Key Tax and Economic Signals for Private Equity in 2026

As businesses and investors look further into 2026, uncertainty remains high – but uncertainty does not have to equal stagnation. The latest Crowe ExPErtise Series webinar, which took place in January 2026, explored where the economy is headed, how inflation and labor dynamics are shaping profitability, and why state tax planning has become significantly more complex. Following are the most important takeaways from the webinar for private equity firms and their portfolio companies.

1. The economy is expected to grow, but not evenly

Despite persistent negative headlines, the U.S. economy overall continues to expand at a modest pace. Gross domestic product growth in 2025 came in closer to historical norms than many expected, and the outlook for 2026 points to mild growth rather than recession. However, there likely will be significant variations by industry and market.

One of the defining characteristics of the current cycle is how uneven performance has become across industries, with some sectors growing, others stagnating, and still others actively contracting all at the same time. A poll of over 300 private equity industry leaders who attended the webinar showed a split in economic sentiment; a mild recession was only slightly higher than a soft landing as the expectation for the U.S. economy in 2026. This variance reflects the fragmented economic reality businesses are facing, and that divergence has major implications for portfolio construction, capital allocation, and strategic planning.

2. Consumer spending is strong, but behavior is changing

Consumers remain financially resilient overall, and retail spending continues to rise. However, inflation is driving a noticeable trade-down effect, with increased demand for mid-tier and lower-cost products and less momentum in premium and luxury categories. Businesses that lack pricing flexibility or product mix diversity might face pressure as this trend continues.

3. Confidence signals point to slower M&A activity

Business confidence has remained relatively flat, oscillating around neutral levels. Historically, lower confidence translates into slower merger and acquisition (M&A) activity roughly nine months later, suggesting deal volume might remain subdued through the coming quarters, although it likely won’t collapse outright.

4. Inflation is the central risk to profitability

While inflation is expected to rise through 2026 before moderating in 2027, the bigger concern is not price levels, it’s margin erosion. There is a highlighted risk of “profitless prosperity,” where revenues grow but rising costs prevent profits from following suit.

5. Labor costs are set to rise significantly

Labor costs are projected to increase by roughly 20% between now and 2029, driven by demographics, labor availability, and inflation. Businesses must evaluate whether their operating models can absorb these increases or whether structural changes will be required to remain viable.

6. Interest rates are likely to stay relatively flat

Despite speculation around rate cuts, the real borrowing environment is expected to remain largely stable in the near term. This stability could gradually improve affordability in interest-rate-sensitive sectors like housing, but it is unlikely to dramatically lower financing costs for businesses.

7. The One Big Beautiful Bill Act (OBBBA) reshapes tax planning

On the tax front, the OBBBA introduced major changes, including:

• An increased state and local tax deduction cap
• Restored 100% bonus depreciation
• Elimination of required research and development R&D capitalization
• Adjustments to interest expense limitations
• Changes to international tax provisions

While some changes appear favorable on the surface, their real impact depends heavily on state tax conformity.

8. State tax conformity is now the biggest tax wildcard

States continue to diverge in how – and whether – they conform to federal tax law. Fixed versus rolling conformity, selective decoupling, and budget-driven policy shifts mean companies no longer can rely on federal tax outcomes to predict state tax exposure.

Polling responses during the webinar indicated that the OBBBA provisions that will have biggest impact on business in 2026 are bonus depreciation restoration and state and local tax deduction increases.

These responses underscore how both individual and entity-level provisions are shaping planning priorities.

9. Sophisticated modeling has become nonnegotiable

The cumulative effect of economic uncertainty, inflation, labor pressure, and fragmented tax rules mean simple forecasting approaches no longer work.

Webinar poll responses identified that the business challenges that are most concerning now are uncertainty and low confidence and inflation and cost pressure.

The takeaway was clear: Businesses that succeed in 2026 and beyond will be those that invest in data-driven forecasting, state-by-state tax modeling, and proactive scenario planning.

The overarching message for private equity leaders is not pessimism, but preparedness. While growth remains possible, it will not be evenly distributed or easily captured. Organizations that move beyond headlines, understand the nuances of tax and economic policy, and plan with precision will be best positioned to navigate 2026 successfully.