Rising Gas Prices Threaten Economic Stability Amid Tax Refund Boost

Sun Mar 22 2026 20:55:34 GMT+0000 (Coordinated Universal Time)

The surge in gas prices threatens to negate the benefits of increased tax refunds, particularly impacting lower and middle-income households. Analysts express concerns over consumer spending and economic growth as consumers allocate more budget to gas, leading to potential economic slowdown.

As projected tax refunds are set to rise, soaring gas prices are diminishing the potential benefits for many U.S. households. The economic landscape is shifting following the recent Iran war, with gas prices reaching as high as $3.94 and expected to rise further. Lower and middle-income families are likely to feel the brunt of this financial squeeze, with predictions of a substantial increase in expenditure on fuel. Experts are forecasting an overall slowdown in economic growth as a result of these pressures, echoing warnings from economists regarding the disparity between income brackets in managing increased costs.

WASHINGTON (AP) — The U.S. economy started the year with expectations of a robust boost from increased tax refunds due to President Donald Trump’s tax cut legislation. However, spiking gas prices are predicted to erode those gains, leaving many Americans with limited disposable income.<\/p>

“Next spring is projected to be the largest tax refund season of all time,” Trump stated in a prime-time address in December, which sought to address rising voter concerns regarding the economy and inflation.<\/p>

This optimistic outlook changed following the onset of the Iran war on February 28, which propelled oil and gas prices upward. The nationwide gas price average reached $3.94 as of Sunday, up over a dollar from the previous month. Such inflation in energy costs suggests a continuing trend even post-conflict, as disruptions in shipping and production are expected to linger.<\/p>

Economists have now revised growth predictions downwards, anticipating slower progress both this spring and throughout the year, as consumers will likely redirect funds typically spent on entertainment or retail towards fueling their vehicles.<\/p>

The impact of these gas prices disproportionately hits lower and middle-income households, who not only receive smaller refunds but also allocate a significantly higher percentage of their income towards gas.<\/p>

Alex Jacquez, chief of policy at the Groundwork Collaborative, a left-leaning think tank, warned, “The energy shock is going to hit those who have the least cushion,” while noting that higher gas costs will likely render tax refunds ineffective for many.<\/p>

Neale Mahoney of the Stanford Institute for Economic Policy Research posits that gas prices could peak near $4.36 a gallon by May based on forecasts from Goldman Sachs. His findings highlight the economic scenario where households would incur an additional $740 in gas expenses this year, an almost equal offset to the estimated $748 increase from tax refunds, as dissected by estimates from the Tax Foundation.<\/p>

Through early March, tax refunds have not risen significantly, averaging $3,676, up from $3,324 a year prior. This has the potential to alter as more complex tax filings unfold in the coming months.<\/p>

Similarly, estimates from Oxford Economics predict that sustained gas prices of around $3.70 per gallon would lead to an additional $70 billion burden on consumers, surpassing the $60 billion increase in anticipated tax refunds.<\/p>

The current rise in gas prices follows a period when many households had accumulated substantial savings during the pandemic, which was not the case this time. Hiring has plateaued, and consumers report declining savings rates and increasing debt levels as they work to contain spending.<\/p>

Julie Margetta Morgan of the Century Foundation notes, “They’re making it work for now, but that can fall apart quite quickly,” outlining the precarious state of many American households.<\/p>

The repercussions of these developments may further entrench the financial disparity among income brackets. According to Pantheon Macroeconomics, lower-income consumers allocate nearly 4% of their earnings to gas compared to just 1.5% of the top earners. Although economists believe the economy will continue to expand, the rising gas prices are likely to strain consumer spending and curb growth.<\/p>

Data from Bank of America indicates that spending on gas surged by 14.4% in mid-March compared to a year ago. Although discretionary spending still appears resilient, evidence is lacking to suggest a notable acceleration in purchasing behavior.<\/p>

As David Tinsley from the Bank of America Institute noted, “The longer these gasoline prices persist, the more that will gradually sap consumer discretionary spending.”<\/p>

In light of the economic pressures posed by the ongoing crisis, analysts at Oxford Economics have revised U.S. growth estimates down to just 1.9% this year from an earlier prediction of 2.5%, suggesting that the anticipated boost from tax refunds will be canceled out by the rising fuel costs.