According to recent analysis by Morgan Stanley, the forthcoming tax refund season is expected to substantially augment personal incomes in the United States during the first quarter of 2026. This positive impact is largely attributed to a comprehensive budget bill introduced by President Donald Trump, which implements various tax-related adjustments.
The budget legislation, informally referred to by analysts as the "One Big Beautiful Bill," incorporates significant provisions, including elevated standard deductions for taxpayers, reduced corporate tax rates, and accelerated expensing allowances for domestic research and development activities. These changes collectively contribute to an anticipated 20% increase in individual tax refunds compared to the previous year.
Financial experts at Morgan Stanley estimate that these refunds will sum to approximately $350 billion by the conclusion of May. The Bureau of Economic Analysis, which integrates projected tax modifications for the year into its January data releases, is expected to reveal a substantial rise in household incomes in its March report.
Consumer spending, a critical pillar underpinning over two-thirds of U.S. economic output, is projected to benefit from this infusion of refunds. Nonetheless, Morgan Stanley notes that while consumption growth should receive a boost from these refunds in the initial quarter, the overall consumption pace is expected to decelerate at the outset of 2026.
The analysts project only a marginal increase in consumption in the early part of the year. Factors such as increased savings and reduced withholding taxes are also anticipated to stimulate expenditure for the remainder of 2026. Supporting this outlook, data from the Commerce Department released recently indicated steady consumer spending through the prior fall, with personal income rising by 0.3% month-over-month in November, slightly below the expected 0.4%.
Morgan Stanley further observed that in the latter half of 2025, consumer spending growth outpaced the rise in personal income, leading to a drop in household savings rates. The authors argue that the upcoming tax refund surge is likely to counteract this trend temporarily.