Policy Outlook & Market Implications: Tax Reform, Fiscal Trends, and What It Means for Investors

At FMD Wealth Advisors, we believe it’s essential to monitor fiscal and legislative developments—not to make reactive decisions, but to assess how policy changes might shape long-term investment, tax, and estate planning strategies.

The Big Picture: Policy in Motion

Federal tax reform is once again in focus. Lawmakers are advancing a broad package that could introduce $3–4 trillion in new spending and tax changes over the next decade—most of it unfunded. While final provisions are still evolving, this legislation would:

  • Extend key tax breaks from the 2017 Tax Cuts and Jobs Act (TCJA), including enhanced deductions for families, retirees, and small business owners.

  • Increase incentives for domestic production and R&D by expanding capital expenditure and pass-through deductions.

  • Raise the deduction cap for state and local taxes (SALT), a priority for taxpayers in high-cost areas.

  • Fund new spending in defense and border enforcement, while phasing out many renewable energy and electric vehicle tax credits.

Despite uncertainty about the final bill, Congressional estimates currently peg the 10-year cost at $3.4 to $3.8 trillion, with most deficit expansion occurring in the next two to three years.¹


What Are the Odds of Passage?

  • The House of Representatives may vote on the bill in the coming weeks. However, internal disagreements over SALT limits, Medicaid spending, and energy tax credits could delay progress.

  • Even if passed by the House, the Senate may substantially revise the bill—especially given its different fiscal priorities.

  • A compromise version is unlikely to emerge before late summer. The debt ceiling deadline may also force interim negotiations or a smaller stopgap bill.


Economic Impact

Independent analyses, including those from the Tax Foundation and Penn Wharton Budget Model, suggest the bill may lift long-term GDP growth by approximately 0.5–0.6% annually—though this is well below more optimistic projections from policymakers.²

However, continued tariff uncertainty and elevated trade barriers could blunt these benefits. 

Revenue from tariffs, projected to bring in $1–3 trillion over the next decade, may help offset deficits but also risk slowing trade-sensitive sectors.³


Investment Takeaways for Clients

  1. Don’t React to Headlines. Legislative outcomes remain uncertain, and markets often overreact in the short term.

  2. Monitor Tax Planning Opportunities. If enacted, expanded deductions and incentives could open planning windows for households and business owners—especially those with pass-through income or significant state taxes.

  3. Expect Market Volatility. Delays or disputes over tax policy, trade, or spending may create short-term uncertainty. However, long-term equity performance has historically been resilient through tax regime changes.

  4. Watch Treasury Yields. While some investors fear higher deficits could push interest rates higher, bond markets remain relatively stable—particularly in the absence of a disorderly decline in the U.S. dollar.


Our View

At FMD Wealth Advisors, we’re not in the business of predicting elections or legislative timelines. But we are focused on helping you adapt with confidence—whether that means optimizing your tax strategy, aligning your portfolio with new incentives, or reviewing your estate plan in light of changing rules.


We’ll continue to track these developments closely and provide proactive guidance as the policy landscape evolves.

Sources:

  1. Congressional Budget Office (CBO), May 2025

  2. Penn Wharton Budget Model, Tax Foundation, Yale Budget Lab, 2025

  3. U.S. Treasury and Congressional Research Service estimates on tariff revenues, 2025