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Investing.com -- UBS said in a note to clients that the House Republican tax bill “adds yet another element of uncertainty into the investment landscape for Consumer stocks.”
While the legislation contains “new and expanded individual tax provisions” expected to boost “aggregate consumer spending power over the next few years,” UBS cautions that this will likely be “partially offset by lower federal assistance contribution (e.g. SNAP, Medicaid, etc), as well as student loan reforms.”
UBS estimates the bill could result in “about 3% PCE growth over ’25-’28,” roughly in line with its “2.8% base case forecast for ’25,” though down from “4.3% growth seen in 1Q’25 and 5.4% in CY’24.”
Using the Penn Wharton Budget Model and Bipartisan Policy Center data, UBS finds that “growth in personal consumption expenditures should see a tailwind from new and expanded individual tax provisions (+$590bn over ’25-’28), offset by the impact of lower federal assistance and student loan reform (-$520bn over ’25 to ’28).”
The impacts “would likely vary by income cohort,” UBS says.
Lower-income consumers may face a “net headwind,” while “middle-income consumers… should benefit” from expanded credits and deductions, and “higher income consumers would likely benefit” from estate tax and pass-through income provisions.
According to UBS, “households in the bottom quintile income group would see a -5.7% median reduction in after-tax and after-transfer income,” while “the top income quintile… could see a median 2.1% increase.”
UBS concludes that “the benefits to high-earners might outweigh the headwinds of lower income consumers in terms of aggregate spending impact,” noting that “the top 10% of households are driving nearly ~50% of total personal spending.”