As we move into the second half of 2025, investors face a quietly looming event with potentially far-reaching market implications: the scheduled expiration of key provisions from the 2017 Tax Cuts and Jobs Act (TCJA). While the recently enacted One Big Beautiful Bill Act (OBBBA) has made many elements of the TCJA permanent (including the lower individual income tax brackets, increased standard deduction, and enhanced estate tax exemption) several high-impact provisions are still set to expire at year-end, leaving households, business owners, and markets in a state of uncertainty.
Enacted under U.S. President Donald Trump’s first term, the TCJA introduces sweeping changes to corporate and personal tax policy. For the past several years, these changes have served as a structural tailwind for markets, supporting after-tax corporate earnings, household consumption, and investor risk appetite. Now, as 2026 approaches, its expiration – or possible extension – emerges as a defining investment theme heading into 2026.
Markets have largely focused on interest rates, inflation, and geopolitics this year. Yet, the U.S. tax policy – particularly corporate tax rates and capital gains treatment – can be just as powerful in shaping earnings trajectory, capital allocation, and investor behaviour. With both political parties offering divergent visions for future tax legislation, the coming months present a significant degree of fiscal policy uncertainty and therefore, investment opportunity for those who prepare early.
Corporate Taxes and Equity Markets: A Valuation Stress Test?
One cornerstone of the 2017 Tax Cuts and Jobs Act (TCJA) is the cut in the U.S. corporate tax rate from 35% to 21%. This move significantly boosted after-tax corporate profits, particularly in capital-light, high-margin sectors such as technology and communication services. While the corporate tax rate remains at 21% under current law, proposals to lower it further – especially for domestic manufacturers – could re-emerge after 2026. Such a cut could provide an additional 5-6% boost to S&P 500 earnings (according to sell-side forecasts), particularly in U.S. industrial sectors.
Markets may not yet fully reflect the upside potential of further corporate tax cuts. A reduction in the U.S. corporate tax rate – potentially to 15% for domestic manufacturers – could significantly expand after-tax earnings and support higher equity multiples, particularly in U.S. centric sectors. This may reinforce the relative appeal of U.S. equities versus international peers with less flexible tax policy, and prompt a sector rotation toward high-margin, capital-light industries such as technology, consumer discretionary, and industrials that stand to benefit most from improved profitability.
Capital Gains, Dividends, and Behavioural Shifts
While the One Big Beautiful Bill Act left long-term capital gains and dividend tax rates unchanged, it introduced modest adjustments to bracket thresholds. This means that while the underlying tax rates remain favourable to investors across public equities, private markets, and real estate, tax liability may shift slightly for some individuals depending on income levels.
Although no immediate changes were made to capital gains policy, the potential for future increases – particularly under different political leadership post 2026 – could still influence investor behaviour. This uncertainty may prompt early asset sales or portfolio repositioning as investors seek to lock in gains at current rates. As in 2012 and 2020, periods of tax reform risk often trigger short-term volatility and renewed interest in tax-efficient investment vehicles such as ETFs, municipal bonds, and private equity funds with longer holding periods.
For private wealth clients, this underscores the importance of reviewing portfolio structures and tax strategies ahead of potential legislative shifts, even in the absence of immediate rate changes.
Estate Planning: Window of Opportunity Closing?
One of the most impactful – and previously overlooked – provisions of the TCJA was the doubling of the estate and gift tax exemption, which currently stands at $13.99 million per individual (or $27.98 million per married couple). Under prior law, this was set to revert to approximately $6.8 million per individual in 2026, significantly increasing estate tax exposure for many affluent families.
However, the OBBBA has made the higher exemption permanent, with the amount rising to $15 million per individual in 2026 and indexed to inflation thereafter. While this extension removes the immediate urgency around provisions due for expiration, it also solidifies a historically favourable environment for long-term estate planning.
This clarity offers families and advisors a renewed opportunity to pursue strategic intergenerational wealth transfers, trust restructuring, and use of private market vehicles for preserving and compounding wealth across generations.
Fiscal Credibility and the Bond Market Response
Tax policy will directly influence the trajectory of U.S. government borrowing, and by extension, bond issuance, term premia, and inflation expectations. A failure to address revenue sustainability could place renewed pressure on the U.S. credit rating – evident in the recent Moody’s downgrade – and with it, sovereign yields and the pricing of duration risk.
Investors in fixed income will need to consider whether changing tax policy aligns with broader shifts in fiscal discipline, monetary policy, and Treasury market dynamics. This is particularly relevant as the U.S. yield curve steepens, and volatility returns to longer-dated bonds.
Conclusion: Prepare, Don’t Predict
While the direction of tax policy depends on electoral outcomes, the range of potential scenarios is already clear. Investors, particularly those managing private wealth, tax-sensitive mandates, or long-term equity allocations, would be well served by beginning contingency planning now. The end of 2025 might feel distant, but the window to act is rapidly narrowing.
As stewards of capital, we are closely monitoring both political developments and potential legislative changes to ensure that portfolios remain agile, resilient, and efficient. In a year dominated by geopolitics and macroeconomic volatility, U.S. tax policy may prove to be the next major market catalyst – one that investors cannot afford to overlook.