Finance
House Republican ‘big beautiful’ tax bill favors the rich
House Speaker Mike Johnson speaks to the media after the House narrowly passed a budget bill forwarding President Donald Trump’s agenda at the U.S. Capitol in Washington, May 22, 2025.
Kevin Dietsch | Getty Images
There’s a stark contrast between high-earners and low-income households in a sprawling legislative package House Republicans passed on Thursday.
The bulk of the financial benefits in the legislation — called the “One Big Beautiful Bill Act” — would flow to the wealthiest Americans, courtesy of tax-cutting measures like those for business owners, investors and homeowners in high-tax areas, experts said.
However, low earners would be worse off, they said. That’s largely because Republicans partially offset those tax cuts — estimated to cost about $4 trillion or more — with reductions to social safety net programs like Medicaid and the Supplemental Nutrition Assistance Program, or SNAP.
The tax and spending package now heads to the Senate, where it may face further changes.
‘It skews pretty heavily toward the wealthy’
The Congressional Budget Office, a nonpartisan federal scorekeeper, estimates income for the bottom tenth of households would fall by 2% in 2027 and by 4% in 2033 as a result of the bill’s changes.
By contrast, those in the top 10% would get an income boost from the legislation: 4% in 2027 and 2% in 2033, CBO found.
A Yale Budget Lab analysis found a similar dynamic.
The bottom fifth of households — who make less than $14,000 a year — would see their annual incomes fall about $800 in 2027, on average, Yale estimates.
The top 20% — who earn over $128,000 a year — would see theirs grow by $9,700, on average. The top 1% would gain $63,000.
The Yale and CBO analyses don’t account for last-minute changes to the House legislation, including stricter work requirements for Medicaid.
“It skews pretty heavily toward the wealthy,” said Ernie Tedeschi, director of economics at the Yale Budget Lab and former chief economist at the White House Council of Economic Advisers during the Biden administration.
The legislation compounds the regressive nature of the Trump administration’s recent tariff policies, economists said.
“If you incorporated the [Trump administration’s] hike in tariffs, this would be even more skewed against lower- and working-class families,” Tedeschi said.
Most bill tax cuts go to top-earning households
There are several reasons the House bill skews toward the wealthiest Americans, experts said.
Among them are more valuable tax breaks tied to business income, state and local taxes and the estate tax, experts said.
These tax breaks disproportionately flow to high earners, experts said. For example, the bottom 80% of earners would see no benefit from the House proposal to raise the SALT cap to $40,000 from the current $10,000, according to the Tax Foundation.
More from Personal Finance:
Tax bill includes $1,000 baby bonus in ‘Trump Accounts’
House bill boosts maximum child tax credit to $2,500
Food stamps face ‘biggest cut in the program’s history’
The bill also preserves a lower top tax rate, at 37%, set by the 2017 Tax Cuts and Jobs Act, which would have expired at the end of the year.
It kept a tax break intact that allows investors to shield their capital gains from tax by funneling money into “opportunity zones.”
Trump’s 2017 tax law created that tax break, aiming to incentivize investment in lower-income areas designated by state governors. Taxpayers with capital gains are “highly concentrated” among the wealthy, according to the Tax Policy Center.
All told, 60% of the bill’s tax cuts would go to the top 20% of households and more than a third would go to those making $460,000 or more, according to the Tax Policy Center.
“The variation among income groups is striking,” the analysis said.
Why many low earners are worse off
That said, more than eight in 10 households overall would get a tax cut in 2026 if the bill is enacted, the Tax Policy Center found.
Lower earners get various tax benefits from a higher standard deduction and temporarily enhanced child tax credit, and tax breaks tied to tip income and car loan interest, for example, experts said.
However, some of those benefits may not be as valuable as at first glance, experts said. For example, roughly one-third of tipped workers don’t pay federal income tax, Tedeschi said. They wouldn’t benefit from the proposed tax break on tips — it’s structured as a tax deduction, which doesn’t benefit households without tax liability, he said.
Meanwhile, lower-income households, which rely more on federal safety net programs, would see cuts to Medicaid, SNAP (formerly known as food stamps), and benefits linked to student loans and Affordable Care Act premiums, said Kent Smetters, an economist and faculty director at the Penn Wharton Budget Model.
The House bill would, for example, impose work requirements for Medicaid and SNAP beneficiaries. Total federal spending on those programs would fall by about $700 billion and $267 billion, respectively, through 2034, according to the Congressional Budget Office analysis.
That said, “if you are low income and don’t get SNAP, Medicaid or ACA premium support, you will be slightly better off,” Smetters said.
Some high earners would pay more in tax
In a sense, it may not be surprising most tax benefits accrue to the wealthy.
The U.S. has among the most progressive tax systems in the developed world, Smetters said.
The top 10% of households pay about 70% of all federal taxes, he said. Such households would get about 65% of the total value of the legislation, according to a Penn Wharton analysis published Monday.
A subset of high earners — 17% of the top 1% of households, who earn at least $1.1 million a year — would actually pay more in tax, according to the Tax Policy Center.
“In part this is due to limits on the ability of some pass-through businesses to fully deduct their state and local taxes and a limit on all deductions for top-bracket households,” wrote Howard Gleckman, senior fellow at the Tax Policy Center.
Cybersecurity and enterprise software stocks have been market dogs in 2026, with fears that AI will wipe out a wide range of companies in the enterprise space dominating the narrative. But they snapped a brutal losing streak this past week, joining in the broader market rally that saw all losses from the U.S.-Iran war regained by the Dow Jones Industrial Average and S&P 500.
Cybersecurity has been “a victim of some of the AI-related headlines,” Christian Magoon, Amplify ETFs CEO, said on this week’s “ETF Edge.”
It wasn’t just niche cybersecurity names. Take Microsoft, for example, which was recently down close to 20% for the year. Its shares surged last week by 13%.
A big driver of the pummeling in software stocks was a rotation within tech by investors to AI infrastructure and semiconductors and some other names in large-cap tech, Magoon said, and since cybersecurity stocks and ETFs are heavily weighted towards software companies, they were left behind even as those businesses continue to grow on a fundamental basis.
But Wall Street now has become more bullish with the stocks at lower levels. Brent Thill, Jefferies tech analyst, said last week that the worst may be over for software stocks. “I think that this concept that software is dead, and then Anthropic and OpenAI are going to kill the entire industry, is just over-exaggerated,” he said on CNBC’s “Money Movers” on Wednesday.
“Big Short” investor Michael Burry wrote in a Substack post on Wednesday that he is becoming bullish about software stocks after the recent selloff. “Software stocks remain interesting because of accelerated extreme declines last week arising from a reflexive positive feedback loop between falling software stocks and changes in the market for their bank debt,” he wrote.
The Global X Cybersecurity ETF (BUG), is down about 12% since the beginning of the year, with top holdings including Palo Alto Networks, Fortinet, Akamai Technologies and CrowdStrike. But BUG was up 12% last week. The First Trust NASDAQ Cybersecurity ETF (CIBR) is down 6% for the year, but up 9% in the past week.
Piper Sandler analyst Rob Owens reiterated an “overweight” rating on Palo Alto Networks which helped the stock pop 7% — it is now down roughly 6% on the year. Its peers saw similar moves, including CrowdStrike.
Performance of Global X cybersecurity ETF versus S&P 500 over past one-year period.
Magoon said expectations may have become too high in cybersecurity, and with a crowding effect among investors, solid results were not enough to to push stocks higher. But the down-and-then-back-up 2026 for the sector is also a reminder that when stocks fall sharply in a short period of time, opportunity may knock.
“Once you’re down over 10% in some of these subsectors, you start to see the contrarians start to say, ‘well, maybe I’ll take a look at this,'” Magoon said.
He said AI does add both opportunity and uncertainty to the cybersecurity equation, increasing demand but also introducing new competition. But he added, “I think the dip is good to buy in an AI-driven world,” specifically because the risks to companies may lead to more M&A in cyber names that benefits the stocks.
For now, investors may look for opportunity on the margins rather than rush back into beaten-up tech names. “I think investors are still going to remain underweight software,” Thill said.
But Magoon advises investors to at least take the reminder to keep an eye on niches in the market during pronounced downturns. “The best-performing are often the least bought and do the best over the next 12 months versus late-in-the-game piling on,” he said.
While that may have been a mindset that worked against the last investors into cybersecurity and enterprise software in mid-2025 when the negative sentiment started building, at least for now, it’s started working for the stocks in the sector again.
Meanwhile, this year’s biggest winner is also a good example of what can be an extended trade in either a bullish or bearish direction. Last year, institutional ownership of energy was at multi-year lows, Magoon said, referencing Bank of America data. “Reverse sentiment can be a great indicator,” he said.
But he cautioned that any selective buying of stocks that have dipped does have to contend with the risk that there is a potentially bigger drawdown in the market yet to come in 2026. That is because midterm election years historically have been marked by large drawdowns. “If you think it is bad right now, it could get a lot worse,” Magoon said. But he added that there’s a silver-lining in that data, too, for the patient investor. The market has posted very strong 12-month returns after midterm election drawdowns end. So, for investors with a longer-term time horizon and no need for short-term liquidity, Magoon said, “stick in there.”
Sign up for our weekly newsletter that goes beyond the livestream, offering a closer look at the trends and figures shaping the ETF market.
New innovation in the exchange-traded fund industry could come at a cost to investors during extreme conditions.
According to MFS Investment Management’s Jamie Harrison, ETFs involved in increasingly complex derivatives and less transparent markets may be in uncharted territory when it comes to violent downturns.
“Those would be something that you’d want to keep an eye on as volatility ramps up,” the firm’s head of ETF capital markets told CNBC’s “ETF Edge” this week. “As innovation continues to increase at a rapid pace within the ETF wrapper, [it’s] definitely something that we advise our clients to be really front-footed about… Lack of transparency could absolutely be an issue if we’re going to start seeing some deep sell-offs.”
His firm has been around since 1924 and is known for inventing the open-end mutual fund. Last year, ETF.com named MFS Investment Management as the best new ETF issuer.
“It’s important to do due diligence on the portfolio,” he said. “Having a firm that has deep partnerships, deep bench of subject matter experts that plays with the A-team in terms of the Street and liquidity providers available [are] super important.”
Liquidity as the real issue?
Harrison suggested the real issue is liquidity, particularly during a steep sell-off.
“We’ve all seen the news and the headlines around potential private credit ETFs. That picture becomes much more murky,” he added. “It’s up to advisors, to investors [and] to clients to really dig in and look under the hood and engage with their issuers.”
He noted investors will have to ask some tough questions.
“What does this look like in a 20% drawdown? How does this liquidity facility work? Am I going to be able to get in? Am I going to be able to get out? And if I’m able to get out, am I able to get out at a price that’s tight to NAV [net asset value], and what’s the infrastructure at your shop in terms of managing that consideration for me,” said Harrison.
Amplify ETFs’ Christian Magoon is also concerned about these newer ETF strategies could weather a monster drawdown. He listed private credit as a red flag.
“If your ETF owns private credit, I think it’s worth taking a look at, kind of what the standards are around liquidity and how that ETF is trading, because that should be a bit of a mismatch between the trading pace of ETFs and the underlying asset,” the firm’s CEO said in the same interview.
Magoon also highlighted potential issues surrounding equity-linked notes. The notes provide fixed income security while offering potentially higher returns linked to stocks or equity indexes.
“Those could potentially be in stress due to redemptions and the underlying credit risk. That’s another kind of unique derivative,” Magoon said. “I would very closely look at any ETF that has equity-linked notes should we get into a major drawdown or there be a contagion in private credit or something related to the banking system.”
What that means for consumer loans
Checks and Balance newsletter: Of God and MAGA
Why software stocks, 2026’s market dogs, have joined the rally
Armanino adds Strategic Accounting Outsourced Solutions
New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations
