One reason that we forecast economic growth to accelerate this year to 2.3%, which is higher than the consensus of 2.1%, is because of the expansionary fiscal policies that are taking effect. If anything, these policies may result in an even faster pace of growth.
Consider the new tax withholding tables that took effect on Jan. 1. They will result in an injection of anywhere from $50 billion and $150 billion of additional cash, or disposable personal income, into the economy this year.
For comparison, we look to the previous two years. Disposable income increased by $783 billion in 2025 and by $848 billion in 2024. We consider three scenarios for 2026, all of which would boost GDP:
- A $50 billion increase, the lower boundary, would amount to a 6.3% rise in disposable personal income compared with 2025 and 5.8% over 2024.
- $100 billion—our preferred estimate—would yield an increase of 12.7% over 2025 and an 11.7% jump from 2024.
- $150 billion would mean a 19.1% increase over 2025 and a 17.6% increase from 2024.
Those estimates would translate into an increase in GDP of anywhere from 0.3% to 0.9%.
The final numbers will depend upon what upper-income households, who are the primary beneficiaries of the expansionary fiscal policies, do with their windfall.
But there is a downside risk. While a virtuous cycle driven by consumption and investment is welcome, conspicuous consumption during a time when GDP and hiring may be decoupling would likely not be.
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Since these higher-income households’ marginal propensity to consume with each additional dollar of disposable income is less compared with down-market households, we think that the upper boundaries of estimates on how policy changes translate into spending and growth are a bit optimistic.
Yet however one decomposes the data, the economy will expand at a quicker pace in 2026 compared to 2025 because of expansionary fiscal policies.
