New Year’s resolutions often focus on commitments to better time management, fitness, and broader goals. The true reward of these resolutions lies in reflecting on the progress made toward achieving set objectives.
In 2025, Republican legislators concentrated their efforts on significant tax reforms, and the impacts of these changes are beginning to manifest. Millions of taxpayers can expect larger refunds this year. However, it is crucial for Congress to continue pursuing tax reform, particularly if lawmakers are intent on addressing the growing concerns of affordability and economic stability in their agenda leading to 2026.
Three key lessons emerge from the previous year’s economic policies. First, while larger refunds are anticipated, the primary significance of the tax legislation is not solely in these returns. Policymakers enacted seven major changes to individual income taxes that will take effect in 2025, resulting in enhanced refunds. These changes include a $200 increment in the maximum child tax credit, an elevated standard deduction, and a larger itemized deduction for state and local taxes. Other modifications aim to reduce tax burdens for seniors, tipped and overtime workers, and individuals with auto loans, with the Tax Foundation estimating average refunds will rise by approximately $1,000.
Despite the immediate benefit of increased refunds, the long-term advantages of tax reform stem from policies designed to enhance work and investment incentives, fostering economic growth. For businesses, the legislation introduced permanent measures that facilitate significant investments in equipment and research. This approach is expected to spur innovation, job creation, and overall economic expansion, potentially making the economy 1% larger in the long run and leading to improved wages and employment opportunities.
However, these gains face a challenge from ongoing trade tensions. President Trump’s trade policies have led to instability in manufacturing and increased costs for imported goods, which do not favor the average worker. The administration’s decision to alter tariffs has resulted in increased expenses for American consumers, raising an additional $143 billion in 2025, but at a cost that detracts from sustained economic growth.
Looking forward, the third lesson reflects the escalating challenges ahead. The tax reforms contributing to this year’s refunds will exacerbate federal deficits by an estimated $3 trillion by 2034. With government spending outpacing revenues, lawmakers must prioritize reforms to address annual deficits. Without significant changes, critical entitlement programs such as Social Security and Medicare may face severe benefit reductions within the next seven years.
Although last year’s tax cuts have yielded tangible benefits, they also complicate the work that legislators must undertake in 2026 and beyond. Achieving a more balanced fiscal future will require responsible management of new revenues rather than historical patterns of rapid expenditure. Economic policy in 2025 exhibited both remarkable highs and unsatisfying lows. As the new year unfolds, lawmakers should revisit their resolves, aiming for a more balanced approach to fiscal challenges.