Your tax refund is likely bigger this year. But Trump’s war with Iran could take a bite out of it
By Tami Luhby, CNN
(CNN) — President Donald Trump has repeatedly promised that Americans will get larger tax refunds this year thanks to his “big, beautiful bill.”
But now his war with Iran – and the resulting spike in gas prices – could wipe out a sizeable slice of that windfall for many folks, depending on how long the conflict in the Middle East lasts.
To be sure, many taxpayers are enjoying heftier refunds this year thanks to the sweeping tax cuts included in Trump’s domestic agenda package, including a larger standard deduction, the elimination of taxes on tips and overtime and an enhanced deduction for senior citizens.
The average tax refund this year is higher by about $350, or nearly 11%, when compared to last year, according to the latest Internal Revenue Service data as of March 6. That figure will likely change before the filing season ends on April 15, but refund sizes typically level off after late February, according to Erica York, vice president of federal tax policy at the right-leaning Tax Foundation.
Taxpayers claiming new deductions for seniors, tip income, overtime pay and car loan interest are receiving refund increases of $775, on average, IRS CEO Frank Bisignano said at a congressional hearing on March 4. The figure is expected to rise to $1,000 by the end of the season.
That extra cash, however, is coming at a time when many folks are feeling more pain at the pump. Gas prices have soared to an average of $3.88 nationwide, up 90 cents from February 28, when the US-Israeli conflict with Iran began.
“If you get $300, $500 more on your tax refund, but then that has to go right out the door for higher gasoline prices and higher prices for everything else – because gasoline and oil prices affect everything – then you may not feel ahead,” York said.
“The tax refund relief might not pay the political dividends that Republicans and Trump were hoping for,” she continued.
$4.1 billion extra spent on gas
Gas prices have climbed swiftly over the past three weeks, fueled by the effective closing of the Strait of Hormuz between Iran and Oman that cut off 20% of the world’s oil supply and sent oil prices skyrocketing. It’s unknown when the war – and attacks on the Middle East’s energy hubs – will end.
A household with two cars is spending an average of $20 to $40 a week more on gas than prior to the conflict, said Patrick De Haan, head of petroleum analysis at GasBuddy, an online price tracker.
Collectively, the figures are staggering. Drivers have pumped an estimated $4.1 billion more into their gas tanks since February 28 due to the price spike, De Haan said.
“This is money that is not being funneled into the rest of the economy because Americans are leaving it behind at the pump,” he said.
If gas prices top $4 a gallon and remain there for six months, the typical household will spend about $600 more on fuel during that period, said Scott Hoyt, senior director at Moody’s Analytics. In total, its spending will increase by $750 because higher gas prices will cause other items to become more expensive.
And the spike will hit lower-income Americans even harder because they tend to spend a larger share of their household budgets on energy, he said. These are the same folks who also depend more on their tax refunds to help cover their expenses.
The Trump administration has acknowledged there would be “temporary disruptions as a result of Operation Epic Fury,” Kush Desai, White House spokesman, said in a statement to CNN. Meanwhile, “the Trump administration remains focused here on the home front implementing President Trump’s proven economic agenda of deregulation, tax cuts, and energy abundance.”
Giving up food to pay for gas
Alice, an administrative assistant who is already stretched thin financially, had been hoping to get a bigger refund this year since Trump and other Republicans kept talking about “how awesome” the filing season would be.
Not only did the Oklahoma resident not see a boost, she’s now shelling out $15 more a week for gas. She filled up on Sunday for $3.29 a gallon, 80 cents more than she paid at the end of February.
Alice, who is in her early 60s and asked her last name not be used to protect her employment, needs to save her refund to pay her property taxes. So she’s planning to cut back on groceries and electricity, sell some personal items and reduce the amount of taxes she has taken out of her paycheck to get by.
“I’m just going to hope that I can save money on food and other essential items and be extremely frugal with my life so that I can pay the extra money for gas,” Alice said.
Even when the Middle East conflict ends, it will take time for gas prices to decline. On the “best days,” they only fall about 1 to 3 cents, De Haan said.
“It’s going to take a couple of months, if and when the situation resolves, for gasoline prices to ‘normalize,’” he said.
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