Gas price surge threatens tax refund boost for U.S. consumers

2026-03-22 09:14:20 ET

Hopes for a strong start to the year in the U.S. economy are fading as rising gas prices erode the impact of larger tax refunds, the Associated Press reported Sunday....

A surge in refunds tied to recent tax cuts was expected to give consumers extra spending power this spring. But since the outbreak of war with Iran in late February, fuel prices have jumped sharply, with the national average nearing $4 a gallon. Economists now say much of that refund-driven boost may be canceled out.

Higher energy costs are likely to linger even if tensions ease, as supply disruptions take time to resolve. That means more household income will go toward fuel instead of discretionary purchases like dining, travel or retail.

Lower- and middle-income households are expected to feel the most strain, since they spend a larger share of their income on gas while receiving smaller refunds.

Some forecasts suggest gas prices could climb further before easing later in the year. In that scenario, the average household’s additional fuel costs would nearly match the increase in their tax refund, effectively wiping out the benefit.

Other estimates point to a similar outcome at the national level, with higher fuel spending outweighing the total boost from refunds.

The timing is particularly challenging for consumers. Job growth has slowed, savings have declined and more households are relying on credit to maintain spending. Analysts warn that this could deepen existing economic divides, with lower-income groups bearing a disproportionate burden.

While consumer spending has remained resilient so far, there are signs of strain. Gasoline purchases have jumped, while growth in discretionary spending has been steady but not accelerating.

Most economists still expect the U.S. economy to expand this year, though at a slower pace. However, the anticipated lift from tax refunds now appears far weaker, as higher fuel costs absorb much of the potential gain, the AP reported.

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