Who benefits the most from the tax refunds?
Middle- and higher-income households are expected to benefit the most due to changes in the SALT deduction caps.
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Economy / Taxes
Trump Tax Refund to Give the U.S. Economy a $65 Billion Boost
The U.S. economy is expected to receive a $65 billion boost this tax season, thanks to increased tax refunds driven by the One Big Beautiful Bill Act (OBBBA). However, the benefits may not be evenly distributed, potentially widening the eco...
Key Insights
- Tax refunds in 2026 are projected to be $65 billion higher than in 2025, an 18% year-over-year increase, with the total consumer stimulus ranging from $135 billion to $140 billion.
- Middle- and higher-income households are expected to benefit the most due to changes in the state and local tax (SALT) deduction caps.
- Spending by higher-income households rose by 2.4% in late 2025 and early 2026, while lower-income households saw only 0.4% growth, highlighting a 'K-shaped' economic dynamic.
- About half of the stimulus from higher-income households may not reach the retail economy, as they are more likely to save or invest in stocks.
- Lower-income households are expected to increase spending on goods, travel, and leisure by nearly 40% following receipt of their tax refunds.
In-Depth Analysis
Bank of America Global Research analysts project a substantial fiscal injection into the U.S. economy this tax season. The One Big Beautiful Bill Act (OBBBA) is expected to drive a $65 billion surge in tax refunds compared to last year. However, the structure of the tax breaks, particularly the SALT deduction cap changes, suggests that middle- and higher-income households will reap most of the benefits. This could exacerbate the existing “K-shaped” economic divide, where the financial fortunes of the wealthy diverge sharply from those of lower-income Americans. While the bill includes deductions for tip and overtime income, which benefits service workers, the increased SALT deduction cap disproportionately favors higher earners. Treasury and independent estimates project that the typical 2026 refund could be roughly $300 to $1,000 higher than last year, averaging around $3,800. Higher-income households are more likely to save than spend, meaning about half of this new stimulus might never reach the retail economy but instead be used to buy stocks. Lower-income households historically utilize tax refunds to increase spending on goods, travel, and leisure by nearly 40% in the weeks following receipt, providing a crucial lifeline.
FAQ
How might this stimulus impact the economy?
While it provides a temporary boost to discretionary spending, longer-term economic momentum remains dependent on the labor market.
Takeaways
- The increase in tax refunds provides a boost to the U.S. economy, but its uneven distribution could widen the economic divide. Lower-income households will likely see a significant impact on their spending, while higher-income households may save or invest a larger portion of their refunds. The long-term economic impact will depend on the strength of the labor market.
Discussion
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Sources
Disclaimer
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