Trump's Iran War Threatens to Undermine Tax Cut Gains

Rising oil prices from the conflict could offset the economic boost expected from tax refunds.

Mar. 16, 2026 at 2:53pm

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President Trump's decision to launch a war against Iran has led to a surge in oil prices, threatening to raise costs across the economy and limit the economic stimulus expected from last year's tax cuts. While Republicans had hoped the tax cuts would provide a political boost ahead of the midterm elections, the oil shock could undermine those gains as Americans see higher gas prices eat into the benefits of their tax refunds.

Why it matters

The tax cuts were a key legislative priority for Republicans, who were counting on the economic boost to help their party retain control of Congress in the midterm elections. However, the unexpected costs from the Iran war could undermine those political calculations, as higher energy prices offset the modest economic lift the tax cuts were expected to provide.

The details

Republicans designed the tax law to try and create an economic lift this spring, with much of the legislation dedicated to extending an expensive series of tax cuts. The party layered on additional populist tax cuts, like 'no tax on tips,' hoping they would generate more economic activity and public support. The idea was that supersized tax refunds would grab attention and drive spending before cuts to Medicaid and food stamps kicked in. But the surge in oil prices brought on by the war against Iran is threatening to raise costs across the economy and cut into the already modest stimulus the tax cuts were poised to deliver.

  • The tax cuts were retroactive to the beginning of 2025.
  • As of March 6, the average tax refund was 11% larger than last year, falling short of the 30% increase forecast by some analysts and advertised by the White House.

The players

President Trump

The president who chose to launch the war against Iran, which has led to a surge in oil prices that threatens to undermine the economic benefits of his own tax cuts.

Republicans

The party that carefully designed the tax law to try and create an economic lift this spring, with the hope that the populist changes would generate more economic activity and public support ahead of the midterm elections.

Michael Pugliese

A senior economist at Wells Fargo who says the energy shock from the Iran war is coming just as the refund money really gets flowing, limiting the potential economic boost from the tax cuts.

Stephanie Roth

The chief economist at Wolfe Research who says the increase in the average refund size so far has been 'slightly underwhelming' compared to expectations.

Bridget Tully

A human resources administrator in Burlington, Vermont who counts on her tax refund to help pay bills and credit card debt, and only spent a portion of her larger refund this year on 'fun.'

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What they’re saying

“Rather than even a month ago thinking this could provide a boost to base line growth for the rest of the year, now I'm thinking it could limit the downside.”

— Michael Pugliese, Senior Economist, Wells Fargo

“I would have expected to see a slightly higher number, but it's still a couple of weeks away from when you would see the bulk of the refunds coming in. It's slightly underwhelming, but maybe not so surprising because it's so early.”

— Stephanie Roth, Chief Economist, Wolfe Research

“I spent some of it on fun and a lot of it on bills.”

— Bridget Tully

What’s next

If the war in Iran snarls global oil supplies for months, analysts expect that the added costs to the economy could eventually overwhelm the relief the refunds are expected to deliver to some households.

The takeaway

The president's decision to launch a war against Iran has raised energy costs just as Americans were starting to see savings from his signature tax cuts, threatening to undermine the economic and political benefits Republicans had hoped to gain from the legislation.