July 10, 2025 • 32 mins
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The political theatrics behind Trump's "Big Beautiful Bill" mask a troubling economic reality that could reshape America's fiscal landscape for years to come. This massive 900-page legislation, passed by the narrowest of margins, reveals how calculated political maneuvering drives fiscal policy more than sound economic principles.
Diving deep into the mechanics of the bill, we uncover how the administration strategically front-loaded tax benefits while pushing Medicare and Medicaid cuts beyond the 2026 midterm elections. The raised SALT deduction cap from $10,000 to $40,000 primarily benefits wealthy Americans in high-tax states – a surprising reversal from Trump's previous stance that suggests political calculation rather than ideological consistency. Meanwhile, tax relief on overtime pay and tips provides immediate benefits to working Americans that will be highly visible during campaign season.
The macroeconomic implications are concerning. With an estimated $3.5 trillion price tag, this legislation substantially increases America's already troubling national debt. The combination of fiscal expansion and proposed tariffs creates inflationary pressure that could force the Federal Reserve to maintain higher interest rates despite Trump's public pressure for cuts. For everyday Americans hoping to buy homes or finance major purchases, this could mean persistently high borrowing costs. For investors, bond markets may react with higher yields, potentially causing significant price declines for those holding longer-duration fixed income securities.
Most troubling is the distributional impact: analysis suggests the top 10-20% of Americans will see benefits between $6,000-$20,000, while the bottom 20% may experience a net loss of $5,000-$6,000 once all provisions are implemented. This regressive outcome stands in stark contrast to the populist messaging that typically accompanies such legislation and represents a significant departure from traditional Republican fiscal conservatism.
Want to understand how these sweeping changes might affect your financial future and investment strategy? Subscribe now for our continued analysis of evolving economic policies and their market implications.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Clem Miller (00:02):
Hello and welcome everybody to Skeptic's Guide to
Investing.
This is Clem Miller, I've gotSteve Davenport here, and today
we're going to talk about theso-called one big beautiful bill
, or, as some people say, thebig ugly bill, or the big
bloated bill, or whatever youwant to call it.
Or whatever you want to call it.
Steve, personally, when I lookat this thing, I see a bill
(00:28):
that's so big, so complex900-something pages that I don't
think it's really possible toget your arms around the whole
thing.
So can you share with me whatsort you know sort of the top?
You know three or four thingsthat you get out of this bill?
That, uh, that you think ourlisteners should, uh, understand
(00:51):
.
Steve Davenport (00:53):
Sure, I think that when Trump was trying to
get elected, he realized he madea mistake in giving the
corporations a tax cut that waspermanent, and he didn't give a
permanent tax cut to individuals.
But he needs individuals tohelp his administration continue
.
So this time he put the bigbeautiful bill in front of
(01:18):
everyone and he said I'm goingto make sure these tax cuts that
I put in place prior and expireat the end of this year will be
made permanent.
And so when you think of thatfor the individual, the first of
all, let's talk about BBB orthe big beautiful bill I don't
(01:38):
know of any president who'stried harder to be a showman and
to show people how much hecares and he wants and he does
things for the people.
Now I think the question iswhat people?
And I think, when you look atthe big beautiful bill, he did
(02:01):
deliver on a lot of his promises, and so my question is okay, he
delivered on those promisesbecause he's a man of integrity
and he doesn't want to saysomething that's not true or
he's concerned about midtermelections and he knows if he
doesn't address these things, hewill be looked at as a fraud,
(02:26):
and some of those people whovoted for him just so that their
tax rates stayed the same willbe very, very disappointed if
they have overtime pay or ifthey have other areas where
they're going to benefit otherareas where they're going to
benefit.
I find that the Big, beautifulBill has done a lot for a lot of
(02:49):
people.
The question is, are thosepeople really in need of some of
those aspects of not having thetax rates go up?
I think that it wasirresponsible of him originally
to just do business and not dothe individual in a permanent
way.
(03:09):
If you were going to make achoice, I would have rather he
choose people in 2016 and notcompanies.
So now he's gotten this billthrough and this bill will have
a major impact in that we willavoid a recession, probably
because if the tax rates didrevert to normal, where they
(03:31):
were in 2016, that would havebeen an economic drag unlike any
we've seen for a while.
So, yes, he's done somethinghere that is going to help
people not see their tax rates.
(03:52):
What has he done in the majorstates with the SALT?
He basically said that stateand local taxes, that he put a
limit of $10,000 for people todeduct was really hurting New
York, california and otherhigh-tax states.
And now he's decided oh, allthose high-tax states, I don't
(04:15):
dislike them as much.
I'm going to make the limit goto 40,000 from 10,000.
So if I was a middle classAmerican in the middle of the
country, I would say he justgave a lot to those people with
a lot of money and I thoughtthat he was trying to discipline
those states and get them tochange.
And now he's given up and he'sletting the people who have
(04:40):
higher deductibles, you know,continue to have a benefit from
the federal government.
So I think that some of this isreally just a payback to
different people and differentsituations.
Why is it should I be surprisedthat paybacks in government and
(05:01):
bills that favor one group overanother, paybacks in government
and bills that favor one groupover another?
I think Clem a long time ago.
I have this idealistic thoughtsabout how government should
operate, whether it's Voltaireor whether it's any of the great
(05:21):
writers talk about democracy.
Socrates and Aristotle, and Ithink of those ideas when I
think of democracy and I'm notreally living in the present,
which is we have a verydisjointed democracy with two
choices and neither choice isreally looking very good right
(05:43):
now and neither choice is reallylooking very good right now.
So I think the big, beautifulbill, in summary, does rectify
and stabilize our tax situation,so we'll know what our rates
are going forward, which willmake it easier.
The fact that we increased thelimits for estate planning, the
(06:04):
fact that we did some thingswith SALT, the fact that we did
some things with overtime pay Ithink all of those things will
help Trump and all of thosethings will help some of America
.
But in the end, the people whowill benefit most are the top 10
(06:24):
and 20%.
They'll see a benefit somewherebetween 6,000 and 20,000.
And I think in the bottom we'llsee a detraction of something
like 5,000 to 6,000, in thebottom 20% of the population.
So is it equal to everyone?
No, are any bills usually equalto everyone?
(06:45):
Probably not.
Should I give up on thisconcept of equality and
treatment under the law andunder the way that we're
governed?
I think I might have to.
But, bottom line, it's a bigbill.
I don't know if I can use theword beautiful, because I think
that what I find most disturbingabout this bell Well, I'll get
(07:08):
into the problems those are thegood things about the bell.
I think that you know we couldtalk about some negatives and
talk about the timing, but let'slet's stop there and see if you
have any comments on what Isaid.
Clem Miller (07:23):
Let's stop there and see if you have any comments
on what I said.
Well, you know you focus rightnow on the benefits to
individuals from the bill and Iwould like to hear your thoughts
about the consequences.
But even more so, I want toknow from you, Steve, what you
(07:53):
think about the macroeconomicand investment implications of
this bill.
I mean, after all, we are goingto be seeing higher deficits,
probably an acceleration of thehigh deficits we already have.
We're going to see higher debtlevels, the high deficits we
already have.
We're going to see higher debtlevels, you know.
Do you think that all of thatis going to impact borrowing
costs and just make our fiscalsituation even more untenable in
(08:14):
the future?
Or do you think some of thesebenefits that you just laid out
to individuals create incentivesfor growth that will help, you
know, provide the revenues inorder to, you know, help pay for
these higher deficits and debt?
Steve Davenport (08:34):
I think this is where the big, beautiful bill
gets ugly and why I think thatis that the way they have
structured this bill is thebenefits accrue in the first
three years, and in the nextseven years all of the cuts to
Medicaid and Medicare comethrough.
(08:55):
And so, when we look at thepurpose of legislation, it is to
improve the economy and improvethe overall livelihood of US
citizens, and I think that whenI look at this bill, it improves
and provides stimulus to lowerincome individuals through not
(09:17):
taxing, to lower incomeindividuals through not taxing
tips and overtime, and that'sgoing to be good for stimulus
for the next two years.
Now, why would they want to dosomething for the next two years
and not do it for all 10 yearsOne?
If they did it for 10 years, itwould be more expensive and it
would have been harder to getpassed.
(09:37):
The bill is already going tocost, based on estimates,
somewhere around $3.5 trillion,that's trillion with a T, and so
they front-loaded it so thatthe midterm elections, which
start, basically the campaigning, will start in January of 26,
the elections in November of 26.
(09:59):
And guess when the Medicarecuts start to go in effect?
January of 27.
So they are playing a politicalgame here with all of those
voters who they hope will say,oh, he got rid of my overtime
tax.
I'm really happy about that,and it will be that way for the
(10:21):
first two or three years, butthen it will go away.
And so why is he front-loadingit?
Why are the Medicare cuts nothappening right away?
Because he doesn't want anyblowback from any of the
negatives of this bill.
I look at that and I think it'spolitics as usual, and he's
(10:43):
trying to satisfy groups that hethinks will be key for
Republicans to win in themidterm elections.
Is that a strictly politicalendeavor?
Is there other reasons why hecouldn't have done it
differently?
Absolutely.
It's all about politics andit's all about getting reelected
(11:03):
.
And it's not about the nationaldebt, it's not about the people
, it's not about trying to makelives better, it's about getting
reelected.
As you know, james Carville oncesaid it's the economy, stupid.
And he wants this economy torun on a stimulated sense for
(11:25):
the next two years.
Why is he pushing Powell sohard to lower rates?
Because he knows that thehousing problems and the higher
rates are causing a slowdown inreal estate, which, if we
lowered rates one and a half 2%,we would see a rebound also in
the housing areas and that wouldcreate even more inflation.
(11:47):
So the bill is going to beinflationary, the inflation is
going to further give usproblems and I think the one
thing that he's trying to change, which is Powell's and rates,
still might not change.
It might not change at all, andif it doesn't and we start to
(12:08):
get more and more debt added onto these auctions, we're going
to see higher rates.
And if we see higher rates, hisgoal all along was I'm going to
provide stimulus and strengthand I'm also going to get help
from the Fed, and that help fromthe Fed is going to guarantee
my reelection.
(12:30):
I think what he hasn't reallythought about is the bond
vigilantes and some of thepeople out there who say our
debt is enough.
We're at 30 trillion, now we'regoing to add three more.
I think it's really unrealisticto think that you can have a
(12:50):
blank check and just dosomething and there won't be any
byproduct or any ramifications.
There are people who are goingto pay and those people are
going to be the homeowners whowant to buy a house and the
people who have to pay higherinterest on car loans and
everything credit cards.
So when we look at this, wecould say, well, that's all
(13:11):
Powell's fault, but I think he'smissing the point, which is
inflation.
Is inflation is inflation,whether it's caused by
breakdowns in supply linesduring COVID, whether it's
caused by the Fed increasingrates to try to address the
inflation and therefore therates have to stay high and
(13:35):
somewhat stagnate the economy sothat we start to see inflation
weaken and decline.
We've seen inflation come down,but it's still not where it
needs to be.
And guess what, when you dothings that is stimulatory to
the economy, they are going tocause more inflation.
So tariffs are going to causemore inflation whenever they get
(14:00):
implemented.
And so now I think he'srealizing some of this tariff
talk could be what prevents himfrom getting that cut from
Powell.
And so he has to decide do Iwant to continue down this path
of tariffs and do I want tocontinue to do this and risk a
(14:22):
rate cut before the midtermelections?
If he does, it could backfirein that some of those same
people are trying to becomehomeowners, who are working
overtime and getting tips, andso if they can't become
homeowners because rates stayhigh, they're going to feel that
(14:42):
impact.
They're going to be on thelower side of the credit
spectrum, they're going to bethe ones paying the highest
rates and therefore I think he'smissing how all these things
are related.
I think he wants to have atalking point.
He's got talking points nowwith tips and overtime I think
he's going to have talkingpoints.
(15:05):
I don't know what the saltincreases is really going to.
Is he going to win New York?
Is he going to win Californiabecause he increased the salt
deduction?
No way, that's not going tohappen.
So what did he do it for?
He did it for some of thoseRepublicans who think they can
take more seats in those states.
(15:26):
I don't think that'snecessarily going to be the case
, because the truly large donorshave probably already moved out
of the state and moved toFlorida or Texas.
So I'm not sure he's going toget what he wants from that SALT
increase.
But again, it comes down to theFed, interest rates and the
(15:52):
overall economic environment.
I don't think we've seen whatis going to happen yet with
these tariffs, so I don't thinkwe can say how inflationary or
non-inflationary they're goingto be.
But let's just say if theystart to be more inflationary
than they estimated, the ratesare going to go higher and
there's going to be no way weget a cut and when that happens,
(16:14):
that squeeze on the economy.
I'm not sure that the tips inovertime tax breaks are going to
be enough for him to sailthrough the midterms.
I still believe we're a dividedcountry and we're narrowly
divided, and I'm not surethere's a lot of goodwill when I
(16:37):
look at the immigration actionsand I look at some of the other
actions of this administration.
So my thing would be the bondvigilantes are going to sniff
out that inflation and when theydo, I think they're going to
start to react and I don't thinkit's going to be good for
treasuries, which means higherrates and higher rates for
(16:58):
everyone who wants to be ahomeowner, and I think we've
already seen the average age forhomeownership go up in the last
five years and I think it willcontinue to go up and it will
continue to be a narrow group ofpeople versus a wider group
who've enjoyed the Americandream of owning their own home,
(17:22):
american dream of owning theirown home.
So I think that the ownershipof this bill will be interesting
as we start to see reactions.
But I think he made a mistake,going after tariffs too early.
Clem Miller (17:30):
Yeah.
So, steve, sort of two thingsthat came to my mind as you were
talking there.
One is that you know, withregard to rates, you know the
Fed has control over short-termrates, doesn't have control over
long-term rates, so it's notguaranteed by any means that,
(17:51):
you know, by Trump putting inanother Federal Reserve chair or
a shadow one, that he'll beable to get longer term rates
down.
There's no guarantee, becausethe Federal Reserve does not
control long rates, it onlycontrols short rates, and long
(18:13):
rates reflect inflationexpectations, and so if
inflation expectations go up, asyou were suggesting, they might
, uh, we might actually seehigher long-term rates and thus
higher borrowing costs for thegovernment, for homeowners, for
uh, for car loans we may all seeall that.
Steve Davenport (18:33):
I'm just going on the assumption that we stay
pretty flat yeah if we saw asteepening as well, then yes,
it's going to be very harmfuland the stiffening really, if
you take those five-year notesas a proxy for mortgages, I
think the five and 10 yearscould go higher without anything
(18:55):
happening.
With Powell and the short-termrates.
Clem Miller (19:01):
So then, steve, the other thing I wanted to mention
, apart from the rates, is thatyou know you had this group of
fiscal hawks in the House ofRepresentatives who, for the
longest time, did not want to goalong with this one big,
beautiful, whatever bill, right,and?
(19:23):
And the reason they were able tobe convinced at the last minute
is apparently Trump had ameeting with them and said, hey,
don't worry about this, we'llmake additional cuts in the
future within the White House,in other words, after the bill
is passed.
And so you know the question,you know that goes to the whole
(19:44):
legal question that you know is,you know, not fully resolved,
as to whether the White Housecan actually do rescissions on
spending, actually dorescissions on spending.
Now, it was partially resolvedbecause the Supreme Court ruled
(20:06):
that, you know, overturn thistemporary restraining order of a
judge who said that theycouldn't go forward with
spending cuts andreorganizations and whatnot, but
left the left the entireimplementation of the litigation
to the lower court judges.
So they didn't say I mean,contrary to what Trump and his
(20:27):
people might say, they didn'tsay, oh, you can do whatever you
want to government agencies tocut spending, they said at lower
courts can look at that on acase-by-case basis and honor the
litigation, but still, trumpmay have told his House fiscal
conservatives that don't worryabout it, we're going to do more
(20:51):
Doge-type cuts in the futureand thus reducing expenditure.
So I think that's something wemight see in the future is more
of these Doge-style cuts.
Steve Davenport (21:04):
I believe you're right, clem.
There's a lot of room betweenhere and when these things start
to take effect and what couldbe the economic issues and what
could be the result of this.
I don't have a crystal ball andI'm just giving you my opinion,
and these are not clear toeveryone and they're certainly
(21:27):
not clear to me.
I'm just trying to give you mybest judgment.
The one thing I'd say aboutthis bill that showed me it was
politics as usual was Murkowskiin Alaska was against the bill,
but then when some additionalitems were added for forestry
and fire protection and someother things that benefited just
(21:51):
Alaska, she suddenly went froma no to a yay and I just I
thought, at a bill this large,there's no way they're going to
throw in, you know, items justfor one senator.
But they threw in whatever theyhad to to get it through, both
(22:11):
bills passing by one vote, Ithink it.
Actually in the Congress it wasmore than one vote, but it was
a narrow victory.
A victory is still the same,but narrow, and I think that
what that tells you is we're anarrowly divided country and
(22:31):
it's not going to be easy forthese things to last, especially
if he loses the midtermelection.
So again, I know I may soundlike a broken record about
midterms, but if you want tomake sure that Trump doesn't
have success in his last twoyears, the Democrats are going
(22:53):
to try and independents aregoing to try to make sure that
that he isn't able to passfurther legislation in the last
two years.
(23:25):
I think that the Republicans inthe House were naive to think
that this big, beautiful billwas not going to be.
I think the Republican Partyhas walked away from the
fiscally prudent mantra thatthey've tried to hold, even
though they really tried to holdthat.
Well, mostly benefiting therich.
Well, mostly benefiting therich.
(23:46):
So I think that it's going tobe hard to determine how to
primary you.
I'm going to go after you andagain is threats in politics the
way we should operate?
No, but we are where we are.
We are being led by a person whobelieves in personal threats on
(24:08):
social media, and that's justthe way he operates, and so,
therefore, I think it's greatthat he got this bill done in
terms of his own agenda, but I'mnot sure his agenda is the
agenda of all of the Americanpeople.
Am I glad that my taxes aren'tgoing to go up Somewhat, but I'm
(24:33):
somewhat disappointed that it'sgoing to come at the loss for
those people on Medicare andthose people who will have to
find work in order to satisfyand qualify for their coverage.
It's sad.
I don't think it really neededto come to that.
(24:53):
I think they could haveprobably passed a bill that was
a little more balanced and Ilike the fact that when he was
doing this, he was consideringall.
If they want to do amillionaire's tax, we'll
consider it.
I think there were ways to dothis bill in a more reasonable
structure and I still think thatthe two major items are when
(25:17):
and if the Fed will lower andtwo, when and if.
At some of these auctions wesee higher rates and bond
vigilantes not willing to seelower rates, because higher
rates, as we saw, can quicklyturn around an economy and make
it difficult for everyone.
So let's watch the rates, let'swatch the bonds and I don't
(25:42):
know.
Clem, what do you think is themost important item in this bill
?
What do I think is the mostimportant item?
Clem Miller (25:47):
on this bill.
What do I think is the mostimportant?
I think the Medicaid cuts are avery significant issue
politically and alsoeconomically, because it's
really the first cut at tryingto eat into the so-called
(26:11):
entitlements and might uh pavethe way for, uh, you know, cuts
to social security and cuts touh, you know, bigger cuts to
medicare, uh.
But I think the medicaid issueis very significant.
I think that it has a politicaldimension in that there are a
(26:33):
lot of people on Medicaid in redstates and so I think, as soon
as a lot of people in red statesstart seeing their Medicaid
requirements being shiftedaround, I think there might be
some opposition to that growingand could impact the midterms,
(26:56):
as you were pointing out.
But, steve, I wanted to ask youone last question, since you
mentioned that you thoughtyields might go up in the future
, rates might go up.
Is future Rates might go up?
Is this a?
Steve Davenport (27:14):
time to hold bonds.
I've.
I think everyone who holdsbonds is going to worry about
higher rates and I've tried tomitigate some of what I think is
government risk by looking moreat corporates and looking at
like an LQD, which is acorporate bond ETF, versus an
(27:38):
AGG, which is all bondsincluding treasuries, and I
(27:59):
think that corporations are inbetter shape than the US
government after this, because Ithink the US government,
although it can print, thatprinting will cause inflation
and that inflation will hurteveryone associated with
treasuries and issuing more.
The way to avoid that is to goshorter and also to go in other
spaces like municipalities.
I think some municipalities andmunis are going to do well
(28:20):
because I think the taxes Ibelieve are still a major
consideration and I think thatstates like Massachusetts that
have added a millionaire's tax Ithink we might see more states
like that because the salt andsome of those things is not
going to be enough to help theirfiscal situations in California
(28:43):
and New York.
So I believe that we'll see inthe next five years, more
millionaire's tax to help withthis and I think that what that
does is ultimately makes peoplefeel less confident in the bonds
of the United States.
I think the $5 trillionaddition to our debt ceiling is
(29:05):
quite a move.
Our debt ceiling is quite amove and it does give us some
time in terms of how do weadjust to that and how do we do
it better.
I think Trump's dream of all thetariffs paying for a lot of
this are not likely to come trueand I think it will be absorbed
(29:26):
by the consumer and it will beabsorbed by the importer to a
degree, and some of it will cometo the US, but I think that it
usually leads to higher prices.
Those higher prices willeventually filter through the
consumers and lead to moreinflation.
More inflation is my messagefor today.
(29:46):
I think that more inflation islikely.
Therefore, look at yourduration of the bonds in your
portfolio and try to make sureyou're comfortable.
If rates were to go up by 2% andyour duration is five years,
then you're going to see a 10%decline in your bonds.
(30:07):
That's reality.
If you can live with 10% lessin your bonds, if it's paying
you 3%, 4%, that kind of makesit eat up two years worth of
coupons.
Three years worth of coupons.
I don't think that's really thebest place.
I'd probably say that youshould shorten and think about
(30:30):
more corporates, Shortenduration, include more
corporates and, as always, Ilike munis because I think that
some of that tax benefit is hardto get in other ways.
So I don't know if thatanswered your question or not.
Clem Miller (30:50):
It sure did so.
Appreciate it, steve.
So I think we'll wrap up there.
We really appreciate everybodyjoining us today and if you have
any thoughts about thisparticular podcast or about the
podcast in general, or, you know, moving uh onto video, you know
, should we uh should Stevechange his shirt, uh color, or
(31:14):
uh, should I?
Should I uh cut my hair?
Steve Davenport (31:19):
or let's both smile for the camera as I go off
.
Clem Miller (31:22):
All right, okay, thank you.
Thank you everybody.
Hello and welcome everybody to Skeptic's Guide to
Investing.
This is Clem Miller, I've gotSteve Davenport here, and today
we're going to talk about theso-called one big beautiful bill
, or, as some people say, thebig ugly bill, or the big
bloated bill, or whatever youwant to call it.
Or whatever you want to call it.
Steve, personally, when I lookat this thing, I see a bill
(00:28):
that's so big, so complex900-something pages that I don't
think it's really possible toget your arms around the whole
thing.
So can you share with me whatsort you know sort of the top?
You know three or four thingsthat you get out of this bill?
That, uh, that you think ourlisteners should, uh, understand
(00:51):
.
Steve Davenport (00:53):
Sure, I think that when Trump was trying to
get elected, he realized he madea mistake in giving the
corporations a tax cut that waspermanent, and he didn't give a
permanent tax cut to individuals.
But he needs individuals tohelp his administration continue
.
So this time he put the bigbeautiful bill in front of
(01:18):
everyone and he said I'm goingto make sure these tax cuts that
I put in place prior and expireat the end of this year will be
made permanent.
And so when you think of thatfor the individual, the first of
all, let's talk about BBB orthe big beautiful bill I don't
(01:38):
know of any president who'stried harder to be a showman and
to show people how much hecares and he wants and he does
things for the people.
Now I think the question iswhat people?
And I think, when you look atthe big beautiful bill, he did
(02:01):
deliver on a lot of his promises, and so my question is okay, he
delivered on those promisesbecause he's a man of integrity
and he doesn't want to saysomething that's not true or
he's concerned about midtermelections and he knows if he
doesn't address these things, hewill be looked at as a fraud,
(02:26):
and some of those people whovoted for him just so that their
tax rates stayed the same willbe very, very disappointed if
they have overtime pay or ifthey have other areas where
they're going to benefit otherareas where they're going to
benefit.
I find that the Big, beautifulBill has done a lot for a lot of
(02:49):
people.
The question is, are thosepeople really in need of some of
those aspects of not having thetax rates go up?
I think that it wasirresponsible of him originally
to just do business and not dothe individual in a permanent
way.
(03:09):
If you were going to make achoice, I would have rather he
choose people in 2016 and notcompanies.
So now he's gotten this billthrough and this bill will have
a major impact in that we willavoid a recession, probably
because if the tax rates didrevert to normal, where they
(03:31):
were in 2016, that would havebeen an economic drag unlike any
we've seen for a while.
So, yes, he's done somethinghere that is going to help
people not see their tax rates.
(03:52):
What has he done in the majorstates with the SALT?
He basically said that stateand local taxes, that he put a
limit of $10,000 for people todeduct was really hurting New
York, california and otherhigh-tax states.
And now he's decided oh, allthose high-tax states, I don't
(04:15):
dislike them as much.
I'm going to make the limit goto 40,000 from 10,000.
So if I was a middle classAmerican in the middle of the
country, I would say he justgave a lot to those people with
a lot of money and I thoughtthat he was trying to discipline
those states and get them tochange.
And now he's given up and he'sletting the people who have
(04:40):
higher deductibles, you know,continue to have a benefit from
the federal government.
So I think that some of this isreally just a payback to
different people and differentsituations.
Why is it should I be surprisedthat paybacks in government and
(05:01):
bills that favor one group overanother, paybacks in government
and bills that favor one groupover another?
I think Clem a long time ago.
I have this idealistic thoughtsabout how government should
operate, whether it's Voltaireor whether it's any of the great
(05:21):
writers talk about democracy.
Socrates and Aristotle, and Ithink of those ideas when I
think of democracy and I'm notreally living in the present,
which is we have a verydisjointed democracy with two
choices and neither choice isreally looking very good right
(05:43):
now and neither choice is reallylooking very good right now.
So I think the big, beautifulbill, in summary, does rectify
and stabilize our tax situation,so we'll know what our rates
are going forward, which willmake it easier.
The fact that we increased thelimits for estate planning, the
(06:04):
fact that we did some thingswith SALT, the fact that we did
some things with overtime pay Ithink all of those things will
help Trump and all of thosethings will help some of America
.
But in the end, the people whowill benefit most are the top 10
(06:24):
and 20%.
They'll see a benefit somewherebetween 6,000 and 20,000.
And I think in the bottom we'llsee a detraction of something
like 5,000 to 6,000, in thebottom 20% of the population.
So is it equal to everyone?
No, are any bills usually equalto everyone?
(06:45):
Probably not.
Should I give up on thisconcept of equality and
treatment under the law andunder the way that we're
governed?
I think I might have to.
But, bottom line, it's a bigbill.
I don't know if I can use theword beautiful, because I think
that what I find most disturbingabout this bell Well, I'll get
(07:08):
into the problems those are thegood things about the bell.
I think that you know we couldtalk about some negatives and
talk about the timing, but let'slet's stop there and see if you
have any comments on what Isaid.
Clem Miller (07:23):
Let's stop there and see if you have any comments
on what I said.
Well, you know you focus rightnow on the benefits to
individuals from the bill and Iwould like to hear your thoughts
about the consequences.
But even more so, I want toknow from you, Steve, what you
(07:53):
think about the macroeconomicand investment implications of
this bill.
I mean, after all, we are goingto be seeing higher deficits,
probably an acceleration of thehigh deficits we already have.
We're going to see higher debtlevels, the high deficits we
already have.
We're going to see higher debtlevels, you know.
Do you think that all of thatis going to impact borrowing
costs and just make our fiscalsituation even more untenable in
(08:14):
the future?
Or do you think some of thesebenefits that you just laid out
to individuals create incentivesfor growth that will help, you
know, provide the revenues inorder to, you know, help pay for
these higher deficits and debt?
Steve Davenport (08:34):
I think this is where the big, beautiful bill
gets ugly and why I think thatis that the way they have
structured this bill is thebenefits accrue in the first
three years, and in the nextseven years all of the cuts to
Medicaid and Medicare comethrough.
(08:55):
And so, when we look at thepurpose of legislation, it is to
improve the economy and improvethe overall livelihood of US
citizens, and I think that whenI look at this bill, it improves
and provides stimulus to lowerincome individuals through not
(09:17):
taxing, to lower incomeindividuals through not taxing
tips and overtime, and that'sgoing to be good for stimulus
for the next two years.
Now, why would they want to dosomething for the next two years
and not do it for all 10 yearsOne?
If they did it for 10 years, itwould be more expensive and it
would have been harder to getpassed.
(09:37):
The bill is already going tocost, based on estimates,
somewhere around $3.5 trillion,that's trillion with a T, and so
they front-loaded it so thatthe midterm elections, which
start, basically the campaigning, will start in January of 26,
the elections in November of 26.
(09:59):
And guess when the Medicarecuts start to go in effect?
January of 27.
So they are playing a politicalgame here with all of those
voters who they hope will say,oh, he got rid of my overtime
tax.
I'm really happy about that,and it will be that way for the
(10:21):
first two or three years, butthen it will go away.
And so why is he front-loadingit?
Why are the Medicare cuts nothappening right away?
Because he doesn't want anyblowback from any of the
negatives of this bill.
I look at that and I think it'spolitics as usual, and he's
(10:43):
trying to satisfy groups that hethinks will be key for
Republicans to win in themidterm elections.
Is that a strictly politicalendeavor?
Is there other reasons why hecouldn't have done it
differently?
Absolutely.
It's all about politics andit's all about getting reelected
(11:03):
.
And it's not about the nationaldebt, it's not about the people
, it's not about trying to makelives better, it's about getting
reelected.
As you know, james Carville oncesaid it's the economy, stupid.
And he wants this economy torun on a stimulated sense for
(11:25):
the next two years.
Why is he pushing Powell sohard to lower rates?
Because he knows that thehousing problems and the higher
rates are causing a slowdown inreal estate, which, if we
lowered rates one and a half 2%,we would see a rebound also in
the housing areas and that wouldcreate even more inflation.
(11:47):
So the bill is going to beinflationary, the inflation is
going to further give usproblems and I think the one
thing that he's trying to change, which is Powell's and rates,
still might not change.
It might not change at all, andif it doesn't and we start to
(12:08):
get more and more debt added onto these auctions, we're going
to see higher rates.
And if we see higher rates, hisgoal all along was I'm going to
provide stimulus and strengthand I'm also going to get help
from the Fed, and that help fromthe Fed is going to guarantee
my reelection.
(12:30):
I think what he hasn't reallythought about is the bond
vigilantes and some of thepeople out there who say our
debt is enough.
We're at 30 trillion, now we'regoing to add three more.
I think it's really unrealisticto think that you can have a
(12:50):
blank check and just dosomething and there won't be any
byproduct or any ramifications.
There are people who are goingto pay and those people are
going to be the homeowners whowant to buy a house and the
people who have to pay higherinterest on car loans and
everything credit cards.
So when we look at this, wecould say, well, that's all
(13:11):
Powell's fault, but I think he'smissing the point, which is
inflation.
Is inflation is inflation,whether it's caused by
breakdowns in supply linesduring COVID, whether it's
caused by the Fed increasingrates to try to address the
inflation and therefore therates have to stay high and
(13:35):
somewhat stagnate the economy sothat we start to see inflation
weaken and decline.
We've seen inflation come down,but it's still not where it
needs to be.
And guess what, when you dothings that is stimulatory to
the economy, they are going tocause more inflation.
So tariffs are going to causemore inflation whenever they get
(14:00):
implemented.
And so now I think he'srealizing some of this tariff
talk could be what prevents himfrom getting that cut from
Powell.
And so he has to decide do Iwant to continue down this path
of tariffs and do I want tocontinue to do this and risk a
(14:22):
rate cut before the midtermelections?
If he does, it could backfirein that some of those same
people are trying to becomehomeowners, who are working
overtime and getting tips, andso if they can't become
homeowners because rates stayhigh, they're going to feel that
(14:42):
impact.
They're going to be on thelower side of the credit
spectrum, they're going to bethe ones paying the highest
rates and therefore I think he'smissing how all these things
are related.
I think he wants to have atalking point.
He's got talking points nowwith tips and overtime I think
he's going to have talkingpoints.
(15:05):
I don't know what the saltincreases is really going to.
Is he going to win New York?
Is he going to win Californiabecause he increased the salt
deduction?
No way, that's not going tohappen.
So what did he do it for?
He did it for some of thoseRepublicans who think they can
take more seats in those states.
(15:26):
I don't think that'snecessarily going to be the case
, because the truly large donorshave probably already moved out
of the state and moved toFlorida or Texas.
So I'm not sure he's going toget what he wants from that SALT
increase.
But again, it comes down to theFed, interest rates and the
(15:52):
overall economic environment.
I don't think we've seen whatis going to happen yet with
these tariffs, so I don't thinkwe can say how inflationary or
non-inflationary they're goingto be.
But let's just say if theystart to be more inflationary
than they estimated, the ratesare going to go higher and
there's going to be no way weget a cut and when that happens,
(16:14):
that squeeze on the economy.
I'm not sure that the tips inovertime tax breaks are going to
be enough for him to sailthrough the midterms.
I still believe we're a dividedcountry and we're narrowly
divided, and I'm not surethere's a lot of goodwill when I
(16:37):
look at the immigration actionsand I look at some of the other
actions of this administration.
So my thing would be the bondvigilantes are going to sniff
out that inflation and when theydo, I think they're going to
start to react and I don't thinkit's going to be good for
treasuries, which means higherrates and higher rates for
(16:58):
everyone who wants to be ahomeowner, and I think we've
already seen the average age forhomeownership go up in the last
five years and I think it willcontinue to go up and it will
continue to be a narrow group ofpeople versus a wider group
who've enjoyed the Americandream of owning their own home,
(17:22):
american dream of owning theirown home.
So I think that the ownershipof this bill will be interesting
as we start to see reactions.
But I think he made a mistake,going after tariffs too early.
Clem Miller (17:30):
Yeah.
So, steve, sort of two thingsthat came to my mind as you were
talking there.
One is that you know, withregard to rates, you know the
Fed has control over short-termrates, doesn't have control over
long-term rates, so it's notguaranteed by any means that,
(17:51):
you know, by Trump putting inanother Federal Reserve chair or
a shadow one, that he'll beable to get longer term rates
down.
There's no guarantee, becausethe Federal Reserve does not
control long rates, it onlycontrols short rates, and long
(18:13):
rates reflect inflationexpectations, and so if
inflation expectations go up, asyou were suggesting, they might
, uh, we might actually seehigher long-term rates and thus
higher borrowing costs for thegovernment, for homeowners, for
uh, for car loans we may all seeall that.
Steve Davenport (18:33):
I'm just going on the assumption that we stay
pretty flat yeah if we saw asteepening as well, then yes,
it's going to be very harmfuland the stiffening really, if
you take those five-year notesas a proxy for mortgages, I
think the five and 10 yearscould go higher without anything
(18:55):
happening.
With Powell and the short-termrates.
Clem Miller (19:01):
So then, steve, the other thing I wanted to mention
, apart from the rates, is thatyou know you had this group of
fiscal hawks in the House ofRepresentatives who, for the
longest time, did not want to goalong with this one big,
beautiful, whatever bill, right,and?
(19:23):
And the reason they were able tobe convinced at the last minute
is apparently Trump had ameeting with them and said, hey,
don't worry about this, we'llmake additional cuts in the
future within the White House,in other words, after the bill
is passed.
And so you know the question,you know that goes to the whole
(19:44):
legal question that you know is,you know, not fully resolved,
as to whether the White Housecan actually do rescissions on
spending, actually dorescissions on spending.
Now, it was partially resolvedbecause the Supreme Court ruled
(20:06):
that, you know, overturn thistemporary restraining order of a
judge who said that theycouldn't go forward with
spending cuts andreorganizations and whatnot, but
left the left the entireimplementation of the litigation
to the lower court judges.
So they didn't say I mean,contrary to what Trump and his
(20:27):
people might say, they didn'tsay, oh, you can do whatever you
want to government agencies tocut spending, they said at lower
courts can look at that on acase-by-case basis and honor the
litigation, but still, trumpmay have told his House fiscal
conservatives that don't worryabout it, we're going to do more
(20:51):
Doge-type cuts in the futureand thus reducing expenditure.
So I think that's something wemight see in the future is more
of these Doge-style cuts.
Steve Davenport (21:04):
I believe you're right, clem.
There's a lot of room betweenhere and when these things start
to take effect and what couldbe the economic issues and what
could be the result of this.
I don't have a crystal ball andI'm just giving you my opinion,
and these are not clear toeveryone and they're certainly
(21:27):
not clear to me.
I'm just trying to give you mybest judgment.
The one thing I'd say aboutthis bill that showed me it was
politics as usual was Murkowskiin Alaska was against the bill,
but then when some additionalitems were added for forestry
and fire protection and someother things that benefited just
(21:51):
Alaska, she suddenly went froma no to a yay and I just I
thought, at a bill this large,there's no way they're going to
throw in, you know, items justfor one senator.
But they threw in whatever theyhad to to get it through, both
(22:11):
bills passing by one vote, Ithink it.
Actually in the Congress it wasmore than one vote, but it was
a narrow victory.
A victory is still the same,but narrow, and I think that
what that tells you is we're anarrowly divided country and
(22:31):
it's not going to be easy forthese things to last, especially
if he loses the midtermelection.
So again, I know I may soundlike a broken record about
midterms, but if you want tomake sure that Trump doesn't
have success in his last twoyears, the Democrats are going
(22:53):
to try and independents aregoing to try to make sure that
that he isn't able to passfurther legislation in the last
two years.
(23:25):
I think that the Republicans inthe House were naive to think
that this big, beautiful billwas not going to be.
I think the Republican Partyhas walked away from the
fiscally prudent mantra thatthey've tried to hold, even
though they really tried to holdthat.
Well, mostly benefiting therich.
Well, mostly benefiting therich.
(23:46):
So I think that it's going tobe hard to determine how to
primary you.
I'm going to go after you andagain is threats in politics the
way we should operate?
No, but we are where we are.
We are being led by a person whobelieves in personal threats on
(24:08):
social media, and that's justthe way he operates, and so,
therefore, I think it's greatthat he got this bill done in
terms of his own agenda, but I'mnot sure his agenda is the
agenda of all of the Americanpeople.
Am I glad that my taxes aren'tgoing to go up Somewhat, but I'm
(24:33):
somewhat disappointed that it'sgoing to come at the loss for
those people on Medicare andthose people who will have to
find work in order to satisfyand qualify for their coverage.
It's sad.
I don't think it really neededto come to that.
(24:53):
I think they could haveprobably passed a bill that was
a little more balanced and Ilike the fact that when he was
doing this, he was consideringall.
If they want to do amillionaire's tax, we'll
consider it.
I think there were ways to dothis bill in a more reasonable
structure and I still think thatthe two major items are when
(25:17):
and if the Fed will lower andtwo, when and if.
At some of these auctions wesee higher rates and bond
vigilantes not willing to seelower rates, because higher
rates, as we saw, can quicklyturn around an economy and make
it difficult for everyone.
So let's watch the rates, let'swatch the bonds and I don't
(25:42):
know.
Clem, what do you think is themost important item in this bill
?
What do I think is the mostimportant item?
Clem Miller (25:47):
on this bill.
What do I think is the mostimportant?
I think the Medicaid cuts are avery significant issue
politically and alsoeconomically, because it's
really the first cut at tryingto eat into the so-called
(26:11):
entitlements and might uh pavethe way for, uh, you know, cuts
to social security and cuts touh, you know, bigger cuts to
medicare, uh.
But I think the medicaid issueis very significant.
I think that it has a politicaldimension in that there are a
(26:33):
lot of people on Medicaid in redstates and so I think, as soon
as a lot of people in red statesstart seeing their Medicaid
requirements being shiftedaround, I think there might be
some opposition to that growingand could impact the midterms,
(26:56):
as you were pointing out.
But, steve, I wanted to ask youone last question, since you
mentioned that you thoughtyields might go up in the future
, rates might go up.
Is future Rates might go up?
Is this a?
Steve Davenport (27:14):
time to hold bonds.
I've.
I think everyone who holdsbonds is going to worry about
higher rates and I've tried tomitigate some of what I think is
government risk by looking moreat corporates and looking at
like an LQD, which is acorporate bond ETF, versus an
(27:38):
AGG, which is all bondsincluding treasuries, and I
(27:59):
think that corporations are inbetter shape than the US
government after this, because Ithink the US government,
although it can print, thatprinting will cause inflation
and that inflation will hurteveryone associated with
treasuries and issuing more.
The way to avoid that is to goshorter and also to go in other
spaces like municipalities.
I think some municipalities andmunis are going to do well
(28:20):
because I think the taxes Ibelieve are still a major
consideration and I think thatstates like Massachusetts that
have added a millionaire's tax Ithink we might see more states
like that because the salt andsome of those things is not
going to be enough to help theirfiscal situations in California
(28:43):
and New York.
So I believe that we'll see inthe next five years, more
millionaire's tax to help withthis and I think that what that
does is ultimately makes peoplefeel less confident in the bonds
of the United States.
I think the $5 trillionaddition to our debt ceiling is
(29:05):
quite a move.
Our debt ceiling is quite amove and it does give us some
time in terms of how do weadjust to that and how do we do
it better.
I think Trump's dream of all thetariffs paying for a lot of
this are not likely to come trueand I think it will be absorbed
(29:26):
by the consumer and it will beabsorbed by the importer to a
degree, and some of it will cometo the US, but I think that it
usually leads to higher prices.
Those higher prices willeventually filter through the
consumers and lead to moreinflation.
More inflation is my messagefor today.
(29:46):
I think that more inflation islikely.
Therefore, look at yourduration of the bonds in your
portfolio and try to make sureyou're comfortable.
If rates were to go up by 2% andyour duration is five years,
then you're going to see a 10%decline in your bonds.
(30:07):
That's reality.
If you can live with 10% lessin your bonds, if it's paying
you 3%, 4%, that kind of makesit eat up two years worth of
coupons.
Three years worth of coupons.
I don't think that's really thebest place.
I'd probably say that youshould shorten and think about
(30:30):
more corporates, Shortenduration, include more
corporates and, as always, Ilike munis because I think that
some of that tax benefit is hardto get in other ways.
So I don't know if thatanswered your question or not.
Clem Miller (30:50):
It sure did so.
Appreciate it, steve.
So I think we'll wrap up there.
We really appreciate everybodyjoining us today and if you have
any thoughts about thisparticular podcast or about the
podcast in general, or, you know, moving uh onto video, you know
, should we uh should Stevechange his shirt, uh color, or
(31:14):
uh, should I?
Should I uh cut my hair?
Steve Davenport (31:19):
or let's both smile for the camera as I go off
.
Clem Miller (31:22):
All right, okay, thank you.
Thank you everybody.
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