Top of the Morning: CEO Macro Briefing Book - Insights on taxes
The desk is interpreting the current market landscape as influenced by significant tax policy changes arising from the 'One Big Beautiful Bill' which aims to solidify growth opportunities in the U.S., particularly for businesses. Per the full note source, this legislative shift is expected to extend tax cuts and provide incentives that may spur economic expansion, particularly as investors recalibrate their expectations for growth in light of the new fiscal landscape. As we see growth estimates rising, this could lead to currency strength in USD against vulnerable pairs facing economic headwinds. The market is currently watching these developments closely, particularly as sentiment shifts toward a more expansionary fiscal environment, which should support USD resilience in the near term.
What the desk is arguing
The desk is positioning itself on the premise that recent tax reforms will bolster the U.S. economy, thereby enhancing the USD's strength relative to its peers. With the fiscal policies from the 'One Big Beautiful Bill' largely seen as a legacy move by the Biden administration, they are anticipated to drive economic activity and decrease the tax burden on many businesses, establishing favorable conditions for growth.
The underlying data indicates that, historically, reduced tax burdens correlate with heightened consumer and business spending—an essential factor for USD appreciation. As noted, changes to tax policy are expected to prevent a slowdown in growth that might have occurred without these reforms, fostering a more robust economic outlook going into 2025.
Where it sits in our coverage
In our coverage, the consensus target for USD performance stands at 1.075, with a range spanning from 1.04 to 1.12. The following firms have presented specific targets:
Our view aligns with jpmorgan, reflecting a bullish outlook compared to bofa’s more cautious stance. Given this, our position could be interpreted as optimistic, leaning closer toward the upper bound of the consensus.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The 'One Big Beautiful Bill' is set to enhance tax conditions, potentially boosting U.S. economic growth.
- 02Tax policy shifts may solidify USD strength in the face of upcoming fiscal expectations.
- 03Increased growth forecasts could lead to bullish sentiment on USD, particularly as investors reassess their strategies.
- 04Long-term effects of this policy may linger beyond 2025 as it stabilizes business incentives.
Market implications
Traders should monitor levels around 1.075 closely, as a break above this could signal increased confidence in the USD. Additionally, any comments from the Fed regarding fiscal policy effects will heavily influence sentiment and positioning towards USD.
Risks to this view
Key risks include any substantial deviation in tax revenue forecasts or unexpected economic downturns that could dilute the intended impacts of the newly enacted fiscal policies. Should consumer spending falter more than expected, it could reverse the momentum for a stronger USD.
Hi everyone, Dan Cassidy here. Welcome back to Top of the Morning on the UBS Market Moves podcast channel. POTUS 47 has kept investors and business executives on their toes thus far here in 2025, first with the wave of tariff announcements and now with the whirlwind passage of one big beautiful bill, a landmark legislation that affects American tax policy for years to come.
UBS Wealth Management has released a number of reports that cover the changes in the bill, and today we are very fortunate to have joining us here in our 1285 podcast studio in New York, Paul Hsiao, Asset Allocation Strategist for the Americas with the UBS Chief Investment Office. Paul is the author of the newly released CEO Macro Briefing Book, Insight on Taxes, which is a special edition of the publication series that is geared toward business owners. With that, Paul, it's great to have you back here at the table.
This is a topic top of mind for many, so I trust that our listeners will learn a lot from our conversation today, though it's great to have you back, Paul. Thank you for joining us. Thanks for having me.
So Paul, to begin, maybe for some context, when you think about the scope and impacts of one big beautiful bill, why was this seen as such a priority from the Trump administration? I think for a couple of reasons. The first is that the president is in his second term, so usually that's seen as a lame duck period for presidents, but POTUS 47 has been anything but usual.
So there was pressure to sort of cement his legacy from the Tax Cuts and Jobs Act signed in 2017 during his first term. So I think that was a significant consideration because a lot of the bill is just extending the provisions made in 2017 that were supposed to expire this year, right? So not only there's a legacy perspective to it, but also there is a growth impact.
So growth, all things being equal, growth would be slower this year had this bill not been passed because the tax burden for a lot of individuals and businesses would revert back to the higher pre-27 era. So there's that aspect, but then you also have probably President Trump's other signature policy of tariffs, right, which will increase prices but also slow growth at the same time. So you have this sort of offset based on the OBB that I think that should be supported for near-term growth rates for the next couple of quarters.
So for business owners specifically, what is the bottom line from this bill? There are a lot of provisions to minimize your tax burden and also to expand investment. I think that is the bottom line.
So each business owner certainly has a different set of unique financial and tax environments and circumstances they have to take advantage of. But here are just some things I think worth highlighting, right? The first is when it comes to the administration trying to incentivize businesses to expand investment, you have the 100% bonus deductibility where you realize your tax benefits earlier than you previously would have.
You have the expensing of research and experimentation expenditures that not only will help new investment but also at least some small businesses can retroactively claw back some of those benefits from the last couple of years. That is another way to minimize the tax burden. Then you also have the expansion of the qualified business income that affects sole proprietorships, LLCs, S-corporations.
So a lot of things that business owners can look at in order to minimize their tax burden for this year or at least take advantage of especially when it comes to looking to make new investments. So a lot of considerations there for business owners as you laid it out for us, Paul. From an individual standpoint, will households benefit at all from this bill?
Yes, but the impact in my opinion is less but also differentiated, right? I think it's no secret that the higher income owners will tend to benefit more from this tax bill just in the very basic case that they tend to pay more tax and have more complicated tax situations than folks on the lower income decile. But I think for individuals, what they should realize and also for businesses too is that there is a degree of tax certainty for the next couple of years that we didn't have before.
So the tax rates and the tax brackets that were set forth by the 2017 TCJA, that's all sort of solidified for the near term. So that should provide some relief for individuals. For us in a higher state income tax, the SALT deduction is something that definitely benefits folks in high income tax states like New York and California.
But you also have some incentives made to making the child tax credit a little more flexible, Trump accounts, making 529s a little more flexible too. I think these are things that even those who are not necessarily Republican should also be interested in taking advantage of. Okay, so a range of benefits there for individuals.
Lastly, Paul, from an economic standpoint, do you have any thoughts on what this might mean for business owners who are perhaps looking for an exit in the coming months? Might this help spur more activity? Yeah, that's a great question.
So from an economic perspective, I mentioned before how from a growth perspective, this is a growth boost rather than a detriment that we were expecting had this been a different president, for example, or Congress had different legislative priorities. That being said, in the next couple of quarters, we really see that POTUS 47's two signature policies, taxes and tariffs, they kind of come into a head. We already see the impact of tariffs.
We saw that big market impact, but from the real economy, it's starting to bleed into the inflation numbers right now and will probably push up inflation for the next couple of quarters. So that's something that folks, especially if they're looking to exit in the next year or so, should pay attention to. Because what this means is that if inflation's higher, interest rates both on the short end and long end likely be higher than expected.
So if you're just holding cash, then you're not really putting your money to work. For folks looking to exit, I think things like expanding the real estate exemptions. So I think for a lot of real estate succession planning, under 15 million will be largely tax exempt and that should cheer on, I think, 99% of folks looking to pass on their business.
There have been changes to giving. So I think businesses now and individuals are incentivized to make smaller but more impactful larger dollar amount gifts than before. So folks looking to give this year or next year with some of the gains that are made from liquidity events should certainly revisit their strategies.
But most importantly for the long run, I think in the next five to 10 years, because this tax bill will, at least it's forecasted to add to the deficit and the debt, what this means for us from the longer term planning perspective is that there's going to be more pressure on legislators both on the Democratic and Republican side to raise revenues in the long run, the next five to 10 years. Because as Chair Powell has said, this sort of fiscal trajectory that we're on is unsustainable. So what business owners should realize is they should try to lock in these tax advantages while they still can because the environment five to 10 years from now, I think will be quite different.
I think there's a lot more pressure to raise revenues in whatever way you can than lower revenues. So Paul, this was a very helpful surface conversation, though a lot of depth here, a lot of complexities and scale associated with this bill. With that in mind, where can our listeners go to read more about these updates?
You can always find everything I wrote on UBS.com. We have a special website for the CEO Macro Briefing Book, so just search up UBS CEO Macro Briefing Book. We also have the special edition Insight of Taxes.
Earlier this year, we released a deeper dive into dealmaking in addition to our regular quarterly updates about inflation, the economy, and monetary policy. And we're releasing the Q3 report in the first week of August. So if you like what we're listening to, you want an update of not just taxes, but the overall economy, pay attention to that in the first week of August.
And I know you'll be back here on top of the morning to talk about that upcoming quarterly update. So we do look forward to that, Paul. And with that, I do want to point our listeners to the CEO Macro Briefing Book, Insight on Taxes update, which Paul has spoke about on today's episode.
Paul, as always, a pleasure. Thank you for dropping by and appreciate the insight. Thank you for having me.
Thank you for tuning in. Be sure to visit UBS.com slash studios to view the entire UBS studios suite of podcast channels along with our video offerings, such as UBS Trending. You can also follow us on Instagram for content highlights at UBS Trending.
UBS Studios is part of the UBS Chief Investment Office within UBS Global Wealth Management. Visit UBS.com slash CIO to view the latest research. Neither UBS Financial Services Inc. nor any of its employees provide tax or legal advice.
You should consult with your personal tax or legal advisor regarding your personal circumstances. UBS Chief Investment Office's investment views are prepared and published by the Global Wealth Management Business of UBS AG or its affiliate, UBS. This material has no regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and is published for informational purposes only.
As a firm providing wealth management services to clients globally, UBS AG and its subsidiaries offer both investment advisory services and brokerage services. Investment advisory services and brokerage services are separate and distinct, differ in material ways, and are governed by different laws and separate arrangements. In the USA, UBS Financial Services Inc. is a subsidiary of UBS AG and a member of FINRA-SIPC.
For information, please visit our website at UBS.com forward slash working with us. For a full legal disclaimer applicable to the independent investment views produced by UBS, please visit our website at UBS.com forward slash CIO dash disclaimer.
Sources & References
How we cover this story