• • • Changing the balance of taxes 鈥� Budget鈥慸riven tax swaps and incentive reforms are changing the balance between income, property, and sales taxes, forcing large companies to revisit their multistate footprint.

    • How revenue is sourced is changing, too 鈥� Rapidly evolving digital and AI鈥憆elated taxes are creating new nexus, sourcing, and base鈥慸efinition issues for businesses that rely on revenue from digital advertising, social platforms, data monetization, and automated tools.

    • Planning amid continued uncertainty 鈥� New federal tax regulations, tariff鈥憆elated uncertainty, and even the elimination of the penny are all amplifying state鈥慴y鈥憇tate complexity for in鈥慼ouse tax departments.

WASHINGTON, DC 鈥� Tax industry experts who gathered at to provide updates on the current landscape of state and local tax (SALT) policy and offer insight that corporate tax departments should consider found, not surprisingly, that they had a lot to talk about in the current economic environment.

Mapping the new SALT frontier

For starters, this year鈥檚 SALT agenda is not just an abstract policy story for large, multistate businesses, rather, it鈥檚 a direct driver of cash taxes, effective tax rate (ETR) volatility, and audit exposure. Indeed, several state legislatures are advancing new taxes on digital advertising and data, revisiting incentives and data center exemptions, and using conformity to federal law 鈥� especially the tax provisions in the One Big Beautiful Bill Act (OBBBA) 鈥� as a policy lever, all against the backdrop of slowing revenues and contentious elections.

鈥淭ax swaps鈥� and incentives 鈥� States that are facing budget pressure are, unsurprisingly, looking at tax swaps to reduce income or property taxes while broadening the sales & use tax base and trimming exemptions. For example, on March 3, the state of Florida 鈥� which already doesn鈥檛 have a state income tax 鈥� passed legislation that in the state.

Moreover, with the rapid expansion of AI come the extensive need for data centers. Several states are reassessing data center exemptions and credits, either tightening qualification standards, requiring centers to supply more of their own power, or repealing incentives outright. A decision in Virginia to , for example, is viewed as a potential template for other states, particularly in those areas in which energy and environmental concerns are priorities. At the same time, proposals targeting include expanded corporate tax disclosures, CEO compensation surcharges, and enhanced reporting on apportionment and group filing methods.

What companies should consider 鈥� Large companies operating over multiple states should consider making an inventory of their credits and incentives by jurisdiction, including looking at sunset dates and political risk indicators.

Companies should also build forward鈥憀ooking models that show how any sales tax base expansion would interact with their supply chain and their procurement of digital and professional services.

New exposure for tech, marketing & data

Bipartisan legislators in several states are continuing to expand on digital economies as a revenue and policy target. For example, Maryland continues to lead with its digital advertising tax; while Washington state鈥檚 expansion of its sales tax to include certain digital and IT services and Chicago鈥檚 social media taxes illustrate the variety of approaches that state and local jurisdictions are exploring to expand their tax base and raise revenue.

Data and 鈥渄igital resource鈥� taxes 鈥� Proposals in states such as New York would tax companies that derive income from resident data, treating data as a natural resource. While no state has fully implemented a comprehensive data tax, however, large platforms and data鈥慸riven enterprises are monitoring these bills closely.

AI鈥憆elated SALT rules 鈥� Many states still classify AI solutions under existing Software as a Service (SaaS) or data鈥憄rocessing categories, but some 鈥� including New York 鈥� are exploring surcharges tied to AI鈥慸riven workforce reductions. And at least two states are explicitly taxing AI, similarly to the way software is taxed.

For corporate tax leaders, some practical next steps should include mapping those areas in which your group has digital ad spending, user bases, data monetization, or AI deployments. Then, overlaying that with current and pending digital tax proposals. In parallel, it is increasingly critical for the tax team to partner with IT and marketing teams to understand how contracts, invoicing structures, and platform design will affect nexus, tax base definition, and sourcing.

Federal shifts magnify multistate complexity

The OBBBA made permanent several of , while expanding SALT relief on the individual side and creating new interactions for multinational groups. Because most states start from federal taxable income 鈥� either on a rolling, static, or selective conformity basis 鈥� OBBBA changes reverberate across state corporate income tax bases, especially in those states that have decoupled themselves from interest limits, R&D expensing, or new production鈥憆elated incentives.

Corporate tax departments must now juggle different conformity dates and selective decoupling rules across rolling and static states, including jurisdictions that automatically decouple when a federal change exceeds a revenue impact threshold. This requires more granular state鈥慴y鈥憇tate modeling of OBBBA impacts on apportionable income, deferred tax balances, and cash tax forecasts. It also heightens the risk that political disputes 鈥� such as 鈥� produce mid鈥慶ycle changes that complicate provision and compliance processes.

Penny elimination 鈥� With federal , states now are moving toward symmetrical rounding for cash transactions, rounding the final tax鈥慽nclusive total to the nearest five cents while attempting not to alter the underlying tax computation. For retailers and consumer鈥慺acing enterprises, this shifts the focus to point of sale (POS) configuration, consumer鈥憄rotection exposure, and class鈥慳ction risk if rounding is implemented incorrectly.

Tariffs and refunds 鈥� The U.S. Supreme Court鈥檚 Learning Resources, Inc. v. Trump decision under the International Emergency Economic Powers Act in February leaves open how more than $100 billion in and what that means for prior sales & use tax treatment. Streamlined guidance generally treats tariffs embedded in product prices as part of the taxable sales price but excludes tariffs paid directly by a consumer鈥慽mporter from the tax base, raising complex questions if tariff refunds reduce costs or sales prices retroactively.

For indirect tax department teams, the confluency of the 2026 SALT changes 鈥� including the impacts around everything from data center credits to the recent Supreme Court tariff decision 鈥� the need to rely on internal partners across the business has never been stronger. Combining that with a greater reliance on technologies, including dedicated research tools to stay abreast of state-by-state tax changes, may be the best way for corporate tax teams to keep up with compliance requirements and avoid penalties.

You can download a full copy of here

Key highlights:

• • • Tax credit transferability survived intact鈥� The OBBBA preserved Section 6418 transferability rules despite earlier proposals to sunset or repeal them.

    • AI-driven data center boom may revive renewable energy tax credits鈥� With data centers projected to consume 12% of all US energy by 2028, large operators have strong incentives to advocate for preserving and expanding renewable tax credits to meet massive energy demands through solar, geothermal, and battery storage solutions.

    • 2026 market conditions favor buyers due to supply-demand imbalance鈥擨ncreased supply of tax credits (particularly Section 45Z clean fuel production credits) combined with reduced buyer competition from provisions like Section 174 and bonus depreciation has created advantageous pricing.

At the start of the current Trump administration, green energy tax credits were expected to be slashed or disappear altogether. In reality, significant changes emerged instead of ceasing to exist. More specifically, the One Big Beautiful Bill Act (OBBBA), passed in July 2025, kept the transferability rules around green energy tax credits intact.

As a result, the market for these credits remains robust in 2026 and 2027, says , an energy tax authority and principal at accounting firm CliftonLarsonAllen (CLA). In addition, multiple credits still have runway, and near-term dynamics in 2026 may favor buyers.

OBBBA鈥檚 changes result in shifts in marketplace conditions

When the OBBBA bill passed, the specifics revealed a more optimistic picture than many understand. According to Hill, specific examples include:

• • Wind and solar projects 鈥� Developers that begin construction by July 4, 2026, still have a four-year window to complete their projects and still claim credits. Even projects that miss this construction deadline can qualify if they’re placed in service by December 31, 2027.
  • Clean fuel production credits 鈥� Clean fuel production credits, detailed in OBBBA鈥檚 Section 45Z, received an extended runway through 2029.
  • Tax credit transferability 鈥� The tax credit transferability aspect under Section 6418 remained whole, despite previous versions of the bill proposing either a sunset date or outright repeal of transferability. This fact provides a level of marketplace certainty that can act as critical liquidity for developers that typically lack the tax liability to use credits themselves.

In addition, the legislation altered the buyer and seller environment. Provisions including OBBBA鈥檚 Section 174 and bonus depreciation generated additional deductions for certain companies, and as a result, reduced those companies鈥� 2025 corporate tax liability. Simultaneously, Section 45Z clean fuel production tax credits came into force and created a supply-demand imbalance that favors buyers.

Overall, in the latter half of 2025, Hill describes the marketplace as favorable for buyers because of an increased supply of tax credits that were for sale previously with fewer buyers. Into 2026 and beyond, both developers and corporate buyers still have significant opportunities to participate in the tax credit marketplace, explains Hill.

AI-related data center demand may spur new proposals for renewables tax credits

The explosive proliferation of data centers because of the growing AI demand across the United States may become the unexpected champion for renewable energy tax credits. Hundreds of facilities are currently under construction, and the energy demand implications are staggering. In fact, the projects that by 2028, data centers will consume 12% of all US energy.

Renewable energy technologies are emerging as essential solutions to meet these demands. Solar power, as a tried-and-true technology, offers ideal supplementation for data center operations; and geothermal heating and cooling systems directly address the massive temperature control challenges these facilities face. Perhaps most significantly, battery storage is rapidly becoming standard operating procedure, with both grid-based and solar-array-tied battery systems providing critical backup power.

These developments carry substantial policy implications. In fact, large data center operators have incentives to become vocal advocates for preserving and expanding renewable tax credits, says , a leader in federal tax strategies at CLA. “We want our AI, we want our cloud-based services. To do that鈥� we need massive data centers and massive computing demands,鈥� DePrima explains. 鈥淎nd that in turn requires massive amounts of energy consumption, which renewables can certainly supplement.鈥� This, in turn, creates the potential for a renewable energy tax credit “comeback” within two to three years, he adds.

Guidance for buyers and sellers

Looking ahead to 2026 and beyond, both buyers and sellers of renewable energy tax credits should recognize that significant opportunities remain despite regulatory changes. More specifically:

For buyers 鈥� Buyers should act now to capitalize on favorable market conditions. With increased credit supply and reduced buyer competition due to provisions like Section 174 and bonus depreciation, pricing has become more advantageous. Buyers of renewable energy tax credits should consider structuring 2026 transactions to directly offset estimated tax payments throughout the year, thereby improving cash flow by making payments to sellers rather than the IRS. Financial institutions remain particularly well-positioned as buyers, as many have explored tax credit carryback opportunities to increase their tax savings even further.

For sellers and developers 鈥� Renewable energy tax credits sellers and energy project developers can use tax-credit monetization as a critical component of project financing because the ability to convert credits into immediate cash proceeds is essential for paying down debt and funding new projects. Despite initial concerns, substantial opportunities remain with credits outlined in Sections 45Z, 45X, 48E, and 45Y which are transferable and viable through 2029 and beyond.

In either case, tax credit transferability under Section 6418 offers key opportunities in the marketplace. Whether buyers are looking to reduce their corporate tax burden while supporting clean energy goals, or developers are seeking to monetize renewable projects 鈥� tax credits offer incentives to move forward.

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, or tax advice or opinion provided by CliftonLarsonAllen LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader鈥檚 specific circumstances or needs, and may require consideration of nontax and other tax factors if any action is to be contemplated. The reader should contact his or her CliftonLarsonAllen LLP or other tax professional prior to taking any action based upon this information. CliftonLarsonAllen LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

You can find out more about renewable energy tax credits here

Key takeaways:

• • • Immediate R&D deductions 鈥� The One Big Beautiful Bill Act introduces Section 174A, which restores immediate deduction of domestic research and experimental expenditures starting in tax years beginning after December 31, 2024, reversing the controversial five-year amortization requirement that took effect in 2022.

    • Retroactive tax changes 鈥� Small business taxpayers with average annual gross receipts of $31 million or less (for tax years beginning in 2025) will generally be permitted to apply this change retroactively to taxable years beginning after December 31, 2021, offering significant opportunities for amended returns and potential refunds.

    • Planning considerations needed 鈥� The legislation modified Section 280C, which now requires that domestic R&E expenditures be reduced by the amount of research credit, creating new planning considerations for businesses claiming R&D tax credits alongside Section 174 deductions.

The Tax Cut and Jobs Act (TCJA), enacted in December 2017, brought significant changes to Section 174, impacting how businesses account for research and development (R&D) expenditures. With the passage of the One Big Beautiful Bill Act earlier this year, the landscape has shifted dramatically once again, requiring tax departments to engage in strategic planning and proactive tax management.

Section 174: From immediate expense to amortization

First enacted in 1954, Section 174 allowed for the deduction of expenditures related to R&D in the year the expense occurred. The TCJA eliminated the ability to deduct R&D costs as an expense in the year incurred, requiring costs to be amortized over five years for domestic research and 15 years for research outside of the United States.

Over the years, the IRS released guidance several times on how best to approach Section 174鈥檚 R&D capitalization. The most recent substantive guidance came in Notice 2023-63 (in September 2023), which provided interim guidance on the capitalization and amortization of specified research or experimental expenditures; and Notice 2024-12 (December 2023), which clarified the earlier guidance. Additionally, Revenue Procedure 2025-8 (December 17, 2024) provided updated procedural guidance for taxpayers filing automatic accounting method changes related to Section 174 expenditures.

Since the changes to Section 174 took effect in 2022, businesses have struggled to track R&D costs, including what should be excluded or included. This shift created cash flow challenges for innovation-driven industries, leading to widespread calls for reform.

The One Big Beautiful Bill Act: A game-changer for R&D expensing

The One Big Beautiful Bill Act (OB3) that was signed into law by President Trump on July 4th, brought sweeping changes to the tax treatment of domestic R&D expenditures. Under a new addendum, Section 174A, capitalization is no longer required for qualified domestic research activity for tax years beginning after December 31, 2024.

This represents a major victory for businesses that have been lobbying for relief from burdensome amortization requirements. For many businesses, this change will simplify tax compliance, improve cash flow, and reduce overall tax liability.

Importantly, amounts paid or incurred in connection with software development are treated as R&E expenditures eligible for immediate expensing, which can provide particular relief to technology companies and startups. However, research or experimental expenditures attributable to research conducted outside the United States must continue to be capitalized and amortized over 15 years, creating a bifurcated system that requires careful tracking of domestic R&D activities, compared to foreign activities.

The OB3 legislation also includes particularly generous provisions for small businesses. Small taxpayers 鈥� those defined by a gross receipts threshold established in Section 448(c) 鈥� can amend tax returns as far back as 2022 to reverse the capitalization of R&E expenses. The Section 448(c) threshold is adjusted annually for inflation; and currently, for tax years beginning in 2025, the threshold is $31 million in average annual gross receipts over the prior three tax years.

For all taxpayers that made domestic research or experimental expenditures after December 31, 2021, and before January 1, 2025, will be permitted to elect to accelerate the remaining deductions for such expenditures over a one-year or two-year period, providing flexibility in managing taxable income.

Planning for the new landscape

While the OB3 provides welcome relief, corporate tax professionals must remain vigilant and proactive. The legislation introduces new complexities, particularly around . The change mirrors the Section 280C rules that were in place prior to the enactment of TCJA in 2017, although taxpayers still have the option to make an election under Section 280C that would reduce their research credit by the maximum corporate tax rate (21%) in lieu of reducing their domestic R&E expenditures.

Here are other key considerations for corporate tax department leaders navigating the new Section 174A landscape:

Understanding qualified research 鈥� Tax departments must understand what is considered qualified research and development under the new rules. This involves staying current on all guidelines issued by tax authorities and working closely with the company’s R&D team. Critically, teams must now distinguish between domestic and foreign R&D activities, as the tax treatment differs significantly. This information should be communicated to upper management when considering product expansion or enhancements.

Documentation & recordkeeping 鈥� Concise documentation of any expense activity remains essential. Tax departments should capture now and decide later 鈥� because it’s better to have the data than not. For any R&D activity that takes place outside of the US, all data should be captured separately from domestic activities. Corporate tax departments should systemize documentation, collection, and storage of R&D expense-related information.

Amended return opportunities 鈥� Small businesses should immediately evaluate whether they qualify for retroactive relief and assess the potential benefits of amending their returns for the years 2022 through 2024. Even larger taxpayers should analyze whether electing to accelerate remaining unamortized amounts into 2025 or splitting them between 2025 and 2026 provides optimal tax outcomes.

Section 280C planning 鈥� Departments must carefully model the interaction between R&D tax credits and Section 174A deductions. The restored reduction requirement means businesses must evaluate whether making the Section 280C election to reduce the credit rather than taking the deduction would provide better overall tax results.

Scenario planning 鈥� Departments should develop multiple financial models based on different elections and timing strategies. This will help the company understand the range of impacts these changes will have on cash flow, net operating losses, and overall tax liability.

The OB3 represents a major course correction for R&D tax policy, but it requires tax professionals to adopt a proactive approach to maximize benefits. Corporate tax departments can navigate these changes effectively by staying informed about legislative developments, engaging in continuous learning, and leveraging advanced tax planning strategies. Also, collaboration with internal teams and external advisors will be crucial in identifying opportunities and mitigating risks.

Ultimately, establishing a proactive and nimble mindset will enable corporate tax professionals to optimize their positions and drive business success in this evolving regulatory landscape.

You can find more about how the One Big Beautiful Bill Act has impacted tax issues here

Key findings:

• • State-level changes 鈥� States are responding to the impact of OBBBA on state-level taxation.

  • Budget shortfalls may result 鈥� Several states are already projecting reduced revenue collections because of the OBBBA.

  • Multi-state business impacts 鈥� Businesses with multi-state operations should re-evaluate where their operations are located for tax purposes.

The One Big Beautiful Bill Act (OBBBA) ushered in sweeping federal tax changes including provisions aimed at stimulating domestic business investment, particularly in manufacturing and research & development. While many businesses welcome the enhanced federal deductions, the changes are also significantly shifting the landscape for taxation at the state and local levels.

The impacts of the OBBBA are playing out differently across states, depending on each state鈥檚 own tax rules. In addition, the Act is likely to have fiscal ripple effects for states, including new budget challenges. How states respond to these combined impacts promises to dramatically reshape the tax environment, particularly for businesses operating across multiple jurisdictions.

These are among the considerations that seem to be keeping clients up at night 鈥� despite the federal tax benefits of the Act, many business owners and tax professionals are nervous about what it鈥檚 going to be mean at the state and local levels.

Impact on state-level tax policies

For businesses that operate across multiple states, the state and local tax landscape is suddenly more dynamic and much less predictable. States generally start their income tax calculations based upon federal taxable income, but they then modify those numbers based on their own rules and legislative priorities. That means federal changes, such as bonus depreciation or research expensing, are often partially or fully clawed back at the state level. So key provisions of the OBBBA, particularly those involving deductions and R&D expenses, will impact specific businesses differently depending on a state鈥檚 existing tax rules and policies.

For example, the OBBBA allows immediate 100% expensing for federal purposes for fixed assets placed in service after January 19, 2025. However, many states already decouple their assessments from federal bonus depreciation. Other states adjust the percentage or disallow the bonus entirely, forcing an addback and requiring businesses to instead use standard federal depreciation schedules. In fact, OBBBA threatens to widen these differences for deductions.

The impacts of the OBBBA are playing out differently across states, depending on each state鈥檚 own tax rules.

Similarly, the OBBBA enhances the ability of businesses to expense qualifying domestic R&D costs. Historically, only a few states followed the federal shift from expensing to capitalization under prior law. Some states, such as Indiana, may now conceivably permit a double deduction for these expenses under concurrent federal and state codes. Meanwhile, other states will likely reassess or restrict the treatment of these deductions because of concerns over the potential negative impact on state revenues.

Michigan and Rhode Island, for example, recently enacted legislation decoupling from the OBBBA provision that allows for the immediate deduction of domestic research and development expenses, resulting in the continued requirement to capitalize such amounts for state purposes.

State budget concerns

Meanwhile, concerns about the effect of the Act on state revenues could result in far more significant impacts.

One of the most immediate consequences of the OBBBA has been already observed in several states: Illinois, Maryland, Nebraska, and Oregon are among the states that have publicly acknowledged that major federal funding cuts in programs like Medicare, Medicaid, SNAP food assistance, and broader social services are likely to trigger budget shortfalls. And Colorado recently announced a projected $1 billion shortfall, prompting tax increases and a November 2026 referendum to raise income tax rates on certain high-income levels.

While clearly, nobody has a crystal ball, the OBBBA is already putting a lot of strain on state budgets and more states will likely follow in Colorado鈥檚 footsteps.听 Indeed, at a Massachusetts Department of Revenue roundtable held September 30, Commissioner Geoffrey E. Snyder declared that the OBBBA is projected to reduce the state鈥檚 revenue collections by almost $700 million in their 2026 fiscal year.

Impact on businesses

For businesses, navigating through all these changes complicates everything from daily operations to long-term strategy planning 鈥� and the stakes are considerable.

New tax increases or other changes in state tax rules could change asset deployment strategies, shift business expansion plans, and even encourage relocation to more favorable jurisdictions. Robust proactive tax planning is now a competitive necessity rather than a defensive maneuver.

To get on top of this, tax professionals should look into adopting more customized, multi-state mindsets for their clients. It鈥檚 essential that tax professionals fully grasp the substance and trajectory of each material state, or those states in which their clients鈥� businesses have significant business activity. Given that most states currently apportion taxable income primarily based on revenue, rather than physical presence, the rules governing each material state should be monitored closely in addition to the state in which the client is headquartered.

To get on top of this, tax professionals should look into adopting more customized, multi-state mindsets for their clients.

Further complicating matters is that the ripple effects from state responses will vary considerably in terms of timing. Some state legislatures only meet biennially, while some states may call special sessions to address urgent revenue needs or adjust their rules to conform with federal law. States also may enact rapid changes in response to headline-making budget projections 鈥� often with little warning.

Tax professionals need to stay proactive and vigilant, and most importantly, keep their finger on the pulse of state tax policies to best keep their clients informed. Some key steps for tax professionals include:

• • • Conduct a 鈥渕aterial state鈥� audit 鈥� Proactively identify and monitor those states in which clients have meaningful revenue, as those locations will now drive new tax risks and opportunities.
    • Stay informed on legislative developments 鈥� Closely track statements from state governments, economic development departments, and relevant tax and economic authorities on budget forecasts and discussion of anticipated responses.
    • Educate and advise clients with flexibility and understanding 鈥� Provide clients with regular updates on state-level changes and counsel them to build flexibility into their business forecasts and strategies, especially around capital expenditures and R&D investments.

While the OBBBA is ultimately a federal catalyst 鈥� the state and local reverberations of the Act are just beginning to be felt. For tax professionals, this is a moment to lead by educating clients, anticipating legislative shifts, and building resilient tax strategies across jurisdictions. State and local responses to the OBBBA will be diverse and are only beginning to unfold. Steady guidance from tax professionals can make the difference between whether their clients thrive or flounder amid all these changes.

You can find more of our coverage of the One Big Beautiful Bill Act here

Key insights:

• • • Federal deregulation triggers state-level activism 鈥� When federal standards are rolled back or enforcement wanes, many states are compelled to step in to fill gaps with their own regulations, heightened enforcement, and multistate collaborative efforts.

    • Divergent state responses create a regulatory patchwork 鈥� Some states tighten rules and enforcement while others align with federal-level deregulation, producing uneven protections for citizens and complex compliance landscapes for businesses.

    • Tension between uniformity and resilience defines US governance 鈥� Federal oversight best ensures consistency across markets, but the federal system鈥檚 resilience allows states to act as backstops when national leadership retreats, leading to increased fragmentation.

Power shifts in Washington often bring a fresh wave of rules and priorities. Each new presidential administration or Congress sets its own course, shaping how regulations are written and enforced. While that can drive momentum for new ideas, it can also disrupt ongoing efforts at compliance, risk management, and fraud prevention.

In response, some individual states have stepped in to provide a measure of continuity, aiming to keep standards more consistent even as federal policies evolve.

Under this new administration, we are seeing regulations being rolled back, watered down, or simply not enforced as strictly as they once were. Proponents of this shift argue that it’s a necessary step to cut red tape, making government more accountable, efficient, and innovative. The idea is that by streamlining processes and reducing bureaucratic hurdles, we can unlock new possibilities and opportunities for businesses.

However, not everyone is convinced that this is a positive development. Some worry that in the name of simplicity and flexibility, essential safeguards and standards might be compromised. When regulations are relaxed, corporations may choose to opt for the bare minimum, rather than striving for excellence. This approach can have unintended consequences, potentially undermining the very goals that proponents of deregulation aim to achieve.

As this trend develops at the federal level, there is uncertainty regarding the long-term implications and which entities will establish greater consistency nationally and internationally. At this pivotal moment, certain states have determined it is their responsibility to take proactive measures.

States step in

States, when confronted with a decrease in federal regulation, typically employ three main strategies: direct regulatory action, adjustments to enforcement, and legal or collaborative initiatives.

In the first approach, states may directly fill the void left by federal deregulation. This often involves enacting their own laws and regulations that mirror or even strengthen the withdrawn federal standards. State agencies then assume the regulatory authority previously held by the federal government, and state attorneys general can use existing state laws to continue enforcement in areas no longer federally prioritized.

Second, federal rollbacks can lead to shifts in state enforcement efforts. Some states may respond by increasing their inspections and prosecutions to address potential gaps, with state attorneys general initiating investigations into areas like consumer finance fraud or environmental violations. Conversely, states leaning towards deregulation might ease their own enforcement, aligning with the federal shift. This creates a wide spectrum of state responses, from bolstering efforts to scaling back.

Finally, states often can engage through legal challenges and collaborative alliances. They might challenge federal rollbacks in court, arguing a lack of proper justification. Concurrently, states may form coalitions to collectively uphold higher standards. These legal and cooperative strategies indirectly aim to reinstate or substitute federal standards through judicial processes or collective action, rather than through individual state policy changes.

States, when confronted with a decrease in federal regulation, typically employ three main strategies: direct regulatory action, adjustments to enforcement, and legal or collaborative initiatives.

The impact of each of these moves is significant: businesses must adapt to diverse regulatory regimes, citizens face different levels of protection, and the courts become arbiters in federal/state disputes. While this patchwork can be challenging, it also highlights the important role that states play in safeguarding (or not safeguarding) public interests when federal oversight ebbs.

California鈥檚 case for clean air

To look at one example, the State of California鈥檚 response to federal deregulation has been unmatched in scope and impact. California has passed state-level laws to replace rolled-back federal rules (from clean air and climate standards to net neutrality), tightened enforcement, and led legal challenges to uphold stricter standards 鈥� no other states have deployed this combination as effectively.

Over the past decade, California has cemented its role as a counterweight to federal rollbacks, especially on the environment. When federal policy wavered, the state swiftly strengthened its own rules. Notably in 2018, the legislature passed , committing the state to 100% carbon-free electricity by 2045, which then-Governor Jerry Brown hailed as reaffirming California鈥檚 global climate leadership.

Indeed, California has responded with a comprehensive strategy, including the enactment of stringent state regulations, enhanced enforcement measures, and leadership in coalitions and legal actions. These efforts have maintained important protections for citizens 鈥� such as environmental quality, climate policy, and consumer internet rights 鈥� even as federal standards have been relaxed.

Through a combination of proactive and defensive measures, California has preserved high standards for its residents while encouraging industry compliance and influencing other states to adopt similar policies. Over the past decade, this approach exemplifies continuity, the upholding of regulatory benchmarks, a response to federal/state dynamics, and an adaptive governance position in response to deregulation.

What tomorrow may bring

The evolving relationship between federal and state regulatory authority reveals a fundamental tension in American governance. While the need for regulatory consistency across markets and jurisdictions strongly suggest that federal oversight represents the optimal approach to regulation, the resilience of our federal system demonstrates that state and local governments can serve as a safety net if need be.

Federal regulation offers clear advantages: uniform standards that prevent a patchwork of conflicting requirements, economies of scale in enforcement, and the ability to address issues that transcend state boundaries. However, when federal authorities retreat from enforcement or begin to dismantle existing regulations, state governments have consistently stepped forward as crucial backstops, implementing their own protective measures and intensifying oversight to safeguard their citizens. This dynamic ensures regulatory continuity, although it inevitably creates the very fragmentation that federal consistency seeks to avoid.

Further, this pattern of state activism in response to federal rollbacks will likely persist, particularly during periods of divided government or shifting national priorities. The resulting complexity requires careful navigation by all stakeholders. While advocates for robust regulation can leverage state venues when federal action stalls, businesses and regulators face the ongoing challenge of balancing national uniformity with state-level innovation and active responsiveness.

Ultimately, this interplay between federal leadership and state resilience highlights both the strength and adaptability of the American regulatory system. Although consistency argues for federal primacy, the system’s ability to redistribute authority across alternative governmental levels in response to political and social changes ensures that regulatory protections endure 鈥� even when delivered through the more complex mechanism of state-by-state implementation.

You can find out more about the many challenges companies face from regulatory enforcement here

Key insights:

• • • The OBBBA has stricter verification requirements 鈥� These requirements have inadvertently created an environment that incentivizes fraudulent activities, such as identity theft and document forgery, especially among individuals seeking Medicaid and ACA coverage.

    • The OBBBA enacts tax policy modifications 鈥� These modifications, including reduced third-party reporting mechanisms and expanded tax benefits, may create opportunities for underreporting of income among gig workers and small businesses.

    • OBBBA’s contains large-scale funding mechanisms 鈥� These mechanisms along with rapid implementation may put pressure on traditional procurement safeguards, creating potential challenges in oversight and accountability.

The One Big Beautiful Bill Act (OBBBA) aimed to fulfill several policy objectives from the Trump Administration’s campaign platform. However, an examination of the legislation and its implementation reveals mixed results, particularly concerning potential vulnerabilities for fraud, waste, and abuse across various sectors.

Healthcare eligibility fraud: A slippery slope

The OBBBA introduced stricter verification requirements for lawful status, residency, and work eligibility within healthcare benefit programs. While intended to bolster program integrity, these tightened standards have, in some cases, inadvertently incentivized fraudulent activities.

For example, individuals seeking Medicaid and Affordable Care Act (ACA) coverage have reportedly resorted to identity theft, document forgery, and falsified employment or training records to meet the new criteria. This environment has attracted organized fraud networks and unscrupulous enrollment brokers who exploit system vulnerabilities, ultimately impacting legitimate beneficiaries through compromised identities and bilking taxpayers through misallocated resources.

Historically, enhanced verification measures have sometimes led to similar unintended consequences. The period after passage of the Immigration Reform and Control Act of 1986 (IRCA), for instance, saw a rise in widespread counterfeiting operations due to document requirements. Similarly, Medicaid programs have consistently battled identity fraud, and related work requirement pilot programs have shown patterns of misreporting. The rapid, large-scale eligibility transitions during the pandemic also created opportunities for fraudulent activity. These historical examples demonstrate an unfortunate reoccurring pattern that sometimes administrative safeguards, while designed for integrity, can create incentives for sophisticated circumvention strategies.

Tax policy changes: Opening doors to evasion

The OBBBA’s tax policy modifications have introduced new dynamics in reporting and compliance, potentially affecting revenue collection. The legislation reversed the $600 1099-K reporting threshold and raised 1099-MISC/NEC thresholds to $2,000. This reduction in third-party reporting mechanisms makes it harder to ensure accurate income declaration. Simultaneously, the law expanded certain tax benefits, including a 100% federal credit for private-school scholarship donations and a doubled, qualified small business stock exclusion. These changes impact various stakeholders, including gig workers, self-employed individuals, operators of small businesses, high-income investors, charitable organizations, and tax planning professionals.

In addition, state-level scholarship programs with similar 100% credit structures have experienced various forms of abuse. These precedents indicate that the current changes in the OBBBA may create opportunities for underreporting of income among gig workers and small businesses. There is also potential for misuse of the new tax benefits through self-dealing arrangements or sophisticated strategies designed to minimize tax obligations.

History suggests that changes to reporting requirements and tax incentives can create compliance challenges. Past instances in which reporting mechanisms were weakened or enforcement reduced have correlated with an increase in the tax gap 鈥� the difference between taxes owed and taxes collected. The Tax Cuts and Jobs Act (TCJA) era, for example, demonstrated how new provisions could be exploited in unforeseen ways.

Unaccountable spending and contracting fraud: A risky proposition

The OBBBA also established significant funding mechanisms, including a $100 million Office of Management and Budget fund and $30 billion allocated for immigration enforcement activities, that granted relatively broad administrative discretion in their deployment. These substantial appropriations, intended for rapid implementation, may put pressure on traditional procurement safeguards.

Indeed, the sheer scale and urgency of these funding streams have attracted various participants, including agency officials with expanded discretionary authority, established government contractors, and new market entrants.

Historical experience with large-scale, rapidly deployed government funding suggests potential challenges in oversight and accountability. The Department of Homeland Security, for example, has been designated as High Risk by the Government Accountability Office partly due to procurement management concerns. In the past, post-9/11 security initiatives and Iraq reconstruction efforts also revealed vulnerabilities in expedited contracting processes; and more recently, COVID-19 relief programs like the Paycheck Protection Program demonstrated how substantial funding, compressed timelines, and reduced oversight can create conditions conducive to fraud and waste. These precedents suggest that the current funding structure within the OBBBA may face similar risks, including potential misallocation of resources, irregular contracting practices, and exploitation by opportunistic actors seeking to benefit from loosely constrained procurement processes.

Cross-cutting vulnerabilities and systemic impact

The OBBBA’s implementation has introduced significant operational changes across multiple government programs, leading to rapid policy transitions and large-scale re-verification processes. These administrative shifts have generated confusion among beneficiaries and stakeholders, which opportunistic actors have exploited.

This exploitation includes phishing operations and fraudulent benefit fixer services that prey on individuals struggling to navigate the new requirements. The pace and complexity of these changes have challenged traditional oversight mechanisms, as the government鈥檚 capacity for auditing, data analytics, and procurement controls has struggled to keep pace with the scale and speed of implementation demands.

These gaps in oversight and enforcement are likely to create systemic vulnerabilities beyond immediate program integrity concerns. When fraudulent activities succeed, legitimate program beneficiaries face reduced access to services as resources are diverted from their intended purposes. Simultaneously, compliant taxpayers bear increased burdens as fraudulent claims and inefficient spending patterns require additional revenue or reduce the effectiveness of public investments.

This dynamic illustrates how implementation challenges, like those in the OBBBA, can create cascading effects, ultimately undermining both program effectiveness and public trust in government operations, regardless of the underlying policy objectives.

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Key highlights:

• • • Stricter foreign entity requirements and sourcing rules 鈥� The OBBBA imposes stricter requirements for foreign entity and sourcing, especially targeting Chinese involvement, which significantly impacts clean energy project eligibility for tax credits.

    • New compliance requirements for buyers 鈥� Developers and tax credit buyers must carefully comply with new documentation, supply chain, and ownership requirements to avoid disqualification or recapture of credits.

    • Early planning is essential 鈥� Accelerated deadlines for wind and solar projects, along with ongoing uncertainty about compliance standards, make early and thorough planning essential for success.

The (OBBBA), which passed in early July, represents a major shift from the industrial and energy policies set out in 2022鈥檚 Inflation Reduction Act (IRA). For example, the OBBBA makes significant changes to the tax credits available for eligible clean energy components and facilities, while increasing support for fossil fuels.

The legislation also introduced tougher foreign entities of concern (FEOC) requirements that, while also applicable to Russia, North Korea, and Iran, will primarily restrict the participation in the US clean energy sector (whether as owner, investor, lender, or supplier) by companies owned or controlled by the Chinese government or its citizens and residents. These restrictions present significant challenges for developers given China’s dominance in the clean energy supply chain.

OBBBA鈥檚 changes to clean energy credits

The OBBBA introduces several important revisions to federal clean energy tax credits, which, as part of the IRA, had been reshaping the landscape for developers and investors in the clean energy sector. The OBBBA鈥檚 revisions include:

Stricter FEOC requirements 鈥� Clean energy tax credits are not available to any project owned by a specified foreign entity (SFE) or a foreign-influenced entity (FIE), over which an SFE has effective control, or, in some cases, that receives material assistance from an SFE or FIE. The material assistance requirement is intended to limit sourcing of equipment, components, and critical minerals from China and applies to credits under Sections 45X, 45Y, and 48E of the IRA.

Accelerated deadlines for project credit qualification 鈥� The OBBBA shortened the deadlines for several types of clean energy projects, but especially for wind and solar projects, which must begin construction by July 4, 2026, or failing that, be placed in service by December 31, 2027. These tight deadlines 鈥� coupled with potential changes to the requirements for beginning construction that are expected after an issued on July 7, 2025 鈥� raised significant planning issues for project developers and investors in the US clean energy sector.

No changes in other areas of clean energy 鈥� The tax credits for other clean energy technologies 鈥� such as battery storage, geothermal, and nuclear 鈥� were largely left unchanged. But these projects are also subject to the more stringent FEOC regulations.

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Continuation of key IRA innovations

The IRA introduced two new provisions that have had a material impact on clean energy project development. Bonus credits increased the amount of tax credit available to qualifying projects by 10% or 20%. This includes an energy community bonus for locating a project in communities affected by coal mine or coal plant closures.

The other was the ability to sell tax credits to unrelated parties for cash (known as transferability), which gave project owners a new and less expensive method to monetize their clean energy tax credits than traditional tax equity.

The OBBBA didn’t alter the bonus credits and producers of clean energy projects can still qualify for bonus credits if they fulfill certain conditions. It did, however, extend the energy community bonus to advanced nuclear energy facilities located in certain communities.

Transferability remains, but with FEOC restrictions. Projects subject to the new FEOC restrictions are disqualified from receiving tax credits, potentially limiting the supply of tax credits in the market. The new material assistance requirements also add a layer of complexity that buyers of tax credits subject to these requirements must consider.

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Guidance for project developers

Going forward, project developers will need to navigate complex new laws and regulations regarding FEOCs and what it means to begin construction for wind and solar projects. To avoid credit disqualification and manage compliance risk, project developers should keep detailed records to demonstrate compliance with the FEOC ownership and establish effective control requirements.

Project developers also should audit their supply contracts and carefully track the source and costs of their equipment and other inputs to ensure compliance with applicable material-assistance caps. Similarly, they need to insert robust FEOC provisions in their supply, operation & maintenance, and construction agreements to ensure continued compliance with these requirements.

Regarding their wind and solar projects, project developers need to check their project development pipelines to determine whether they can meet the new deadlines. Unfortunately, developers are in a tough spot at the moment because they are not able to determine with any certainty the activities that may be sufficient to meet this requirement until the new guidance around beginning construction is issued. In the interim, developers should make sure that any actions they take toward construction are meaningful and not intended to manipulate this requirement, although there is no guarantee that action will prove sufficient.

Guidance for tax credit buyers

Buyers of tax credits must take action 鈥� such as conducting more extensive due diligence 鈥� to ensure the purchased credits are not disqualified or, in certain cases, recaptured, and that the credits deliver on the intended financial benefit. Buyers also should obtain detailed documentation from tax credit sellers to verify there is no direct or indirect ownership or effective control by FEOCs and to confirm that the project or component underlying the credit has not received material assistance from FEOCs in excess of the permitted caps.

Tax credit buyers should also consider inserting FEOC-specific provisions in their tax credit transfer agreements, including:

• • • adding specific representations around FEOC compliance, sourcing of materials, and eligibility under the OBBBA;
    • expanding the seller’s indemnification provisions to include losses incurred if the purchased credits are later disallowed due to FEOC or sourcing violations; and
    • requiring sellers to promptly notify them of any changes in the sellers’ FEOC status or supply chain arrangements that could affect credit eligibility. More expansive tax credit insurance policies may also be obtained to mitigate the additional risks the FEOC restrictions present.

Clearly, the OBBBA brings new challenges and opportunities for clean energy developers and investors; and careful planning and strict compliance will be essential for success in this changing landscape.

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Key provisions:

• • Permanent and expanded deductions 鈥� OBBBA makes the QBI deduction permanent, creates deductions for tips and overtime, and increases expensing limits for businesses.

  • New caps and phaseouts 鈥� The OBBBA also imposes new limits and phaseouts on itemized deductions, the SALT deduction, and charitable giving, especially affecting high-income individuals.

  • Accelerated sunset for green incentives 鈥� Many energy-related tax credits and deductions will end sooner, so taxpayers should act quickly to benefit.

The recently passed One Big Beautiful Bill Act (OBBBA) carries a lot of questions for tax professionals, especially around new tax regulations, deductions, tax credits, and planning strategies. Here are some of the most Frequently Asked Questions (FAQs), to address the most pressing questions and provide clear, concise answers to help tax professionals navigate the OBBBA and its implications.

1. How do the new rules for deducting tips and overtime interact with traditional wage and self-employment income, and what substantiation is required for each?

Because the OBBBA provides a deduction for these items, rather than an exclusion from income, tips and overtime pay will initially be lumped in with traditional wage and self-employment income. Taxpayers will then be able to deduct up to $25,000 of reported qualified tips and up to $12,500 ($25,000 for joint filers) of qualified overtime pay. However, both deductions are subject to phaseout rules.

For substantiation purposes, employers must report the amount of qualified tips and/or overtime pay on the worker鈥檚 Form W-2 (for employees) or Form 1099 (for contractors). For qualified tips, the worker鈥檚 occupation also must be reported. In addition, a work-eligible Social Security Number is required for both deductions.

Note that these two deductions do not affect Social Security and Medicare taxes.

2. What are the permanent changes to the Qualified Business Income (QBI) deduction, and how should tax practitioners advise clients with pass-through businesses on long-term planning?

Thanks to the OBBBA, the QBI deduction is now permanent, which offers more stability when planning for QBI optimization. On top of that, starting in 2026, the OBBBA provides a $400 minimum deduction for businesses with at least $1,000 of QBI and increases the phase-in limitation range from $100,000 to $150,000 for joint filers (from $50,000 to $75,000 for other filers).

Tax professionals should continue to monitor wage and property limitations and the specified service trade or business phaseouts. For taxpayers with taxable income near or slightly over the threshold amounts, traditional planning techniques such as bunching income, making deductible retirement plan contributions or Health Saving Account contributions, or contributing to donor-advised funds should be considered to get under the threshold (or at least into the phaseout range).

3. Which changes to the Excess Business Loss limitation most significantly impact owner-operators and professional partnerships, particularly regarding carryforward treatment and bankruptcy?

The OBBBA makes the excess business loss limitation permanent. (Previously, it was set to expire after 2028.) Owner-operators and professional partnerships will now face a permanent cap on business losses; however, excess losses may be carried forward as a net operating loss (NOL), which will retain its character in a bankruptcy setting. Therefore, if a debtor excludes cancellation of debt income under the bankruptcy exception, their tax attributes will have to be reduced, including any NOL carryforwards.

4. How does the increased $15 million estate and gift tax exclusion, effective 2026, transform wealth transfer strategies and generation-skipping plans?

The larger exclusion allows for more tax-free transfers during life or at death. Tax professionals should explore estate planning strategies such as shifting future appreciation of assets through gifting, creating irrevocable trusts, and taking advantage of portability for married couples.

5. What are the new phase-out thresholds, floors, and limitations for itemized deductions and alternative minimum tax (AMT) exemption under the OBBBA, and how will this affect high-net-worth individuals?

For taxpayers in (or approaching) the 37% tax bracket, the OBBBA caps the value of each dollar of itemized deductions at $0.35. Also, itemizers can only deduct charitable contributions exceeding 0.5% of taxable income.

In addition, the OBBBA has permanently extended the increased AMT exemption amounts and phaseout thresholds. Starting in 2026, exemption phaseout thresholds will equal the 2018 levels of $500,000 (for single filers) and $1 million (joint filers), with those amounts being indexed for inflation beginning in 2027. In addition, the phaseout rate for higher-income taxpayers in 2026 increases to 50% from 25%.

High-net-worth individuals will see a reduced benefit from itemized deductions and higher AMT exposure if their income exceeds the applicable threshold. Tax professionals should consider bunching deductions while carefully managing AMT triggers.

6. How should planning change for clients impacted by the temporary State and Local Tax (SALT) deduction cap increase (from 2025 to 2029), and how does the phaseout for higher earners function?

The OBBBA increases the SALT cap to $40,000 ($20,000 for married filing separately) for 2025 and $40,400 for 2026. For tax years beginning after 2026 and before 2030, the cap will be increased by 1% per year. For tax years beginning in 2030, the cap will revert back to $10,000 ($5,000 for married filing separately).

The increased SALT cap is subject to a phasedown once modified adjusted gross income (MAGI) exceeds $500,000 for 2025 and $505,000 for 2026. For years after 2026, the MAGI threshold increases by 1%. Taxpayers who are fully phased down will be capped at $10,000.

Although this is a welcomed change, tax professionals may need to advise some clients to accelerate payments of state and local taxes into years with the higher cap. Also, despite the higher cap, pass-through businesses may still want to make a pass-through entity tax election. This may lower a partner鈥檚 share of self-employment income or allow the business owner to take advantage of the even higher standard deduction under the OBBBA ($31,500 for joint filers in 2025).

7. How do the new charitable deduction provisions for both itemizers and non-itemizers alter year-end giving strategies, and what new floors or caps apply?

Under the OBBBA, itemizers can only deduct charitable contributions exceeding 0.5% of taxable income. Also, the 60% adjusted gross income (AGI) limit for cash gifts to qualified charities applies. However, the OBBBA provides a permanent charitable deduction of up to $1,000 ($2,000 for joint filers) for non-itemizers who donate cash to public charities.

Itemizers should consider bunching gifts to exceed the 0.5% floor. However, tax professionals should determine if the standard deduction plus the new charitable deduction for non-itemizers would be more beneficial than itemizing.

8. For business clients, what are the implications of permanent expensing for capital investments and research & development expenditures on future expansion or M&A plans?

The OBBBA makes permanent 100% bonus depreciation for property acquired and placed in service after January 19, 2025. Also, the Section 179 expensing limit has been increased to $2.5 million (with a $4 million phaseout threshold) starting in 2025. With respect to domestic research & development expenditures, the OBBBA permanently reinstates full expensing for tax years beginning after 2024. The bill also provides special transition rules for small businesses to expense research expenditures for tax years beginning after 2021.

Because many businesses will be able to immediately deduct the full cost of qualifying investments, their after-tax cash flow and return on investment will improve. Also, businesses should consider moving any foreign research activities to the United States so they can take advantage of immediate expensing of related costs. This will encourage investment in equipment, technology, and innovation into the US.

9. Which credits and incentives for green energy and vehicles are sunsetting, and what timing strategies should clients consider to maximize remaining benefits?

Among others, the following popular energy-related credits are scheduled to sunset quicker under the OBBBA:

• • • The clean vehicle credit and the previously-owned clean vehicle credit for vehicles acquired after September 30, 2025.
    • The alternative fuel vehicle refueling property credit, for property placed in service after June 30, 2026.
    • The energy-efficient home improvement credit terminates after December 31, 2025.
    • The residential clean energy credit expires for expenditures after December 31, 2025.
    • The energy-efficient commercial buildings deduction expires for property construction beginning after June 30, 2026.

For clients interested in taking advantage of these energy-related incentives, acquisition and installation of the qualified property should be accelerated before the relevant cut-off dates.

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Key insights:

• • • Debt-fueled instability 鈥� Despite deep spending cuts, the bill permanently extends tax breaks for corporations and the wealthy, which is expected to add up to $6 trillion to the deficit.

    • Sectoral shockwaves 鈥� Clean energy, healthcare, and consumer sectors face major setbacks in the bill, while it gives short-term gains for the fossil fuel and defense industry.

    • Trade turbulence 鈥� Aggressive tariffs and subsidy rollbacks have roiled global trade, straining global alliances and raising inflation risks.

President Donald Trump鈥檚 sweeping tax-and-spend package 鈥� dubbed the One Big Beautiful Bill Act (OBBBA) 鈥� has cleared the legislature, gotten his signature, and is on its way towards implementation. As expected of a 940-page piece of legislation, the Act will have repercussions across vast sectors of the nation鈥檚 economy, especially in the areas of the economy and global trade.

Proponents for the bill argue the framework will unleash growth and empower businesses by cutting taxes and trimming what they consider wasteful spending. However, the consensus among economists, analysts, and global institutions is that the United States is embarking on an incredibly risky fiscal experiment.

A classic austerity budget鈥� except

In many ways, the OBBBA looks like a classic austerity budget, with significant cuts in industrial subsidies, Medicaid, and other areas of discretionary spending. However, the United States may lose in the clean energy sector alone as a result of the bill, according to an estimate from the research firm C2ES.

While painful, this is the type of expense reduction that one would expect a government to pass if wanted to address its multi-trillion-dollar deficit 鈥� but only if it was combined with steep increases in taxes.

The problem is that, rather than raising taxes to eliminate the bill鈥檚 own budget deficit and chip away at the larger national debt, it instead makes the 2017 temporary tax cuts permanent, while further reducing taxes on corporations and the wealthiest Americans. The result, estimated by many institutions, could increase the deficit by up to $6 trillion over the next 10 years.

Of course, the argument here is that the economic benefits of these tax cuts will trickle down through the rest of the country, boosting prosperity for everyone and strengthening the overall economy. However, the evidence is . Trickle鈥慸own economics has become more of a cautionary tale, widely debunked by economists and highlighted as an example of confirmation bias rather than a credible policy framework. In fact, no reputable forecasts predict sustained GDP growth above 3% over the next decade. And agencies like the Congressional Budget Office, the U.S. Federal Reserve, and many nonpartisan forecasters anticipate .

More worrisome, Moody鈥檚 Investors Service already downgraded the US credit rating in May, citing runaway deficits; and the OBBBA may pave the way for further credit rating downgrades, especially as interest rates weigh heavier on the federal budget. In fact, interest payments alone now constitute up to 20% of all federal spending, and the pressure on future budgets will only increase. Foreign creditors and bond investors are growing uneasy, with some moving out of U.S. Treasuries due to concern over these unsustainable fiscal trends.

Industries on the line

Specific industries will see another major impact of the OBBBA, as clean energy companies, for example, face a sudden U-turn once after years of robust federal incentives. The OBBBA repeals much of the Biden-era Inflation Reduction Act鈥檚 green tax credits that, in 2024 alone, launched more than $270 billion in solar and battery projects. Now, that momentum has likely been killed at a time when America is seeking more sources of electricity to drive AI technology.

鈥淗undreds of thousands of manufacturing jobs in the US are now in danger,鈥� warned U.S. Senate Finance Committee Ranking Member Ron Wyden (D-Ore.), adding that he believes 鈥減rojects all over the country鈥� are already 鈥渂eing canceled.鈥�

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In addition, the healthcare industry, especially hospitals and clinics that serve low-income or rural populations, will face strain. With nearly $1 trillion in Medicaid cuts planned for over the next 10 years, millions of Americans are predicted to lose healthcare coverage. Rural hospitals that rely on Medicaid funding fear service cutbacks or closures as revenue falls. Even the consumer sector could feel strain. Reduced benefits for lower-income households may limit discretionary spending, rippling through local economies.

While and stand to benefit from targeted spending boosts or tax breaks, the overall tilt away from future-looking sectors could undermine US competitiveness in the long run, critics contend.

The impact on global trade

One stated purpose of the Trump Administration鈥檚 ongoing trade conflict is to return manufacturing back to the United States; but if this is the case, the bill does little advance this goal. In fact, the OBBBA lacks the kind of large-scale, targeted investment in tooling, education, and infrastructure needed to support such a transition. With no significant federal funding behind any industrial reshoring push, there is little economic momentum for any large-scale factory-building effort.

On a more immediate level, the Federal Reserve cautions that these tariffs are likely to cause at least a temporary spike in US inflation. Given that the Fed鈥檚 number one priority is maintaining price stability, this threat of tariff-induced inflation has the Fed reluctant to lower interest rates, which in turn is driving up borrowing costs for businesses and consumers.

Meanwhile, industries benefiting from US tariffs 鈥� such as domestic steel or aluminum 鈥� might see short-term gains, but export-oriented US sectors (like agriculture and automotive) fear tariff retaliation abroad. And many US allies see the universal tariff as a blunt instrument that breaks from multilateral trade norms. The turbulence is forcing nations to diversify trade relationships away from over-reliance on the US, potentially redrawing global trade alliances that effectively bypass the United States.

Indeed, the global trade impact of the bill (and associated Trump trade policy) is a double-edged sword: While it seeks to protect some US industries, the risk of isolating the US more broadly and disrupting international commerce could backfire.

Overall, the economic and trade impact of the One Big Beautiful Bill Act harbors many of the potential drawbacks of an austerity budget without many of the resulting benefits. Its funding assumptions rely on a level of economic growth the US has rarely-if-ever sustained, and by prioritizing tax cuts for legacy industries like fossil fuels and steel 鈥� sectors whose long-term viability has been overtaken by technological and economic shifts 鈥� the bill sacrifices tomorrow鈥檚 investment in emerging industries and healthcare.

As a result, many critics contend that the OBBBA will make the federal debt more unwieldy, and there already are signs that nerves may be fraying, thus making the long-term prospects for the US economy uncertain at best.

For more on the tax impact of the One Big Beautiful Bill Act, watch our recent Clarity podcast here

Delivering a clear, insightful look at the most important tax provisions included in this sweeping legislation, the pair examine what this really means in practice 鈥� from key changes that impact your clients to strategies for effective communication and preparation.

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