BREAKINGVIEWS-US tax-refund bonanza: easy come, easy go

By Gabriel Rubin

WASHINGTON, Jan 28 (Reuters Breakingviews) - The checks will soon be in the mail. By design, Republicans passed a $4.5 trillion plan last year that frontloads benefits for most Americans with income tax cuts that create an outsized windfall. Any economic uplift will be short-lived, however, as the accompanying cuts to healthcare, nutrition, energy and other programs are soon to follow.

Windows of political opportunity will be equally brief. Almost all of the boost to personal incomes and spending is likely to happen during the first half of 2026, ahead of the U.S. midterm elections in November. Taxpayers can expect $100 billion more in refunds from the Internal Revenue Service than the $329 billion received last year, Goldman Sachs economists estimate.

The money will come in handy for millions of people increasingly fretting over how to pay their bills. Real disposable income growth dwindled to just 1% annually through November, forcing Americans to break open their piggybanks. The country's saving rate has plummeted to 3.5% from a typical 5% or so over the past decade.

Tax refunds are typically the largest fiscal transfer families receive. By submitting a return, payers avail themselves of many credits and deductions. Even those whose incomes are too low to incur much of a burden can take advantage. The new law contains extra goodies for favored constituencies, including senior citizens and tipped workers. They must be claimed before the April 15 filing deadline, unlike the longer-term effects of corporate, estate or investment tax policies.

While middle class families, especially parents and homeowners, reap most of the benefits, anyone who relies on federal support will pay the price. The same law slashes $1 trillion in Medicaid and Children’s Health Insurance Program funds over a decade, along with nearly $200 billion of grocery-bill assistance. Food programs also have an economic multiplier effect of more than $1.54 per dollar, according to the Agriculture Department, whereas broad tax cuts have a lesser impact because more of the money gets socked away.

A sugar high is as bad for fiscal well-being as it is for liver health. With the extra money sloshing around, the U.S. Federal Reserve may take comfort in keeping benchmark borrowing costs where they are for longer. On a more distant horizon, foregone investments into human capital risk translating into lost economic growth and wider wealth inequality. Those will tax the system for years.

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CONTEXT NEWS

The U.S. Internal Revenue Service began accepting 2025 tax returns on January 26 ahead of the April 15 deadline.