The U.S. House of Representatives passed one of the most expansive tax-and-spending bills in modern history, setting the stage for a multi-trillion-dollar shift in federal deficits and sector dynamics over the next decade.

The legislation is projected to balloon the federal deficit by over $3 trillion between 2025 and 2034, according to preliminary estimates from the Congressional Budget Office. The fiscal impact will peak around 2027, when the bulk of the temporary spending programs and tax cuts kick in.

Fiscal Alarm Bells Ring On Wall Street

Analysts at the bipartisan federal agency warn that such a sharp increase comes at a time when U.S. debt is already on an unsustainable trajectory.

"Adding more than $3 trillion to the debt when our nation's finances are already on an unsustainable path would be unwise," the CBO stated.

"Lawmakers should go back to the drawing board and work on a bill that reduces deficits, not adds to them."

Spencer Hakimian, founder of Tolou Capital warned that with the bill's passage, markets should brace for permanent emergency-style stimulus and $4 trillion annual deficits within a few years.

"This is COVID-style spending - without the pandemic," Hakimian said in a post on X.

Goldman Sachs' economist Alec Phillips highlighted that Moody's recent U.S. credit rating downgrade was influenced by the bill's trajectory, stating, "Markets are already attuned to fiscal risks... early August remains our base case for enactment."

How The House Tax Bill Could Shake Up Different Sectors

According to CBO projections, the bill increases the deficit in three key government areas - meaning more spending is likely ahead:

  • Judiciary: $7 billion (deficit increase)
  • Armed Services: $144 billion
  • Homeland Security: $67 billion
This suggests significant boosts to military procurement, border enforcement and law enforcement infrastructure. These sectors could benefit from rising federal contracts and equipment orders, with likely beneficiaries including the iShares U.S. Aerospace & Defense ETF (ITA  ) and the First Trust Nasdaq Cybersecurity ETF (CIBR  ).

At the core of the bill is the Ways & Means Committee, responsible for all tax policy, Social Security, Medicare, unemployment benefits and tariffs. This section alone accounts for $3.775 trillion of the total deficit increase.

Other areas of the budget plan reflect deficit reductions, which generally imply spending cuts or revenue gains. These include:

  • Energy & Commerce: -988 billion (deficit reduction).
  • Agriculture: -$238 billion
  • Education & Workforce: -$349 billion
  • Financial Services: -$5 billion
  • Natural Resources: -$20 billion
  • Oversight & Government Reform: -$51 billion
  • Transportation & Infrastructure: -$37 billion
Potential ETF losers include Invesco WilderHill Clean Energy ETF (PBW  ), iShares MSCI Agriculture Producers ETF (VEGI  ), and iShares U.S. Transportation ETF (IYT  ), given expected cuts to renewables subsidies, rural and transportation programs.

Market Reactions

Initial market reactions hit the solar and renewables sectors, which suffered the brunt of market fallout. With many solar tax subsidies ended, the Invesco Solar ETF (TAN  ) fell 9% on Thursday. Among key names:

Abigail Ross Hopper, CEO of the Solar Energy Industries Association, warned the bill would "upend an economic boom," potentially leading to blackouts and a strategic loss to China in the global AI race.

"This bill is willfully ignorant of the fact that deploying solar and storage is the only way the U.S. power grid can meet demand... If it becomes law, America will effectively surrender the AI race to China."

In contrast, consumer-related stocks rallied, buoyed by expectations of tax relief and increased household spending power. The SPDR S&P Retail ETF (XRT  ) climbed 1.5%, led by Advance Auto Parts (AAP  ), which soared 42% after a blowout earnings report.

Within tech-focused defense names, Palantir Technologies Inc. (PLTR  ) jumped 4.5%, while cybersecurity leader CrowdStrike Holdings Inc. (CRWD  ) gained 2.6%.