Rising Gas Prices Threaten to Cancel Out Bigger Tax Refunds from Trump’s Tax Cuts

Gasoline prices in the U.S. Have surged past $3.90 a gallon, erasing much of the extra cash many households expected from larger tax refunds this year. The jump comes amid escalating tensions in the Middle East, which have disrupted global oil supplies and driven prices higher.

Tax Refunds Look Bigger, But Pump Prices Bite Back

Last tax season, the White House trumpeted what it called the "largest tax refund season in U.S. History," promising Americans hundreds of dollars more in refunds thanks to the tax changes under the One Big Beautiful Bill Act. The act, signed into law by President Donald Trump, included cuts on taxes for overtime pay, tipped income, and offered enhanced deductions for seniors.

IRS data shows the average refund this year is up around 11%, roughly $350 more per taxpayer compared to last year. Some taxpayers could see increases closer to $1,000 by the end of the filing season, thanks to new deductions. The Tax Foundation projected an average bump of $748 in refunds due to these cuts.

Yet, soaring gasoline prices threaten to swallow that extra money. Since late February, prices have jumped nearly $1 per gallon nationwide, hitting $3.91 on average. The spike traces back to the conflict between the U.S., Israel, and Iran, which has effectively closed the Strait of Hormuz—a critical chokepoint handling more than 20% of the world’s oil exports.

How Much More Are Americans Paying at the Pump?

Economists at Stanford’s Institute for Economic Policy Research estimate that if the Strait remains closed for three weeks and oil prices hover around $110 a barrel, average gas prices could hit $4.36 per gallon by May. That would cost the typical U.S. Household an extra $740 in fuel expenses over the year, nearly wiping out the additional tax refund expected.

Patrick De Haan, head of petroleum analysis at GasBuddy, noted that a two-car household has already been shelling out $20 to $40 more weekly on gas since the conflict escalated. Collectively, American drivers have spent nearly $4.5 billion more on gasoline since late February, money that’s not circulating elsewhere in the economy.

Winners and Losers in the New Economic Stretch

Oxford Economics analysts warn that these higher fuel costs will hit middle- and lower-income households hardest. The bottom 80% of earners spend close to 4% of their budgets on gasoline—almost twice the share compared to wealthier Americans. Meanwhile, the tax cuts tend to benefit middle- and upper-class taxpayers more, deepening economic divides.

The tax cuts under the One Big Beautiful Bill Act, including relief on state and local taxes and overtime pay, skew toward wealthier groups. That means the financial relief from bigger refunds may not reach those feeling the squeeze at the gas pump the most.

Investment advisory Pantheon Macroeconomics found that while tax refunds might boost household budgets by $10 billion between February and April, higher gas prices could reduce real incomes by $15 billion per month. That gap means the benefit from tax refunds is modest and short-lived.

Why Gas Prices May Stay High

The Energy Information Administration projects that, under current conditions, average gas prices will stay elevated this year, averaging $3.34 per gallon. Goldman Sachs analysts have suggested oil prices could hover above $100 a barrel through 2027 if supply chain disruptions continue. That means Americans might face high gas bills for years to come.

Stanford economists also pointed out the "rockets and feathers" effect: prices shoot up quickly when input costs rise but fall slowly when costs drop. So even if tensions ease soon, consumers may still see high prices at the pump for months.

Scott Hoyt of Moody’s Analytics estimates that if gas prices top $4 a gallon and stay there for six months, the average household will spend about $600 more on fuel during that period, with total extra costs reaching $750 once other factors are included.

Given these projections, higher gas prices could absorb much of the extra money Americans hoped to get from their tax refunds this year. The question is how long this pressure at the pump will last and how it will shape household budgets moving forward.

For many Americans, the increased tax refunds may offer little relief against rising fuel costs, especially if geopolitical tensions continue to disrupt oil supplies. The strain on household budgets could persist well beyond this tax season.