Fast tax refunds and slow payments prolong stimulus, esp for high-income
BofA research notes that lower tax payments and faster refunds are extending fiscal stimulus into 1H26, disproportionately benefiting middle- and higher-income consumers through higher SALT deductions, which could support USD consumption-driven FX flows.
What the desk is arguing
BofA argues that lower tax payments relative to last year are shifting the timing of fiscal stimulus later into the first half of 2026, with refund growth in the high single digits year-over-year. The net effect is a total stimulus increase of about 25%, with middle- and higher-income consumers benefiting most, partly due to higher SALT deductions. This could prolong consumer spending boosts into mid-2026.
Where it sits in our coverage
Our internal consensus views USD as supported in the near term given resilient US consumption, but the extended stimulus timeline may delay any weakening in the dollar. We see EUR/USD trading in a 1.08-1.12 range, with a bias toward the lower end if stimulus persists. The firm spread is mixed, with some analysts expecting a mild USD depreciation later in 2026 as the Fed eventually pivots.
How other firms see it
- Goldman Sachs notes that persistent fiscal stimulus could keep US growth above trend, supporting USD, but warns that the benefit is concentrated among higher-income groups, limiting broad-based consumption. - JPMorgan highlights that the extension of stimulus via tax timing may offset some headwinds from higher tariffs, but sees risks that inflation expectations could rise if the consumer remains strong. - Morgan Stanley is more cautious, arguing that the SALT-driven boost is geographically concentrated and may not translate into sustained national spending, keeping USD neutral to slightly bearish.
Key takeaways
- 01Lower tax payments and faster refunds extend fiscal stimulus into 1H26, boosting consumer spending.
- 02Middle- and higher-income consumers benefit most, partly via higher SALT deductions.
- 03The stimulus may delay any Fed pivot, supporting USD in the near term.
Market implications
The extended fiscal stimulus is positive for USD in the short to medium term, as it supports US consumption and delays the need for aggressive Fed easing. However, the benefit is skewed to higher-income households, which may limit the multiplier effect. EUR/USD may face downside pressure toward the 1.08 area if data confirms sustained growth.
Risks to this view
Downside risk if the stimulus fades faster than expected or if lower-income consumers fail to get support, leading to a sharper slowdown. Also, any reversal in SALT deductions could disproportionately hit high-spending states, dampening consumption.
Lower tax payments shift stimulus later into 1H26 We're in the midst of tax season, and BAC data helps us track changes in refunds, payments, and the impact on spending. Refund growth is in the high single digits y/y, but lower tax payments bring total stimulus closer to the ~25% increase we had been expecting. Aditya Bhave explains how lower payments shift the timing of benefits, potentially extending the spending lift through much of the first half of 2026.
There's also evidence that higher refunds and lower payments are boosting spend, with a modest inflection since early this year. Middle- and higher‑income consumers appear to benefit most. With much of the lift tied to higher SALT deductions, we examine whether SALT states such as NY, NJ, and CA are seeing stronger spending and how weather and past wildfires may be clouding the data.
We finish with whether any further measures could support lower‑income consumers and what to expect from the incoming Fed Chair. You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life. "Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC.
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