Trump’s tax stimulus set to keep US economy on track in 2026

After a year of rolling policy shocks, the US economy is set to get a lift from President Donald Trump’s tax-cuts package to keep the expansion on track in 2026.

American taxpayers will get bigger refunds in the first half of this year as a result of Trump’s signature bill, economists say, with estimates for the aggregate boost ranging from $30 billion to $100 billion. Incentives for companies to invest in plants and equipment are also likely to bolster growth, while lower borrowing costs and steadier trade policy should help too.

Still, forecasters see grounds for caution. Any burst of consumer spending from Trump’s fiscal stimulus is expected to fade as the year goes on, while tariffs will continue to weigh on small businesses especially. Unemployment is on the rise, as are concerns about affordability and inequality. The AI boom may not deliver the kind of broad-based growth its advocates promise, and the US attack on Venezuela shows the potential for geopolitical instability.

Adding it all up, economists surveyed by Bloomberg in mid-December expected growth of 2% in 2026 — the same as their forecast for 2025. That would likely be enough to extend America’s streak of outperforming its developed-world peers, though it’s a modest pace by past US standards.

“2026 is shaping up to be a decent year — not a boom, not a bust, just solid trend growth,” said Olu Sonola, head of US economic research at Fitch Ratings.

Federal Reserve officials were slightly more optimistic than Wall Street at their meeting last month, penciling in an increase of 2.3% in gross domestic product this year. The central bank’s economic staff cited fiscal policy, easier financial conditions and a dissipation of the tariff impact as growth drivers through 2028, minutes of the meeting released last week show.

The world’s largest economy weathered the shocks of 2025 better than most pundits predicted. After an initial slump driven by tariff front-running, growth bounced right back — and unexpectedly accelerated to 4.3% in the third quarter, according to numbers eventually published on Dec. 23 after a long delay due to the government shutdown.

“President Trump’s economic agenda unleashed historic job, wage, and economic growth in his first term,” White House spokesman Kush Desai said in a statement. “The Trump administration is implementing this same agenda of rapid deregulation, working-class tax cuts, full equipment expensing, and energy abundance — accelerating GDP growth and trillions in investment commitments are proof that the best is yet to come in President Trump’s second term.”

‘Helps Us Invest’

Trump’s legislation extended income-tax reductions and added new exemptions for tips and overtime pay. Refunds will average $300 to $1,000 more than in a typical year, according to the Tax Foundation. In aggregate, economists at Goldman Sachs Group Inc. anticipate an extra $100 billion for consumers in the first half, while Citigroup Inc. put the figure at $30 billion to $50 billion.

A longer-lasting impact will likely come from business incentives, some economists say.

Gregory Daco, chief economist at EY-Parthenon, expects the fiscal package to lift GDP by 0.3% this year. He says some elements of the bill, like cuts in Medicaid and food-aid programs, will be a drag on growth — but reckons they’ll be outweighed by others including higher defense and border-enforcement spending, and measures to help businesses deduct the cost of investments.

Among those anticipating a boost is Gat Caperton, who runs furniture-maker Gat Creek in West Virginia.

“It helps us invest in our business,” Caperton said. “There’s really good high-end technology equipment that’s very competitive and very productive for us. And we will spend aggressively to buy that type of material.”

‘Faster Gear’

Investments like these and the Fed’s easing of monetary policy will cushion a slowing job market, according to Kathy Bostjancic, chief economist at Nationwide Mutual Insurance Co. The unemployment rate rose to 4.6% in November, the highest in more than four years, and economists predict it will average 4.5% this year.

“Labor demand should shift into a faster gear by mid-year as businesses increase investment in response to lower interest rates and tax incentives,” Bostjancic said.

Fed policymakers including Chair Jerome Powell have said inflation linked to higher tariffs will likely be a one-off and eventually fade. Still, the cost of living was a major issue in November’s off-year elections, where Trump’s Republicans suffered losses. Companies remain concerned about tariffs and are projecting price increases of more than 3% in 2026, according to one recent survey.

Jonathan Echeverry’s coffee business in Montclair, New Jersey, had to pay out an additional $150,000 in tariffs on beans, packaging and other imports — just as his customers are becoming choosier in their spending.

“People are opting to buy beans to brew at home rather than to buy beverages,” said Echeverry, who co-owns Paper Plane Coffee Co. “I doubt this year will be better.”

Most forecasters anticipate a quieter year on the trade policy front compared with the chaos of 2025 — but there’s plenty of uncertainty still. The Supreme Court is expected to rule soon on the legitimacy of some of Trump’s import taxes. The president has floated the prospect of $2,000 tariff rebate checks, which would offer another boost to growth — and further pressure on the US budget deficit.

AI Spillovers

Another unknown is artificial intelligence. The rush to build and equip data centers helped lift business investment in 2025, and the AI-led equity boom amplified the purchasing power of wealthier Americans, but there’s also concern that the technology will replace human workers.

There’s a disconnect between multi-billion-dollar announcements of new data centers and the amount of hiring they generate, according to Michael Feroli, chief US economist at JPMorgan Chase & Co.

“It’s not creating as many jobs as the big nominal numbers might imply and that’s in contrast to past capex booms,” he said. “Labor demand continues to look soft and that leaves us worried about downside risks.”