Surging U.S. gas prices could erase bigger tax refunds, analysis finds
The recent surge in gasoline prices in the United States, attributed to the conflict in Iran, is poised to offset the anticipated boost in tax refunds for many Americans this year, according to a new analysis. Economists from the Stanford Institute for Economic Policy Research have projected that the average U.S. household will shell out an extra $740 on gas due to the spike in global oil prices following the Iran attack. This increase in fuel costs is expected to nearly cancel out the additional funds people are set to receive in tax refunds this year.
The Tax Foundation, a nonpartisan organization, estimates that individual tax refunds will be approximately $748 higher this year, thanks to the tax cuts implemented under the Republican-backed “One, Big, Beautiful Bill Act,” signed into law by President Trump last year. As of the latest data from the IRS, average tax refunds were at $3,676, marking an 11% increase from the same period last year.
The ultimate impact of heightened U.S. energy prices hinges on the duration of the conflict in Iran and specifically the accessibility of the strategic Strait of Hormuz, through which a significant portion of global oil and natural gas shipments pass. The Stanford researchers’ calculation of the added household gas expenses assumes a three-week closure of the strait. However, if tensions ease and tankers resume their routes sooner, the projected consumer spending on gas could fluctuate accordingly.
The concept of “rockets and feathers” comes into play in the Stanford estimate, indicating that product prices tend to rise swiftly in response to increased input costs but decline at a slower rate when those costs decrease. Currently, the impact of escalating energy costs is evident, with oil prices soaring amid heightened Gulf attacks. Brent crude reached nearly $111 a barrel, while the U.S. benchmark climbed to around $99. The national average gas price surged to $3.88 per gallon, up 96 cents from a month ago, according to AAA data.
The Trump administration has highlighted the tax cuts under the “big, beautiful bill,” which eliminated taxes on certain overtime and tipped income, as well as raised the limit on the deduction for state and local taxes from $10,000 to $40,000.
As illustrated in the accompanying chart, gas prices have fluctuated over time, reflecting the ongoing impact of global events on energy costs. The intricate interplay between geopolitical tensions and economic factors continues to shape the financial landscape for American households, underscoring the importance of monitoring developments in the energy sector and its implications on personal finances.
Edited by Alain Sherter
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