Higher Gas Prices Expected to Offset Tax Refund Gains from Trump's One Big Beautiful Bill Act

Higher gasoline prices are expected to erase a significant portion of the benefits from tax refunds under President Donald Trump’s One Big Beautiful Bill Act. The increase in fuel costs has outpaced the expected tax cuts, according to analysts. With national average prices rising above $3.71 per gallon, consumers are spending $300 million more on gasoline than a month ago.

The tax refunds for 2026 are projected to rise by $31–33 billion, but this amount is roughly equivalent to just over five months of additional gasoline spending. A sharper price spike could reduce this window significantly. Lower and middle-income households are bearing the brunt of these rising costs, with the average household potentially paying $740 extra in fuel expenses this year.

Economists warn that the energy shock from the ongoing Iran war has forced major financial institutions to revise their growth forecasts downward. Goldman Sachs now expects 2026 inflation-adjusted economic growth at 2.2%, down 0.3 percentage points from earlier estimates. The risk of a recession is increasing, with some economists assigning a 49% probability of a downturn this year.

Why Did This Happen?

The recent surge in gasoline prices has been driven by the Iran war and reduced oil flows through the Strait of Hormuz. These factors have caused oil prices to jump over 33% since the war began on Feb. 28. Combined with the transition to summer gasoline blends, prices could remain elevated for months.

President Trump’s One Big Beautiful Bill Act was intended to boost consumer spending by increasing refunds. However, these benefits are being undermined by rising energy costs. The law has also eliminated taxes on tips and overhauled student loan programs, but its economic benefits may be offset by the ongoing conflict.

How Are Markets Responding?

Lawmakers are now considering a second "Big, Beautiful Bill" to fund the Iran war and additional defense spending. This approach would use the Senate's reconciliation process to pass a major tax and spending package with a simple majority. However, this strategy raises concerns about inflation and debt levels, as it could inject even more money into the economy while fuel prices remain high.

In response to surging energy prices, the Trump administration has suspended the Jones Act for 60 days. This move allows foreign-flagged vessels to transport energy and agricultural products between U.S. ports. While the administration claims it will help stabilize prices, experts say the impact will likely be minimal, as most fuel is transported via pipelines and trucks.

What Are Analysts Watching Next?

Energy companies are showing mixed performance amid the price volatility. Star Gas Partners LP reported a 32% year-over-year increase in Adjusted EBITDA to $16.5 million for Q1 fiscal 2026. This was driven by higher home heating oil and propane volumes. However, delivery costs also increased due to colder-than-normal weather according to earnings reports.

Analysts remain concerned about the long-term implications of the Iran war on fuel markets. If the conflict persists and oil prices remain elevated, the financial burden on American households could increase significantly. This could reduce consumer spending and further weaken economic growth. Energy Secretary Chris Wright has suggested gas prices may fall below $3 per gallon by summer, but this remains uncertain.