New Year’s resolutions are often about being more responsible with your time, exercising, or working toward a larger goal. The value of keeping such a resolution comes when you can look back and see how far you’ve come in accomplishing what you set out to do.
Last year, Republican lawmakers set their sights on major tax legislation, and now, the results of that work will start to show up—including larger refunds for millions of taxpayers. But that doesn’t mean Congress should stop its tax reform work, especially if lawmakers are serious about addressing affordability and economic anxiety in their 2026 goals.
3 important lessons
As we look ahead to economic policy for this year, there are three important lessons from last year.
First, the real value of the tax legislation is not in your refund. Because policymakers made seven substantive changes to individual income taxes that took effect in 2025, refunds will be larger this year. This includes a $200 increase in the maximum child tax credit, a larger standard deduction, and an increased itemized deduction for state and local taxes. The other four changes are the policies that reduce taxes for some seniors, tipped and overtime workers, and individuals who have auto loans.
Tax Foundation expects these policies will increase average refunds by about $1,000.
As those new policies continue into 2026, many middle-income households will benefit, and the overall tax burden will remain tilted to those with high incomes. In 2026, we expect 71% of taxes to be paid by the top 20% of earners.
Source: Tax Foundation General Equilibrium Model, July 2025.
While refunds will be larger, the primary benefit of tax reform comes from policies that improve work and investment incentives in the long term. These give the economy more room to run and are much more effective than a short-term boost to refunds.
In fact, the most valuable part of last year’s legislation is better incentives for business investment. Businesses make long-term investment plans, and lawmakers made permanent fixes last year to help them do this. By allowing full expensing for equipment and research and development, Congress boosted innovation, hiring, and investment.
The economy could be 1% larger in the long run because of last year’s tax policies. Growth like that can mean higher pay, better jobs, and meaningful innovations.
Unfortunately, those positives are running headlong into the challenges of the trade war.
That brings us to the second lesson from 2025: President Trump’s trade war isn’t helping workers or pocketbooks. The president has changed tariff policies dozens of times in myriad ways since being sworn in. What has he achieved? A shrinking manufacturing sector and price pressures on valuable imports that Americans buy. Neither marks a successful policy.
The revenue raised, roughly an additional $143 billion in 2025, has come largely from American consumers. This is a hefty price to pay when policymakers should be focused on growth.
Though the forthcoming Supreme Court ruling could refocus the White House’s mind on the need to work with (and not against) our trading partners, it seems more likely that the president will continue to be unpredictable on trade policy this year.
But regardless of where tariff policy may go, the third point to take away from 2025 is that things only get more difficult from here.
The tax package that made your tax refund possible will worsen federal deficits by $3 trillion by the end of 2034. Spending is continuing to outpace revenues, and lawmakers must begin working on reforms to reduce annual deficits. Absent reform, entitlement programs like Social Security and Medicare are set for painful benefit reductions within the next seven years.
So, while last year’s New Year’s resolution to cut taxes is paying off in some ways, it also makes the work lawmakers must do in 2026 and beyond that much more difficult. There are tax reforms that can help, but we have seen too many times how Washington lawmakers spend new revenues faster than they can come through the door. Economic policy in 2025 came with historic highs but also disappointing lows. Lawmakers should be shaping their New Year’s resolutions around bringing our fiscal struggles into balance.
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