A New Tax Era Awakens

MONETARY

• In the June release of the Federal Reserve’s Beige Book, respondents gave insight into some of the key economic storylines affecting the economy and what expectations are moving forward¹
  • Regarding qualitative estimates of economic growth, respondents characterized a modest drop from the prior reporting period¹
    • (Federal Reserve) “Reports across the twelve Federal Reserve Districts indicate that economic activity has declined slightly since the previous report. Half of the Districts reported slight to moderate declines in activity, three Districts reported no change, and three Districts reported slight growth.”¹
  • All reporting districts noted that there remains a high degree of economic uncertainty moving forward which has been almost entirely attributed to the ongoing changes in tariff policies. Forward looking expectations remain varied.¹
    • (Federal Reserve) “All Districts reported elevated levels of economic and policy uncertainty, which have led to hesitancy and a cautious approach to business and household decisions.”¹
    • (Federal Reserve) “On balance, the outlook remains slightly pessimistic and uncertain, unchanged relative to the previous report. However, a few District reports indicate the outlook has deteriorated while a few others indicate the outlook has improved.”¹
  • Respondents’ perception of the labor market was largely unchanged but did not further balancing between labor supply and demand. Uncertainty contributed to a cautious approach to hiring¹
    • (Federal Reserve) “Most Districts described employment as flat, three Districts reported slight-to-modest increases, and two Districts reported slight declines. Many Districts reported lower employee turnover rates and more applicants for open positions. Comments about uncertainty delaying hiring were widespread.”¹
  • Reports on inflation were complicated and largely focused on the potential impact of tariffs. Businesses’ plans on how to address any potential price increases varied significantly¹
    • (Federal Reserve) “There were widespread reports of contacts expecting costs and prices to rise at a faster rate going forward. A few Districts described these expected cost increases as strong, significant, or substantial. All District reports indicated that higher tariff rates were putting upward pressure on costs and prices. However, contacts’ responses to these higher costs varied, including increasing prices on affected items, increasing prices on all items, reducing profit margins, and adding temporary fees or surcharges. Contacts that plan to pass along tariff-related costs expect to do so within three months”¹

GEOPOLITICS

• On June 4, 2025, President Trump increased Section 232 tariffs on steel and aluminum imports from 25% to 50%, citing harm to domestic producers from “unfair trade practices and global excess capacity”³
  • The administration argued that the higher tariffs would protect critical U.S. industries against low-cost foreign competition—particularly from countries like China and India—thus preserving American manufacturing jobs³
• President Trump speaks with Chinese President Xi Jianping over the phone, marking a potential starting point for ongoing trade negoatiations⁴
  • President Trump characterized the call as “very good,” noting it lasted ~90 minutes and “resulted in a very positive conclusion for both countries.” Added respective trade teams will be meeting shortly, and each leader invited the other for a formal visit⁴
• EU trade commissioner Maros Sefcovic noted to officials that trade negotiations with the United States are moving “right direction”; however, also noted that the recent doubling of steel and aluminum tariffs complicated the backdrop⁵
  • Sefcovic further noted that “Our goal, of course, is to maintain the momentum”⁵

FISCAL

• House of Representatives passes its version of the Big Beautiful Bill, outlining the Federal Government’s budget for the coming fiscal year. From here, the senate is set to debate, amend and vote on the bill. Included in the House version of the bill are the following major elements²:
  • Agriculture & Nutrition (Title I) – Tightens SNAP work rules, launches a National Accuracy Clearinghouse and reinvests in farm-safety-net, forestry, rural energy and trade programs²
  • Defense (Title II) – Adds a multi-year surge for shipbuilding, air-/missile defense, munitions lines, nuclear modernization, INDOPACOM readiness and troop quality-of-life/MILCON projects²
  • Education & Workforce (Title III) – Creates “Workforce Pell” grants, rewrites loan limits/repayment & PSLF rules, and freezes new higher-ed regulations for five years²
  • Energy, Environment & Health (Title IV + health subtitle) – Rescinds ≈$200 bn IRA climate funds, speeds LNG/NEPA permitting, launches a critical-minerals risk-sharing program, lets seniors keep contributing to HSAs and adds PBM-transparency plus a Medicare doc-pay fix²
  • Financial Services & Housing (Title V) – Shutters the Green & Resilient Retrofit fund, folds PCAOB enforcement into the SEC, caps the CFPB penalty fund and trims the Office of Financial Research²
  • Homeland Security & Immigration (Titles VI–VII) – Appropriates $16 bn for border barriers/tech & state grants, raises a raft of new visa/asylum/TPS fees and expands detention-bed capacity with faster criminal-alien removal²
  • Natural Resources & Water (Title VIII) – Mandates quarterly on-/off-shore oil & gas lease sales, hikes royalty rates, levies NEPA user-fees and funds western surface-water storage and conveyance²
  • Oversight & Federal Workforce (Title IX) – Ends the FERS annuity supplement for future retirees, offers an at-will employment election with lower FERS contributions and imposes Merit Systems Protection Board filing fees²
  • Transportation & Infrastructure (Title X) – Imposes a nationwide motor-vehicle registration fee for the Highway Trust Fund, buys Coast Guard cutters, and boosts air-traffic-control staffing/NextGen modernization²
  • Tax & Reconciliation Savings (Title XI) – Makes the TCJA individual & small-biz tax cuts permanent, quadruples the SALT cap to $40 k, zeroes federal tax on tips/overtime and offsets part of the cost with $1.7tn in mandatory savings from IRA rescissions, Medicaid work rules and energy-credit phase-outs²

[See Below for Disclosures & Annotations]

DISCLOSURES

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The companies presented here are for illustrative purposes only and are not to be viewed as an investment recommendation.

Tax laws and regulations are complex and subject to change, which can materially impact investment results. LPL Financial does not provide tax advice. Clients should consult with their personal tax advisors regarding the tax consequences of investing.

ANNOTATIONS

1. Federal Reserve. “The Beige Book”. June 4 2025
2. House Ways & Means Committee. “The One, Big, Beautiful Bill”. May 12, 2025
3. The White House. “Fact Sheet: President Donald J. Trump Increases Section 232 Tariffs on Steel and Aluminum”. June 3, 2025
4. “Trump speaks with Xi, will resume talks between U.S. and China over tariffs”. June 5, 2025
5. The Wall Street Journal. “European Union Sees Progress in U.S. Trade Talks”. June 4, 2025