.7 trillion). After accounting for new offsets elsewhere in the legislation, the CBO projects that the bill will ultimately reduce the deficit by approximately $400 billion over the same period, suggesting that the new tax cut and spending measures are more than offset by accompanying cuts.

The fiscal path is not evenly distributed, however. The bill’s new tax cuts, some of which are temporary, eventually give way to delayed spending cuts in the latter half of the 10-year window.

These dynamics, where tax cuts are front-loaded, result in a near-term stimulative effect that boosts GDP growth by around 0.2 to 0.4 percentage points per year from 2025 to 2027, according to estimates from Yale and Brookings. However, in the long run, as spending cuts take effect and the ballooning fiscal deficit crowds out private investment, the impact on GDP becomes increasingly negative.

Impact on households

The bill is likely to provide a near-term tailwind for consumers, with households set to receive a meaningful one-time cash boost through an elevated tax refund. We estimate that the average tax refunds per filer will rise by nearly $700 in 2026, lifting the typical refund to around $3,800, owing to the retroactive nature of these new tax cuts. Although temporary, this windfall should help support consumer spending in the first half of the year.

However, these benefits are not distributed evenly. Middle- and higher-income households are expected to gain the most, with these cohorts potentially seeing their average tax refunds increase by about $1,000 in 2026. In contrast, lower-income households—who already pay little or no federal income taxes—will see only modest gains of less than $100 in additional tax refunds on average. They are also more likely to feel the impact of the OBBBA’s accompanying spending cuts when they come into effect.

This dynamic is especially relevant given that lower-income consumers typically have higher marginal propensities to consume, meaning they spend a larger share of any additional income. These households are likely to be the most affected by reductions in social safety net programs, such as healthcare, student loan support, and food assistance, all areas that tend to carry higher fiscal multipliers than tax cuts. As a result, the skew of benefits to middle- and higher-income households will dampen the overall boost to consumption.

Looking further ahead, as spending cuts materialize in 2027 and some temporary tax cuts begin to expire in 2029, the expected impact on the consumer is likely to skew more negatively, creating modest headwinds beyond 2026.

Impact on businesses

The bill’s stimulative impact on businesses is concentrated in a set of tax incentives aimed at encouraging capex and R&D activities. These measures are front-loaded and have the potential to produce substantial multiplier effects on growth, especially in the near term.

According to estimates from the CBO, the incentives total roughly $600 billion over ten years, with most of the benefit realized by 2027. The effect of this reduced tax liability acts to effectively temporarily reduce the average corporate tax rate.

Moreover, considering the retroactive nature of the provisions, the effective corporate tax rate over the two years would fall from around 21% to roughly 15%, providing a substantial, albeit temporary, boost to corporate cash flow and potentially reinforcing investment momentum in the short run.

The benefits of these incentives are expected to accrue primarily to larger firms, with estimates suggesting the tax cuts could lift S&P 500 free cash flow by about 9%, or roughly $148 billion in total. The boost is likely to be short-lived, concentrated between late 2025 and mid-2026, and most pronounced in capex- and R&D-intensive sectors such as communication services, consumer discretionary, industrials, and energy—industries with the scale and investment capacity to fully capture the tax advantages.

What’s more, the second-round effects of these tax cuts can be equally significant if they lead to increased capex activity. Increased capex activity alone has the potential to add between 0.6% and 1.1% to GDP in 2026 (on top of the 0.2-0.4% GDP boost already expected from first round effects). The overall boost could be even greater if monetary policy remains accommodative during the period, amplifying the effects through easier financial conditions.

Investment Implications

While the OBBBA is likely to weigh on growth over the longer term as temporary tax cuts expire and spending reductions take hold, the near-term outlook is decidedly positive. Most of the bill’s stimulative elements are front-loaded, which will provide an immediate boost to household incomes and corporate cash flows before fiscal conditions likely tighten later in the decade.

For households, higher tax refunds should deliver a welcome boost to disposable incomes, particularly among middle- and higher-income earners, and help reinforce already healthy balance sheets. This added income should provide a lift to consumer spending and create a favorable backdrop for discretionary spending in the year ahead.

For businesses, the tax incentives could prove even more impactful. A near-term surge in free cash flow and the potential for increased capital spending create meaningful upside risks to growth, especially if the Federal Reserve maintains an accommodative stance. Large-cap firms in capital- and R&D-intensive industries such as communication services, industrials, and energy, stand to benefit most.

Taken together, the OBBBA suggests a mildly expansionary policy environment through 2026—one that could cushion the economy against other policy uncertainties and sustain a constructive backdrop for risk assets. And while the bill only provides a temporary direct boost to the economy, the potential for increased capex suggests that the bill could extend the economic benefits well beyond the initial fiscal impulse.

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