Soaring Gas Prices Likely to Offset Tax Refund Boost

Americans expected to spend refunds on gas rather than discretionary purchases

Mar. 22, 2026 at 10:37pm

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Skyrocketing U.S. gas prices are on track to eat up tax refunds this year, leaving most Americans with little or nothing extra to spend. The U.S. economy was supposed to start the year with a boost from a jump in tax refunds, but the Iran war has caused oil and gas prices to surge, with the nationwide average price of gas reaching $3.94 per gallon. Economists now expect slower growth this spring and for the year, as dollars spent on gas are less likely to be used for restaurants, new clothes or entertainment.

Why it matters

The gas price spike comes at a time when many consumers are already in a precarious financial position, with hiring nearly at a standstill and Americans' saving rate steadily falling. The impact is likely to worsen the 'K-shaped' phenomenon in the U.S. economy, in which higher-income households have fared better than lower-income households, as the bottom 10% of earners spend nearly 4% of their incomes on gasoline compared to just 1.5% for the top 10%.

The details

Economists now expect the U.S. economy to grow just 1.9% this year, down from an earlier estimate of 2.5%, as the rise in gasoline prices is expected to more than offset the boost from a 'bumper tax refund season.' Spending on discretionary items is still growing, but there is little sign it is accelerating as many had hoped.

  • On February 28, the U.S. and Israel began the Iran war.
  • The nationwide average price of gas reached $3.94 on Sunday, March 22.

The players

Alex Jacquez

Chief of policy at the left-leaning Groundwork Collaborative and a former economist in the Biden White House.

Neale Mahoney

Director of the Stanford Institute for Economic Policy Research.

Julie Margetta Morgan

President of the Century Foundation think tank.

David Tinsley

Senior economist at the Bank of America Institute.

Bernard Yaros and Michael Pearce

Economists at Oxford Economics.

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What they’re saying

“The energy shock is to going to hit those who have the least cushion. And it doesn't look like those tax refunds are going to be here to save them.”

— Alex Jacquez, Chief of policy at the Groundwork Collaborative

“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. They're making it work for now, but that can fall apart quite quickly.”

— Julie Margetta Morgan, President of the Century Foundation

“The longer these gasoline prices persist, the more that will gradually sap consumer discretionary spending.”

— David Tinsley, Senior economist at the Bank of America Institute

What’s next

Economists expect gas prices to peak in May at $4.36 per gallon, followed by slow declines for the rest of the year.

The takeaway

The surge in gas prices is likely to offset the boost from larger tax refunds, leaving many Americans with little extra to spend and potentially worsening the 'K-shaped' recovery, where higher-income households fare better than lower-income ones. This highlights the vulnerability of consumers, especially those with limited financial cushions, to external shocks like the Iran war.