Happy Refund Season!
By James Freeman
Just in time for the weekend, business owners, workers and consumers are all bound to be feeling flush and ready to celebrate.
As luck would have it, both the best and the worst of Trump fiscal policies are now being resolved in favor of taxpayers.
James Romoser and Gavin Bade report for the Journal on the big news of the day:
President Trump’s global tariffs are illegal, the Supreme Court ruled Friday, in a stinging repudiation of a signature White House initiative.
The 6-3 decision, written by Chief Justice John Roberts, removes a diplomatic tool that Trump has aggressively wielded to remake U.S. trade deals and collect tens of billions of dollars from companies importing foreign goods.
The ruling didn’t address whether the government will have to pay back the tariff revenue it already has collected…
The court rejected Trump’s argument that a 1977 law, the International Emergency Economic Powers Act, implicitly authorized the tariffs.
“Had Congress intended to convey the distinct and extraordinary power to impose tariffs, it would have done so expressly,” Roberts wrote.
Reasonable people can disagree about presidential authority in this area and one certainly wishes that Chief Justice John Roberts had pushed back as hard on the authority of Barack Obama and Joe Biden as he has on that of Donald Trump.
But this is a huge win for economic vitality.
Tariffs are taxes on trade, and while there’s a debate over whether they cause inflation, they certainly restrain growth.
Today’s ruling is the fiscal equivalent of cueing up Kool and the Gang on karaoke night at the 45th Reunion.
Yes, there will be wasted time and uncertainty as businesspeople seek to understand the results of the ruling.
The Journal reports:
When the Supreme Court decision was announced, Tilit CEO Jenny Goodman said she received an all-caps message with a smiling tearful emoji from the company’s director of operations at the company which makes hospitality workwear.
Her biggest concern at the moment: whether Tilit will be able to recover tariffs paid on a special order imported from China last year.
“It was 40% more expensive when we originally quoted the project,” Goodman said.
“Ideally, we get some of that tariff back.
That’s the biggest win for us right now.”
Daniel Guigui, who owns a factory in Cincinnati, Ohio that makes pillows and comforters with imported goose feathers, estimated that his business has paid $1.63 million under the tariffs the Supreme Court struck down today.
“It’s a huge relief, but now what, right?” said Guigui.
“Will we get a refund?”
But regardless of whether and how much businesses are able to seek in refunds, costs are coming down.
Sand has been removed from the gears of global commerce.
Yes, the president may now employ other tools in seeking to apply tariffs, but this is the one he preferred, and now it’s off the table.
Today is a victory for free trade.
Meanwhile on the other signature Trump tax policy of 2025, there is no doubt that refunds will be significant and the time for relief is now.
Wells Fargo economists Michael Pugliese and Shannon Grein wrote last month:
The tax policy changes enacted in the One Big Beautiful Bill Act (OBBBA) will generate a sizable boost to households’ tax refunds in the 2026 filing season.
Specifically, we look for the average refund size to rise to $3,750, up 18% from last year. An increase as large as 30% strikes us as plausible, though it is not our base case.
We project total refunds to rise by roughly $80 billion this year.
Refunds will be much larger than usual because many of the new deductions in the OBBBA, such as no tax on tip or overtime income, were made retroactive to the beginning of 2025, but the Internal Revenue Service (IRS) did not change its withholding tables at that time.
This leaves most households in a position where they will need to use the annual tax filing process to “square up” with the federal government.
The 2026 fiscal tailwind to households from OBBBA’s tax cuts does not stop at larger refunds.
For some households, OBBBA’s policy changes will result in lower annual tax payments rather than larger refunds.
In other words, the new tax cuts will reduce what they owe rather than boost what the government owes them.
Furthermore, the IRS has adjusted the withholding tables for 2026, so impacted households will start to see higher take-home pay in their regular paychecks in addition to the catch-up effect from last year.
We estimate the total reduction in household income taxes in 2026 from OBBBA’s new provisions will be roughly $220 billion, or 0.7% of GDP.
Speaking of GDP, what would we do without experts?
After a recent run of underestimating the health of the U.S. economy, many professional forecasters overestimated U.S. growth in the fourth quarter of last year.
Still, Friday’s disappointing report of lackluster 1.4% growth was not as bad as the headline, given the anomalous impact of that quarter’s government shutdown.
Weird as it may be that GDP calculations credit government in part for economic growth, out in the real economy the fourth-quarter picture was prettier, especially when it comes to the fuel for future prosperity.
The Journal’s Harriet Torry reports:
In the fourth quarter, business investment remained a bright spot, particularly in artificial intelligence, with spending on intellectual property like software picking up to a 7.4% pace of growth.
Does anyone think that after today businesses will not be inclined to invest even more?
There may be an economic celebration to last throughout the years.
James Freeman is the co-author of “The Cost: Trump, China and American Revival” and also the co-author of “Borrowed Time: Two Centuries of Booms, Busts and Bailouts at Citi.”
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