Podcast Summary: Thoughts on the Market

Episode: Bigger Tax Refunds Likely to Power the Economy

Host/Speaker: Heather Burgert, Morgan Stanley U.S. Economics Team
Date: January 2, 2026

Overview

This episode discusses the anticipated impact of larger U.S. tax refunds in early 2026, following the passage of the "One Big Beautiful Bill" fiscal legislation. Host Heather Burgert analyzes how these changes will affect consumer budgets, personal income, spending patterns, and the broader economy at the start of the year. The conversation explores which groups benefit most, the psychological and practical impact of refunds on household finances, and potential headwinds for consumer spending.

Key Discussion Points and Insights

1. The Context: Start of Tax Refund Season

• [00:18] The New Year marks tax refund season, an important period for household budgeting and planning.
  • "For many of us, those refunds aren't just numbers on a page, they shape the way we budget for many everyday expenses." — Heather Burgert

2. The “One Big Beautiful Bill” and Consumer Tax Cuts

• The new fiscal bill introduces a variety of tax cuts aimed at consumers, resulting in higher-than-normal refunds for 2026.
• Major provisions:
  • Deductions and Credits: Deductions for tips and overtime, higher child tax credit, increased senior deduction, higher cap on state and local tax (SALT) deductions.
  • These deductions are retroactive to 2025, meaning immediate impact on the upcoming refunds.

3. Impact on Refunds

• [01:38] Overall refunds are expected to grow by 15–20% on average.
• Distribution of benefits:
  • High-income households: Greater gain from elevated SALT cap.
  • Middle-income earners: Will see improvement from deductions for tips and overtime.

Quote:
"Overall, we're expecting these changes to increase refunds by 15 to 20% on average, and different groups will benefit from different parts of the bill."
— Heather Burgert [01:38]

4. Timing of Tax Refunds

• Historical pattern:
  • 30–45% of refunds typically arrive by end of February
  • 60–70% by end of March
• The result: A concentrated boost in personal incomes in Q1 2026.

5. How Will Consumers Use Their Refunds?

• [02:10] While increased income is expected, the rise in spending may be more gradual:
  • "Most consumers say that they use their refunds mainly for saving or paying down debt."
  • This pattern improves financial health (lower loan delinquencies, higher debt prepayment rates).
• When spent, refunds go towards:
  • Everyday needs
  • Travel
  • New clothes
  • Home improvements

6. Near-Term Headwinds and Medium-Term Outlook

• Anticipated challenges:
  • Expected increase in inflation due to tariffs
  • Expiry of Affordable Care Act credits (especially impacting low-income consumers)
• [02:54] Positive outlook:
  • As the labor market stabilizes and inflation decelerates, consumer spending is forecasted to “grow steadily.”
  • Larger refunds should “give another lift to household spending.”
  • Additional corporate tax provisions in the new legislation may further support economic growth.

7. Longer-Term Effects

• The bill is projected to support GDP growth in 2026, but could become a drag in future years as more spending cuts kick in.

Quote:
"We expect the bill as a whole to support GDP growth in 2026, but it then becomes a drag on growth in later years when more of the spending cuts take effect."
— Heather Burgert [03:16]

Memorable Moments & Notable Quotes

• On the significance of refunds:
  "The timing and size of our refunds this year could make a real difference in how much we're able to save, spend or get ahead on bills..." — Heather Burgert [00:26]
• On consumer priorities:
  "Most consumers say that they use their refunds mainly for saving or paying down debt. This can lead to healthier balance sheets..." — Heather Burgert [02:15]
• On broad economic impact:
  "The boost to spending, along with other corporate provisions in the bill, should give the broader economy a push this year too." — Heather Burgert [03:08]

Timestamps for Key Segments

• 00:18: Why tax refund season matters for consumers
• 00:55: Explanation of “One Big Beautiful Bill” and its main features
• 01:38: Expected increase in average refund size and distribution of benefits
• 02:10: Consumer intentions: saving, debt repayment, and spending
• 02:54: Outlook for consumer spending and economic growth
• 03:16: Policy’s long-term impact on GDP growth

Tone and Language

Heather's delivery is clear, analytical, and optimistic—balancing technical explanations with personal relevance for listeners. The tone remains focused on practical implications and actionable takeaways for consumers and investors.

By unpacking the financial and economic implications of the latest tax legislation, this episode gives listeners a concise yet comprehensive roadmap for what to expect as tax refund season approaches and how it may shape the U.S. economy in 2026.