High gas prices eating up the Big Beautiful Bill's tax refund surge

As the war with Iran enters its fourth week, some analysts are warning that elevated gas prices are likely to eat up virtually all of the economic boost expected from higher-than-normal tax refunds this year.

A key portion of 2025’s One Big Beautiful Bill Act, the Trump administration’s tax and spending legislation, was tax cuts, which were expected to be delivered to consumers as retroactive refunds for 2025.

Economists at JPMorgan Asset Management went so far as to dub it the “refund surge,” and they and others thought the boost it would deliver might be so strong as to rekindle inflation.

But on March 20, Oxford Economics’ U.S. team wrote that the gas price shock has changed the equation.

“Gas prices averaging $3.60 would imply consumers will need to spend about $60 (billion) more in 2026 on gasoline, almost exactly offsetting the boost from refunds,” wrote Bernard Yaros and Michael Pearce. “Every $0.10 on gasoline prices adds around $12.3 (billion) in spending on gasoline, or around 0.06% of consumer spending that isn't available to be spent on other goods and services.”

The nationwide average for a gallon of gas was $3.928 around noon Eastern Time on March 23, up one dollar from the previous month.

Not everyone agrees.

“Tax refunds are poised to average $1,000 more than last year,” said Larry Adam, Raymond James’ chief investment officer. “The cumulative impact of higher gasoline prices on a typical household wouldn’t reach $1,000 even if gasoline were to stay at $4.00/gallon through the end of the year − which we view as a very unlikely scenario.”

Yet Adam and his team still think higher gas prices are likely to widen the gap between the two prongs of the “K-shaped” economy.

“Lower-income households are feeling the pinch, given that they spend a higher share of income on fuel and other necessities,” they wrote. “Higher-income households, which account for a disproportionate share of consumer spending, are less sensitive to what happens at the pump.”

The team at Pantheon Macroeconomics notes that spending on gas accounted for 3.7% of the spending by households in the bottom 10% of the income distribution, compared to just 1.5% for those in the top 10% in 2023.

What’s more, the Pantheon team wrote on March 20, “the main beneficiaries of tax refunds this year will be mid-to-high earners," with lower-income households seeing relatively less of a rebate boost.