Americans are getting bigger-than-usual tax refunds this year. Treasury Secretary Scott Bessent has been talking up this windfall for months, saying that it will help spark “a non-inflationary boom.”

That’s unlikely. First, the estimated $90 billion to $100 billion increase in refunds, a result of several provisions of the budget law enacted last year, amounts to only about 0.3% of annual gross domestic product. Second, it’s hard for a tax refund to find its way into the pockets of those most likely to spend it — which is to say, lower-income Americans — because they don’t pay much in the way of federal income taxes to begin with.

Granted, the money could help boost the economy during the three months (February, March and April) when most refunds are paid out. And it’s true that most of the new tax breaks target middle-income Americans and exclude those with the very highest incomes. But IRS figures show that it’s difficult for any tax cut not to land mostly in the bank accounts of the affluent.

In the 2022 tax year, the most recent for which such statistics are available, the 7.7% of tax returns reporting adjusted gross incomes of $200,000 or more generated 68.5% of U.S. income tax revenue. Meanwhile, the 66.8% of returns reporting incomes up to $75,000 — roughly the median household income that year — accounted for just 7.7% of the revenue. The average federal income tax rate was 21.7% for the first group, 5.1% for the second.

This is not a complaint about the progressive nature of the income tax code — middle- and low-income Americans pay lots of other taxes, plus they have lower incomes. But it does suggest that tax deductions aren’t an efficient way to improve the lot of low-income Americans, who benefit more from government spending and from refundable tax credits, which are effectively government spending by another name.

The main new individual tax breaks included in the 2025 budget act are, in order of their impact on tax-year 2025 revenue:

— A new deduction for up to $12,500 ($25,000 for married couples filing jointly) in overtime pay.

— An increase from $10,000 to $40,000 in the amount of state and local taxes that can be deducted.

— An increase in the standard deduction from $15,000 to $15,750 ($30,000 to $31,500 for joint filers).

— A $6,000 additional deduction for those 65 and older.

— An increase in the child tax credit from $2,000 to $2,200 (the refundable additional child tax credit for those with low incomes is unchanged at $1,700).

— A new deduction for up to $25,000 in tip income.

— A deduction of up to $10,000 on interest on auto loans for U.S.-made cars.

With the exception of the increases to the standard deduction and child tax credit, these changes are bad tax policy in the sense that they tax people in similar situations differently, add unnecessary complexity to the tax code and are unlikely to boost economic growth over the long run.

But they make up only a small share of the revenue losses from the 2025 budget law, which was aimed mainly at keeping large portions of the 2017 Tax Cuts and Jobs Act — parts of which are actually good tax policy — from expiring. Most are phased out above a certain income level, meaning that very high earners get only limited benefits from them.

A recent analysis from the center-right American Enterprise Institute using the center-right Tax Foundation’s general equilibrium model finds that benefits of the new tax breaks are concentrated in the upper middle of the income distribution. Some 62% of the money goes to those between the 60th and 95th income percentiles (which in 2022 meant adjusted gross incomes of $65,388 to $261,591), 14% goes to the top 5% — and just 6% finds its way to the bottom 40%.

Not all these tax reductions will be paid out as refunds, and one has to imagine that higher-income taxpayers are more likely to have already adjusted their withholding in reaction to the tax changes or have offsetting capital gains income, both of which would reduce their refund amounts. The refunds will thus probably be more concentrated toward the middle of the income distribution than the tax breaks.

Still, even in the middle of U.S. income distribution, tax refunds appear to be saved more often than spent. A 2021 survey by NORC at the University of Chicago found that among respondents making $60,000 to $100,000, a large majority planned to save their tax refunds or use them to pay down debt. Only among those making less than $30,000 did a majority plan to spend their refund right away. In the analysis by Congress’s Joint Tax Committee of the change in taxes by income as of 2027, when all of the tax cuts in the 2025 budget bill will be fully in place and none will have expired yet (the overtime, tips and senior deductions and the SALT cap hike are all temporary), those reporting adjusted gross incomes of $30,000 or lower will actually be seeing their taxes go up on average.

People with tax returns reporting adjusted gross income of less than $30,000 aren’t exactly the same as people earning less than $30,000. A married couple with that income isn’t even required to file a tax return, and many of those filing very-low-income returns are affluent people, some of them owners of pass-through businesses, with large deductions or losses. Poor Americans — the 2025 federal poverty level for a family of four was $32,150 — are for the most part probably not facing double-digit percentage tax increases. But few are getting tax cuts.

The survey cited above reflects what people say, not necessarily what they do, but studies of bank-account data published in the American Economic Review in 2021 and 2022 found that each dollar of refund increased spending over the subsequent few months by averages of 15 cents and 21 cents, respectively. This is a lot relative to what economic models of rational life-cycle behavior predict, but it still implies that 80% of this year’s refund increase won’t be spent anytime soon.

It is certainly nice to get a tax refund, even if it means you’ve been lending the government money interest-free, and this year’s refund bonanza may help ease many Americans’ financial situations. But just to reinforce my points that reductions in income taxes tend to benefit high earners the most, while government spending is more important to low earners, here’s the Congressional Budget Office’s take on the distributional effects of both the tax and spending provisions of the 2025 budget bill.

This time the baseline is current law before the budget bill was enacted, meaning that keeping provisions of the 2017 tax law from expiring counts as a tax cut. The numbers thus reflect the combined effects of (1) the income tax policies of both Trump administrations and (2) the reductions in Medicaid and Supplement Nutritional Assistance Program (aka food stamp) benefits called for in the 2025 budget act. The so-called “K-shaped economy” of fast-rising consumption by the affluent and slower gains for everyone else has lots of causes other than legislation signed into law last year by Donald Trump. But he certainly doesn’t seem to have been doing anything to fix it.

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This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Justin Fox is a Bloomberg Opinion columnist covering business, economics and other topics involving charts. A former editorial director of the Harvard Business Review, he is author of “The Myth of the Rational Market.”

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