At the start of this year, many expected a booming U.S. economy, thanks to a surge in tax refunds from President Trump’s tax cuts. However, rising gas prices are putting a damper on those plans, leaving most people with less to spend.
Trump claimed that this would be the largest tax refund season ever during a speech in December. Yet, everything changed when the conflict in Iran started on February 28. Since then, gas prices have spiked, with the national average reaching $3.94—over a dollar increase in just a month.
Higher gas prices are likely to stick around, even if the conflict ends soon, as disruptions in production and shipping will take time to fix. Experts suggest that growth may slow this spring and throughout the year, as more money spent on gas means less for things like dining out or shopping.
Lower and middle-income households are particularly affected. They typically receive smaller refunds but spend a larger portion of their income on gas. Alex Jacquez, a policy expert at Groundwork Collaborative, noted, “The energy shock is going to hit those who have the least cushion.”
Neale Mahoney from Stanford estimates gas prices could peak at $4.36 a gallon by May, based on Goldman Sachs predictions. This could lead to an average household spending about $740 more on gas this year, almost equal to the expected $748 increase in tax refunds, according to the Tax Foundation.
So far, tax refunds for this season have risen only modestly—averaging $3,676, a $352 increase from last year. These projections may improve as more complex tax returns are processed.
Other research, like that from Oxford Economics, shows that if gas prices average $3.70 throughout the year, consumers could face a total cost of about $70 billion—more than the anticipated increase in tax refunds.
Compared to last year, when high gas prices were also a concern due to the Ukraine conflict, many households are in a tougher spot. Back then, stimulus payments had padded many bank accounts, and jobs were plentiful. Now, hiring has slowed, and savings rates are dropping as people borrow more to keep up with expenses.
Julie Margetta Morgan from The Century Foundation observed that many people are maxing out credit cards and relying on “buy now, pay later” options for necessities like groceries. “They’re making it work for now, but that can fall apart quickly,” she cautioned.
Experts warn this situation may worsen the “K-shaped” recovery narrative, where higher-income households rebound while lower-income families struggle. Research indicates the bottom 10% of earners spend nearly 4% of their income on gas, while the top 10% spend just 1.5%.
Despite these challenges, many analysts still predict the U.S. economy will grow this year, albeit at a slower rate. Higher gas prices could lead to short-term inflation, but this might also reduce growth over time. Data from the Bank of America Institute shows that gas spending surged 14.4% recently compared to last year, though this was previously down by 5% before the conflict. Spending on dining and entertainment continues to grow, even if slowly.
David Tinsley, a senior economist at the institute, stated, “The longer these gasoline prices persist, the more they will gradually sap consumer discretionary spending.”
Looking ahead, economists like Bernard Yaros and Michael Pearce at Oxford Economics have lowered their growth forecast for the U.S. economy from 2.5% to just 1.9% for the year. They noted that higher gas prices would counterbalance any spending boost from tax refunds, showing the intricate balance of economic factors at play.
In summary, the current economic landscape is revealing stark challenges for everyday Americans as they navigate rising costs against the backdrop of anticipated tax refunds.
Source link
Donald Trump, Energy markets, Economic indicators, Taxes, Iran war, General news, AP Top News, Julie Margetta Morgan, Business, Iran, David Tinsley, U.S. news, The Goldman Sachs Group, Inc., Alex Jacquez, Bernard Yaros, Michael Pearce, Iran government, U.S. News
