Higher gas prices threaten to erase Trump’s tax refunds

(SeaPRwire) –   In January, the White House touted what it called the “largest tax refund season in U.S. history,” pledging refunds hundreds of dollars higher this tax year due to revisions in the tax code under the One Big Beautiful Bill Act (OBBBA).

However, economists caution that these gains could be erased—completely negated by rising fuel costs stemming from the ongoing conflict in Iran.

Research from economists at the Stanford Institute for Economic Policy Research indicates that if the Strait of Hormuz stays shut for an additional three weeks and oil hits $110 per barrel in March, gasoline could reach a peak of $4.36 per gallon in May. The analysis concludes this would lead Americans to spend an average of $740 more on fuel this year. The economists pointed out this additional expense would effectively nullify the $748 increase in tax refunds forecast for an average household by the Tax Foundation.

Fuel prices have jumped over 90 cents since February 28, reaching $3.91 per gallon, following President Donald Trump’s launch of a significant military campaign against Iran in cooperation with Israeli forces. Continued strikes and retaliatory actions have led to the functional shutdown of the Strait of Hormuz, a critical passage for exporting more than 20% of the world’s oil.

With crude oil prices circling $100 per barrel—and briefly exceeding $115 this week—gasoline prices have hit their highest point since 2023. Even if the hostilities conclude within weeks, Americans should still expect financial strain from fuel costs.

In a client note, Oxford Economics analysts made a comparable calculation, projecting consumers would spend an extra $60 billion on gasoline in 2026 if prices average $3.60 per gallon, which would “almost exactly offset the boost from refunds.”

These higher fuel prices are expected to hit lower- and middle-income consumers hardest, worsening a K-shaped economic pattern where affluent Americans boost spending while lower-income families face budgetary pressure. Analysts at Oxford noted the bottom 80% of earners allocate nearly 4% of their spending to gas—almost double the share of higher-income groups.

Furthermore, tax reductions specified in the OBBBA, including those for overtime and state and local taxes, are anticipated to disproportionately aid middle- and upper-class Americans, “deepening the bifurcation of the consumer that we’ve seen over the past several years,” the note stated. Under the current law, the IRS projects average refunds will be $360 larger than the previous year.

Why gas prices are likely to remain stubbornly high

Oil and gasoline costs are expected to stay high at least through year-end. The Energy Information Administration (EIA), a semi-independent body within the Department of Energy, forecasts that under present conditions, gas will average $3.34 this year and $3.18 in 2027. Analysts at Goldman Sachs similarly indicated oil could stay above $100 per barrel through 2027 if supply chain issues persist.

Even if the Strait of Hormuz reopens, rebalancing global oil supplies will take time. The sealing of this trade route has created a logjam of tankers, and rerouting them through the strait could take weeks. Gulf oil production might also be impaired by infrastructure damage from military strikes.

The Trump Administration has attempted to curb climbing gas prices, such as by temporarily suspending the Jones Act this past Wednesday. This federal law, enacted in 1920, governs domestic maritime shipping and trade by barring foreign-flagged vessels from moving cargo between U.S. ports. The administration’s suspension aims to alleviate supply disruptions inflating oil prices, hoping that allowing foreign ships on domestic routes will cut shipping expenses and hasten deliveries.

Policy specialists doubt the move will significantly impact fuel prices. The Center for American Progress estimated that suspending the Jones Act would reduce gasoline prices by just three cents per gallon.

Bloomberg reported that Vice President JD Vance plans to meet with oil industry executives to discuss skyrocketing oil prices.

“We know they’re up, and we know that people are hurting because of it,” Vance remarked at an event in Michigan this week. “And we’re doing everything that we can to ensure that they stay lower.”