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Superb Images | The Image Bank | Getty Images<\/p>\n<\/div>\n<\/div>\n<\/div>\n
Trump\u2019s legislation included several provisions that impact 2025 taxes. These included a bigger standard deduction; a more generous maximum child tax credit; a higher limit for the\u00a0state and local tax deduction<\/a>; a new\u00a0$6,000 tax break for seniors<\/a>; and new\u00a0deductions for\u00a0auto loan interest<\/a>,\u00a0tip income<\/a>\u00a0and overtime pay, among others. <\/p>\n Those provisions reduced individual income taxes by $144 billion in 2025<\/a>, according to estimates from the Tax Foundation. <\/p>\n \u201cOverall, we\u2019re expecting these changes to increase refunds<\/a> by 15% to 20% on average,\u201d Heather Berger, a U.S. economist with Morgan Stanley, said on the company\u2019s \u201cThoughts on the Market\u201d podcast on Jan. 2.\u00a0<\/p>\n In 2025, the average refund <\/a>for individual filers was $3,052 through Oct. 17, according to the IRS. The agency issued about 102 million refunds<\/a> through Oct. 17, with about 60% of payments sent<\/a> through March 28.<\/p>\n<\/div>\n For 2026, bigger refunds could temporarily increase consumer spending<\/a>, according to some experts. <\/p>\n \u201cOur expectation is it would be a positive for consumption,\u201d National Economic Council Director Kevin Hassett told CNBC\u2019s \u201cSquawk on the Street\u201d<\/a> on Jan. 9.\u00a0 <\/p>\n But spending behavior varies by earnings, with higher-income households more likely to save refunds, according to an Oct. 31 note from Piper Sandler. Typically, households making between $30,000 to $60,000 spend about 30% of refunds on discretionary purchases, compared to 15% for households earning $100,000 or more, the note said.<\/p>\n<\/div>\n Some analysts have said that bigger tax refunds in early 2026 could boost consumer demand and inflation pressure<\/a>.<\/p>\n \u201cIt could easily be inflationary,\u201d said Jonathan Parker, an economist at the Massachusetts Institute of Technology, who has researched<\/a> consumer spending during past stimulus payment cycles.<\/p>\n The stimulus checks<\/a> issued during the Covid-19 pandemic were \u201ccertainly correlated\u201d with higher inflation, Parker told CNBC. Issued in 2020 and 2021, these payments were a \u201ccontributing factor\u201d to the size of the subsequent inflation boom, he said. <\/p>\n The consumer price index rose 9.1%<\/a> from the previous year in June 2022, which marked the fastest pace for inflation since November 1981. <\/p>\n Former Treasury Secretary Janet Yellen<\/a> in January 2025 said stimulus spending may have contributed \u201ca little bit\u201d to inflation<\/a>. But there were also \u201chuge supply chain problems,\u201d which caused shortages on key goods, she said.\u00a0\u00a0<\/p>\n When asked how bigger tax refunds in 2026 could impact prices and demand, Hassett told \u201cSquawk on the Street\u201d<\/a>: \u201cWe\u2019re not really worried about the inflationary effects of that because we [have] got so much supply coming online again.\u201d <\/p>\n<\/div>\n<\/div>\n\nBigger refunds could boost spending <\/h2>\n
How bigger tax refunds could impact inflation <\/h2>\n
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