Gas Prices to Offset Tax Refunds, Slowing US Economic Growth

WASHINGTON (AP) — The anticipated surge in tax refunds stemming from President Donald Trump’s 2025 tax legislation is facing a significant offset: rapidly rising gasoline prices. Economists now predict that much of the increased refund amount will be absorbed by higher energy costs, leaving many American households with little to no net financial gain this spring.

The situation represents a reversal of fortune from December, when the Trump administration touted the upcoming tax season as “the largest in U.S. History,” aiming to bolster public confidence amid concerns about economic stability and persistent inflation. However, the outbreak of conflict involving the U.S. And Israel against Iran on February 28th triggered a sharp increase in oil and gas prices, fundamentally altering the economic landscape.

As of Sunday, March 22, 2026, the national average gas price had climbed to $3.94 per gallon, an increase of over a dollar in just one month. This spike is expected to continue, with some analysts predicting a peak of $4.36 per gallon in May, contingent on oil prices remaining elevated. The Stanford Institute for Economic Policy Research estimates that the average household will spend an additional $740 on gasoline this year – nearly matching the projected $748 increase in tax refunds, according to the Tax Foundation.

The impact of these rising gas prices will not be felt equally across all income levels. Lower and middle-income households, who allocate a larger proportion of their income to transportation costs, will be disproportionately affected. Alex Jacquez, chief of policy at the Groundwork Collaborative, a left-leaning think tank, noted that “the energy shock is going to hit those who have the least cushion,” adding that the tax refunds are unlikely to provide substantial relief.

The current economic climate differs significantly from that of 2022, when gas prices also surged following Russia’s invasion of Ukraine. At that time, many households still benefited from pandemic-era stimulus payments and a robust job market with rapidly increasing wages. Today, hiring has slowed, and Americans are increasingly relying on credit and “buy now, pay later” schemes to cover essential expenses, leaving them more vulnerable to economic shocks.

Julie Margetta Morgan, president of The Century Foundation, highlighted this precarious situation, stating that consumers are “maxed out their credit cards” and are “using ‘buy now, pay later’ to purchase their groceries.” This suggests a fragile financial state for many, where even a moderate increase in expenses could trigger significant hardship.

Economists are now forecasting slower economic growth for the spring and the remainder of the year, as funds diverted to gasoline purchases will likely reduce spending on discretionary items like dining out, clothing, and entertainment. Oxford Economics analysts estimate that if gas prices average $3.70 per gallon throughout 2026, consumers will spend approximately $70 billion more on fuel – exceeding the total value of the increased tax refunds.

While the U.S. Economy has demonstrated resilience in the face of previous economic challenges, the combination of rising gas prices and a weakening financial position for many households presents a unique set of challenges. The “rocket and feathers” phenomenon – where gas prices rise quickly but fall slowly – suggests that relief at the pump may be slow in coming, even if the conflict in Iran is resolved quickly. Economists at Oxford Economics have revised their U.S. Economic growth forecast down to 1.9% for 2026, factoring in the impact of higher energy costs.

Despite these headwinds, some analysts remain cautiously optimistic. Data from the Bank of America Institute indicates that consumer spending on discretionary items is still growing, suggesting continued resilience. However, the rate of growth has not accelerated, indicating that the impact of higher gas prices is already being felt. David Tinsley, senior economist at the institute, cautioned that “the longer these gasoline prices persist, the more that will gradually sap consumer discretionary spending.”