Trump Promises Larger Tax Refunds, Yet Americans May Direct Them Toward Rising Gas Prices

WASHINGTON – As the year began, there were high hopes for a boost in the U.S. economy, driven by significant increases in tax refunds due to tax cut measures implemented under President Donald Trump. However, a surge in gasoline prices threatens to offset these anticipated gains, leaving many Americans with less disposable income.

In a December address aimed at easing public concerns over economic issues and persistent high costs, President Trump declared, “Next spring is projected to be the largest tax refund season of all time.” The optimistic forecast was set to reassure voters about the financial outlook.

However, the onset of conflict with Iran on February 28 has dramatically altered this landscape. Since the conflict began, oil and gas prices have escalated sharply. As of Sunday, the nationwide average for gasoline had climbed to $3.94 per gallon, marking an increase of over a dollar in just a month.

Even if the conflict concludes swiftly, gas prices are expected to remain high for a while. Disruptions in shipping and production will need time to stabilize, potentially hampering economic growth this spring and throughout the year. Increased spending at the pump leaves less room in consumers’ budgets for dining out, buying new clothes, or enjoying entertainment.

Lower and middle-income families might bear the brunt of this economic strain. These households typically receive smaller tax refunds and spend a larger share of their income on fuel, making them particularly vulnerable to rising gas prices.

“The energy shock is to going to hit those who have the least cushion,” said Alex Jacquez, chief of policy at the left-leaning Groundwork Collaborative and a former economist in the Biden White House. “And it doesn’t look like those tax refunds are going to be here to save them.”

Neale Mahoney, director of the Stanford Institute for Economic Policy Research, calculates that gas prices could peak in May at $4.36 a gallon, based on oil price forecasts by Goldman Sachs, followed by slow declines for the rest of the year. The notion that gas prices decline much more slowly than they rise is so ingrained among economists that they refer to it as the “rocket and feathers” phenomenon.

In that scenario, the average household would pay $740 more in gas this year, nearly equal to the $748 increase in refunds that the Tax Foundation has estimated the average household will receive.

Through March 6, refunds have risen by much less than that, according to IRS data: They have averaged $3,676, up $352 from $3,324 in 2025. Still, average refunds could rise as more complex returns are filed.

Other estimates show similar impacts. Economists at Oxford Economics, a consulting firm, estimate that if gas prices average $3.70 a gallon all year, it will cost consumers about $70 billion — more than the $60 billion in increased tax refunds.

The gas price spike comes with many consumers already in a precarious position, particularly compared to 2022, when gas prices also soared because of Russia’s invasion of Ukraine. At that time, many households still had fattened bank accounts from pandemic-era stimulus payments and companies were hiring rapidly and sharply lifting pay to attract workers.

Now, hiring is nearly at a standstill and Americans’ saving rate has steadily fallen in the past few years as many households borrow more to sustain their spending.

“When you start looking across the perspective from a consumer side, you’re seeing people who have maxed out their credit cards, are using ‘buy now, pay later’ to purchase their groceries,” said Julie Margetta Morgan, president of The Century Foundation, a think tank. “They’re making it work for now, but that can fall apart quite quickly.”

The impact will likely worsen the “K-shaped” narrativ e around the U.S. economy, analysts said, in which higher income households have fared better than lower-income households. The bottom 10% of earners spend nearly 4% of their incomes on gasoline, Pantheon Macroeconomics estimates, while the top 10% spend just 1.5%.

For now, most analysts still expect the U.S. economy to expand this year, even if more slowly, given the gas price shock. Higher gas prices will likely worsen inflation in the short run, but over time weaker spending will also slow growth.

American consumers and businesses have repeatedly shaken off shocks since the pandemic — soaring inflation, rising interest rates, tariffs — and continued to spend, defying concerns that the economy would tip into recession. Many economists note that the proportion of their incomes that Americans spend on gas and other energy has fallen significantly compared with a decade ago.

Data from the Bank of America Institute, released Friday, showed that spending on gas on the bank’s credit and debit cards shot 14.4% higher in the week ended March 14 compared with a year ago. Before the war, such spending was running 5% below the previous year, a benefit to consumers.

Spending on discretionary items — restaurant meals, electronics, and travel — is still growing, the institute said, evidence of consumer resilience. But there is little sign it is accelerating, as many economists had hoped.

“The longer these gasoline prices persist, the more that will gradually sap consumer discretionary spending,” said David Tinsley, senior economist at the institute.

Other analysts expect growth will slow because of the war. Bernard Yaros and Michael Pearce, economists at Oxford Economics, forecast that the U.S. economy will grow just 1.9% this year, down from an earlier estimate of 2.5%.

“We had anticipated a lift in spending from a bumper tax refund season,” they wrote, “but the rise in gasoline prices, if sustained, would more than offset that boost.”