July 2025 Economic And Investment Update

 

Changes in government leadership often bring shifts in economic policy, some expected and others less so. Many anticipated the current administration would introduce a new tariff strategy focused on China and related trade dynamics. Similarly, the recently passed Tax and Economic Package carries notable economic implications.

Let’s review both positive and negative economic impacts.

The Positives

Extension of 2017 Tax Provisions: The legislation prevents the expiration of tax measures from 2017, which would have resulted in higher taxes for many taxpayers starting next year. Avoiding such a tax increase is expected to reduce the likelihood of a near-term recession by maintaining current levels of consumer and business spending.

Targeted Income Tax Reductions

The legislation introduces several tax changes with direct economic effects:

• Seniors receive an additional $6,000 standard deduction, reducing taxable income and increasing after-tax income for many.
• Workers earning tips and overtime can exclude up to $25,000 in eligible income (for joint filers) from taxation, subject to income phase-outs.
• The child tax credit is expanded and partially refundable, increasing disposable income for families with children.
• The SALT (State and Local Tax) deduction cap increases from $10,000 to $40,000, potentially reducing tax liabilities for taxpayers in high-tax states.
• Small business owners can continue to deduct up to 20% of qualifying business income, maintaining relative tax parity with corporations.
• Accelerated depreciation allowances for business capital expenditures are expanded and applied retroactively.
• Additional incentives are provided for manufacturing and industrial investments.

These measures are designed to increase disposable income, stimulate investment, and potentially broaden the tax base through higher overall earnings.

The Negatives

Federal Debt Expansion: The legislation is expected to significantly increase the national debt. While this may not cause immediate disruptions, it raises concerns about future fiscal flexibility and potential long-term borrowing costs.

Changes to Social Programs: The bill includes reductions in funding for certain healthcare and social assistance programs. While these changes may not have immediate macroeconomic effects due to the relatively small share of spending affected, there are longer-term considerations, including potential downstream impacts on household financial security and local economies.

Energy Incentive Rollbacks: The elimination of some clean energy subsidies could affect the pace of renewable energy development. Given current energy demands—particularly from technology sectors such as AI and data centers—reduced investment in renewable sources may influence future energy costs and infrastructure needs.

Short-Term Outlook

From an economic perspective, the overall near-term impact is expected to be neutral to moderately positive. Business earnings are likely to remain stable or improve, supporting corporate investment and stock valuations. Taxpayers may experience increased refunds during the next tax filing season, potentially boosting consumer spending 1st half of 2026.These short-term effects align with common patterns observed around fiscal policies designed to support economic activity during election cycles.

Conclusion

This legislation presents a range of economic trade-offs. In the short run, it provides tax relief and incentives that may boost consumption, investment, and employment. However, it also highlights questions regarding long-term debt sustainability, social program funding, and energy policy—factors that could have broader economic implications over time.

And quite frankly it highlights that neither political party seems serious about our debt/deficit – which is a concern we will have to continue to monitor.