US Tax Cuts Boost Economy but Pose Risks: What Investors and Business Owners in Oman Should Know
WASHINGTON — The US economy experienced a volatile year in 2025 but is expected to strengthen significantly in 2026, driven by several key factors including President Donald Trump’s tax cuts, reduced uncertainty around tariffs, continued growth in artificial intelligence (AI), and anticipated interest-rate cuts by the Federal Reserve later in the year.
Economists identify increased consumer spending as a primary growth engine, spurred by larger tax refunds and reduced tax withholdings from paychecks. Consumer expenditure remains the cornerstone of the American economy. In addition, Trump’s comprehensive tax legislation provides companies with various credits and deductions, including full expense write-offs on investments, which could boost corporate capital expenditures across sectors beyond just AI and data centers.
KPMG’s chief economist Diane Swonk highlighted that fiscal stimulus alone could contribute at least 0.5% to GDP growth in the first quarter of 2026.
The effects of Trump’s tariffs on consumer prices are expected to peak in the first half of the year. As inflationary pressures subside, wage growth may outpace inflation, enhancing household financial health. Meanwhile, business investment in AI infrastructure, which underpinned much of the economic expansion in 2025, is poised to continue. Technology giants such as Amazon and Google’s parent company Alphabet have announced plans for increased investment.
This combination of factors signals an improved environment for businesses that faced challenges throughout 2025 due to trade policy disruptions and immigration restrictions, which had led to cautious hiring and firing practices.
Michael Pierce, an analyst at Oxford Economics, stated, “We expect fading policy uncertainty, the boost from tax cuts, and recent monetary easing to result in stronger economic growth in 2026.”
Headwinds are easing after the economy contracted early in 2025 amid the introduction of aggressive tariffs, which raised the average US import tariff to nearly 17% from under 3% at the end of 2024, according to the Yale Budget Lab.
Economic growth rebounded in the second quarter as market participants adapted to trade policies, accelerating further to a 4.3% annualized pace in the third quarter. This was supported by increased consumer spending, especially among higher-income groups benefiting from stock market gains, alongside heightened corporate investment in AI.
Growth slowed markedly in the fourth quarter due to a six-week federal government shutdown starting October 1, but this drag is expected to reverse with the reopening in 2026.
Nomura economists noted, “Growth in 2025 has been resilient despite substantial drag from trade and immigration policies. Now, these headwinds are abating as fiscal and monetary policies turn stimulative.”
— Reuters
Special Analysis by Omanet | Navigate Oman’s Market
The anticipated economic rebound in the US in 2026, driven by tax cuts, easing tariff pressures, and AI investment, signals significant opportunities for Omani businesses tied to US trade and technology sectors. Smart investors should consider increased capital flows into AI and infrastructure, while entrepreneurs in Oman may benefit from aligning with US-driven tech and consumer spending growth. However, vigilance is key as shifts in US fiscal and trade policies could create both risks and openings for strategic market positioning.
