Significant Consumer Stimulus Arrives in 2026
The U.S. consumer faced headwinds in 2025, including a government shutdown that halted federal employee pay and food stamp benefits. However, once we get into 2026, the consumer should benefit from significant consumer stimulus that is coming down the pike.
The OBBBA serves as a delayed stimulus. The One Big Beautiful Bill Act, enacted in July, included both consumer and business tax cuts that were designed in part to offset the negative economic impact of the tariffs imposed this year. However, there was a timing mismatch for the consumer. Had the tax bill cut individuals’ income tax rates directly, it would have immediately reduced the amount of income tax withheld from paychecks, essentially giving workers a raise as soon as the bill was enacted. Instead, Congress changed tax deductions. Hence, the tax cuts will instead arrive in the form of tax refunds in early 2026. Although there is talk from the Trump administration about providing tariff refunds to certain individuals, those refunds are likely not needed given the size of what is already in the pipeline. Our calculations conclude that consumers will see an aggregate 44% increase in tax refunds in 2026 compared to this year’s tax refunds.
Lower, middle, and slightly upper-income consumers will all benefit from the tax bill. The roughly $150 billion in tax refunds consists of 1) an increase in the standard deduction, 2) no tax on tips, overtime, or car loan interest, and 3) an increase in the child tax credit. Also included are an increase in the state and local tax deduction from $10,000 to $40,000 (for those earning less than $500,000) and an additional $6,000 senior tax deduction for those earning up to $75,000. Consumers tend to spend their tax refunds, which should lead to higher retail sales and benefit states via higher sales tax revenues.
Business tax cuts were also key components of the bill. The OBBBA included four key business tax credits: 1) 100% expensing for capital equipment purchases (versus 40% expensing for 2025); 2) 100% expensing for domestic research and development costs (versus amortization over five years); 3) a more generous corporate interest deduction (based on EBITDA versus EBIT); and 4) immediate expensing for the building of production and manufacturing facilities (a new tax provision to encourage more domestic manufacturing). All four of these tax cuts were made retroactive to January 2025.
Companies already began to reap tax benefits in September. Companies have already benefited from $100 billion in lower corporate tax revenue as of September tax payments. Another $135 billion comes in 2026. Therefore, business and consumer tax cuts combined will result in approximately $285 billion of fiscal stimulus in 2026. That is a significant economic tailwind—nearly 1% of GDP in total. In addition, this stimulus is coming at the same time that the Federal Reserve is expected to further loosen financial conditions by 1) continuing to cut interest rates; and 2) no longer contracting its balance sheet. Both moves should benefit both consumers and businesses into 2026.
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