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Higher tax refunds will likely be used to offset rising gas prices

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 https://apnews.com

Higher tax refunds will likely be used to offset rising gas prices | AP
News
Christopher Rugaber

WASHINGTON (AP) - The U.S. economy was supposed to start the year with a
bang, fueled by an unusually large jump in tax refunds from President
Donald Trump's tax cut legislation. Yet spiking gas prices are on track to
eat up those refunds, leaving most Americans with little extra to spend.

"Next spring is projected to be the largest tax refund season of all
time," Trump said in a prime-time speech in December that was intended to
address voters' concerns about the economy and stubbornly high prices.

But that was before the Iran war, which began Feb. 28. Oil and gas prices
have soared since then, with the nationwide average price of gas reaching
$3.94 Sunday, up more than a dollar from just a month earlier.

Gas prices are likely to remain elevated for some time, even if the war
ends soon, because shipping and production have been disrupted and will
take time to recover. Economists now expect slower growth this spring and
for the year as a whole, as dollars that are spent on gas are less likely
to be used for restaurant meals, new clothes, or entertainment.

Lower and middle-income households are likely to be hit particularly hard,
because they receive lower refunds, while spending a greater proportion of
their earnings on gas.

"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" narrative 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."
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Higher tax refunds will likely be used to offset rising gas prices Biased Journalism <biased@nowhere.invalid> - 2026-03-22 10:44 -0700
  Re: Higher tax refunds will likely be used to offset rising gas prices Labor Day <Labor_day@test.invalid> - 2026-03-22 10:45 -0700
    Re: Higher tax refunds will likely be used to offset rising gas prices John Smyth <smythlejon2@hotmail.com> - 2026-03-22 21:42 +0000

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