March 12, 2026
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Will Larger US Tax Refunds Spur Consumer Spending or Not?
Americans can expect, and are receiving, larger tax refunds this year, largely attributable to President Donald Trump’s One Big, Beautiful Bill Act (OBBBA) which introduced a slew of new deductions. According to IRS filing data presented by ModernRetail’s Mitchell Parton, the average tax refund is so far up 10.6% versus last year’s numbers, although projections from analysts, including TD Bank, suggested something more like up to 30% higher — or between $800 to $1,000 more than last year’s average of between $3,167 or $3,382, depending on which calculations are used.
But how will Americans receiving larger tax refunds apportion the money? Various experts weighed in.
Morgan Stanley analysts suggested a mixed bag of results, with a 4.1% increase in real disposable income being on the table.
“While refunds will boost spending this year, we do not expect an immediate jump. The most common uses of tax refunds are saving and paying off debts, neither of which count as consumption,” Morgan Stanley U.S. Economist Heather Berger said.
“As we progress throughout the year, though, we’re anticipating steady growth in real consumer spending as the labor market stabilizes, inflation decelerates and lagged effects of easier monetary policy flow through,” Berger added.
TD economists suggested that, despite many using refunds to pay down debt or invest, a notable amount of the tax refunds will be spent.
“The fiscal boost will linger beyond the tax season. About 85% of households are likely to get a tax cut this year, with OBBBA provisions expected to reduce taxes on average by $2,9008. While the boost from higher tax refunds is expected to be the most impactful on consumer spending, the increase in disposable income due to lower taxes paid this year will also lift spending,” they noted, further anticipating that inflation adjusted consumer spending would trend upward by 2.8% this year, beating last year’s 2.7% gain and outperforming earlier December projections of just 2% growth.
The K-Shaped Economy, Income Disparity, and Tax Refund Spending
A significant proportion of the debate around where tax refunds might go centered around middle- and upper-income households, particularly given the topic of the K-shaped economy dominating headlines and the fact that these households would be the ones receiving the most substantial refunds.
Parton cited University of Texas economist David Quigley as stating a belief that purchase timing could be influenced by tax refunds, but that consumer spending as a whole wouldn’t be significantly impacted. And, seeing as how middle- and high-income households were less likely to change entrenched spending habits over a tax refund, Quigley didn’t see much change on the horizon.
Tom O’Saben, director of tax content and government relations for the National Association of Tax Professionals, was also quoted by Parton, putting forth a similar view.
“I’m hearing less of, ‘I’m going to buy a new car,’ or maybe, ‘We’re going to look at putting new windows in the house,’” O’Saben said, stating that, “Many [clients] say, ‘Well, I think I’m going to pay down some debt,’ or, ‘I’m going to boost my savings,’” instead.
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Discussion Questions
Will larger tax refunds being issued this year lead to a notable bump in consumer spend? Why or why not?
Do you believe middle- and higher-income households will invest or pay down debt with their refunds, rather than splash out?
Which brands are poised to benefit most from increased tax refunds this year?
Poll
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Last year, our consumer data showed that 61% of people getting tax refunds spent at least some of the windfall on retail. So far this year, that number is running at 56%, and the proportion being spent on retail is running slightly under 2025 (these numbers are obviously preliminary). But with the value of refunds being up, it looks like retail will receive something of a boost – even if there are a lot of competing priorities for spend from paying down debt and savings to leisure activities and vacations.
Customers are already spending more, because prices rise every week. Prices of gasoline, beef, and coffee are already causing tension, and the unwanted Iran war is going to cause fertilizer prices to spike, raising grain and produce prices this summer and fall. I don’t think that taxpayers will be eager to spend a windfall.
Will larger tax refunds being issued this year lead to a notable bump in consumer spend?
Yes
Which brands are poised to benefit most from increased tax refunds this year?
Shell, Chevron, BP….
Perhaps you see where this is going
Recent history indicates that between 50% and 60% of taxpayers will make purchases that will add “X” dollars to the economy, while others will invest in retirement funds, pay bills, etc.
It is important to keep in mind that when people pay their bills, the economy is also helped.
Factors such as income levels, age, financial obligations, and personal financial goals heavily influence taxpayer spending decisions.
Younger taxpayers might prioritize spending on consumer goods and experiences, while older individuals may focus more on savings and investments.
Additionally, economic conditions and government policies can also play a significant role in shaping how taxpayers choose to allocate their funds.
In as much as it has become taboo to say this, truth is, the current adminstrations policies have rebuilt the economy in more ways than can be explained, so if you won’t listen to the mainstream media, its all ripe for a great year.
You’re right. I can’t possibly explain how this administrations policies have rebuilt the economy.
People often treat lump-sum money differently than regular income. Even households focused on saving or paying down debt may carve out a small portion for something discretionary. That psychological effect can create short bursts of retail activity.
It sounds like the collection of all the data and talking points in this article date back to at least a couple of weeks ago…pre ‘war’ and pre escalating gas prices. And there’s no mention of the soaring health care costs some families will experience as ACA subsidies lapse. If the average increase is 10% on a $3000+ base, that’s about a $300 bump over last year. Or the article says it could go as high as $1000 more than last year’s average. Given the political and economic times we are experiencing, it doesn’t feel like $300-$1000 will lead to a notable bump for many families. Feels more like those extra $$$ will barely cover gas, inflation and a visit to the doctor’s office, if that.
Larger tax refunds may increase disposable income, but they do not always lead to a big jump in retail spending. Many households use refunds to pay down debt or add to savings, especially when economic uncertainty is still present. As a result, the impact on retail sales is often gradual rather than immediate.
For retailers, the key is understanding how customers prioritize spending when they receive extra cash. Everyday categories and smaller discretionary purchases are more likely to benefit than large ticket items. Retailers that focus on strong value and timely promotions are better positioned to capture this incremental spending.
The Tax refund will only partially result in additional consumer spending. Since many households have been experiencing the pain of increased staples, such as gasoline, most of the refund will go to cover incurred debt, with a little left over for discretionary purchases.
I think given the K shaped economy it depends on the income level. I think it will spur some additional discretionary spending on the higher bracket, while many will use it to offset the higher living costs including fuel and insurance and healthcare …
Larger tax refunds may provide a short-term boost to consumer spending, but I would caution against expecting a dramatic or sustained lift this year. Historically, tax refunds have created a temporary bump in categories such as electronics, apparel, and home goods, as households view the refund as incremental income. However, the broader economic environment matters just as much as the refund itself. With inflationary pressures still present in several retail segments—partly tied to tariff and trade policies that remain in flux—any additional cash consumers receive may simply help offset higher everyday costs rather than translate into incremental discretionary purchases.
There are also other macro factors that could temper the impact. Geopolitical uncertainty, including the conflict involving Iran and its potential effects on energy prices, combined with weakening consumer sentiment in recent surveys, may encourage households to be more cautious. In that environment, a meaningful portion of refunds may go toward paying down debt, rebuilding savings, or covering routine expenses, particularly among middle-income households that have felt the cumulative effects of inflation over the past several years.
To the extent that refunds do translate into spending, the biggest beneficiaries are likely to be retailers positioned around value and immediate gratification—mass merchants, off-price retailers, and certain discretionary categories like apparel or small electronics. But the overall effect will likely be modest. In a year when macroeconomic headwinds appear to outweigh tailwinds, tax refunds may serve more as a financial stabilizer for consumers than as a catalyst for a retail spending surge.
I dont think under current global uncertainity, its wise to expect customer to spend. We need rolling economy but not at cost of unpredictable future for people.
Historically more than half of U.S. consumers have treated refunds by paying down debt or some other planned/needed thing. But the next sizable group does allocate an amount towards clothes, vacation, and/or some sort of fun. So there will be a shot to the economy. Whether this shot reflects a higher or lower amount than prior years is anyone’s guess.
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Last year, our consumer data showed that 61% of people getting tax refunds spent at least some of the windfall on retail. So far this year, that number is running at 56%, and the proportion being spent on retail is running slightly under 2025 (these numbers are obviously preliminary). But with the value of refunds being up, it looks like retail will receive something of a boost – even if there are a lot of competing priorities for spend from paying down debt and savings to leisure activities and vacations.
Customers are already spending more, because prices rise every week. Prices of gasoline, beef, and coffee are already causing tension, and the unwanted Iran war is going to cause fertilizer prices to spike, raising grain and produce prices this summer and fall. I don’t think that taxpayers will be eager to spend a windfall.
Yes
Shell, Chevron, BP….
Perhaps you see where this is going
Recent history indicates that between 50% and 60% of taxpayers will make purchases that will add “X” dollars to the economy, while others will invest in retirement funds, pay bills, etc.
It is important to keep in mind that when people pay their bills, the economy is also helped.
Factors such as income levels, age, financial obligations, and personal financial goals heavily influence taxpayer spending decisions.
Younger taxpayers might prioritize spending on consumer goods and experiences, while older individuals may focus more on savings and investments.
Additionally, economic conditions and government policies can also play a significant role in shaping how taxpayers choose to allocate their funds.
In as much as it has become taboo to say this, truth is, the current adminstrations policies have rebuilt the economy in more ways than can be explained, so if you won’t listen to the mainstream media, its all ripe for a great year.
You’re right. I can’t possibly explain how this administrations policies have rebuilt the economy.
People often treat lump-sum money differently than regular income. Even households focused on saving or paying down debt may carve out a small portion for something discretionary. That psychological effect can create short bursts of retail activity.
It sounds like the collection of all the data and talking points in this article date back to at least a couple of weeks ago…pre ‘war’ and pre escalating gas prices. And there’s no mention of the soaring health care costs some families will experience as ACA subsidies lapse. If the average increase is 10% on a $3000+ base, that’s about a $300 bump over last year. Or the article says it could go as high as $1000 more than last year’s average. Given the political and economic times we are experiencing, it doesn’t feel like $300-$1000 will lead to a notable bump for many families. Feels more like those extra $$$ will barely cover gas, inflation and a visit to the doctor’s office, if that.
Larger tax refunds may increase disposable income, but they do not always lead to a big jump in retail spending. Many households use refunds to pay down debt or add to savings, especially when economic uncertainty is still present. As a result, the impact on retail sales is often gradual rather than immediate.
For retailers, the key is understanding how customers prioritize spending when they receive extra cash. Everyday categories and smaller discretionary purchases are more likely to benefit than large ticket items. Retailers that focus on strong value and timely promotions are better positioned to capture this incremental spending.
The Tax refund will only partially result in additional consumer spending. Since many households have been experiencing the pain of increased staples, such as gasoline, most of the refund will go to cover incurred debt, with a little left over for discretionary purchases.
I think given the K shaped economy it depends on the income level. I think it will spur some additional discretionary spending on the higher bracket, while many will use it to offset the higher living costs including fuel and insurance and healthcare …
Larger tax refunds may provide a short-term boost to consumer spending, but I would caution against expecting a dramatic or sustained lift this year. Historically, tax refunds have created a temporary bump in categories such as electronics, apparel, and home goods, as households view the refund as incremental income. However, the broader economic environment matters just as much as the refund itself. With inflationary pressures still present in several retail segments—partly tied to tariff and trade policies that remain in flux—any additional cash consumers receive may simply help offset higher everyday costs rather than translate into incremental discretionary purchases.
There are also other macro factors that could temper the impact. Geopolitical uncertainty, including the conflict involving Iran and its potential effects on energy prices, combined with weakening consumer sentiment in recent surveys, may encourage households to be more cautious. In that environment, a meaningful portion of refunds may go toward paying down debt, rebuilding savings, or covering routine expenses, particularly among middle-income households that have felt the cumulative effects of inflation over the past several years.
To the extent that refunds do translate into spending, the biggest beneficiaries are likely to be retailers positioned around value and immediate gratification—mass merchants, off-price retailers, and certain discretionary categories like apparel or small electronics. But the overall effect will likely be modest. In a year when macroeconomic headwinds appear to outweigh tailwinds, tax refunds may serve more as a financial stabilizer for consumers than as a catalyst for a retail spending surge.
I dont think under current global uncertainity, its wise to expect customer to spend. We need rolling economy but not at cost of unpredictable future for people.
Historically more than half of U.S. consumers have treated refunds by paying down debt or some other planned/needed thing. But the next sizable group does allocate an amount towards clothes, vacation, and/or some sort of fun. So there will be a shot to the economy. Whether this shot reflects a higher or lower amount than prior years is anyone’s guess.