Goldman Sachs economists forecast Monday that the boost to consumer spending that would have been expected after last year’s Republican tax cuts will be largely eaten away by higher gas prices.
“What originally appeared to be a solid year for consumer spending has quickly become more challenging,” Goldman Sachs economists Ronnie Walker, Alec Phillips and Jospeh Briggs wrote in a research note comparing the effects of tax refunds and higher energy costs.
Now that Tax Day has passed and a substantial amount of data on this year’s filing season is available, the Goldman team projects that tax refunds, running 17% higher than last year, will be up $50 billion over last year by the end of May. Tax payments, fueled by a surging market and the resulting higher capital gains taxes, are on track to come in $40 billion to $55 billion higher than last year (though as much as $25 billion to $40 billion less than would have been expected without the One Big Beautiful Bill Act).
“Combined, these flows imply a total benefit of around $75-90bn from the OBBBA but roughly unchanged tax bills year-over-year—resulting in a limited tailwind for consumer spending,” the Goldman analysts say.
They note that gas prices have risen by nearly 40% since the Iran war started — a jump that represents about $140 billion annual hit to household incomes. Even if benchmark crude oil prices drop to $80 a barrel by the end of the year, the economists say the economic toll would still be about $70 billion for 2026 as a whole.
Those price increases hit lower-income households the hardest. “Higher gasoline prices will disproportionately burden households in the lowest income quintile, who spend roughly four times as much on gasoline as a share of after-tax income compared with those in the top quintile,” the economists write. They add: “We continue to expect underperformance for the bottom income quintile, reflecting tepid job growth, cuts to Medicaid and SNAP benefits, and now greater exposure to the increase in gasoline prices. We expect notably firmer income growth among middle and higher income quintiles, which are less exposed to the oil shock and accrue greater benefit from last year’s fiscal package.”
The bottom line: Higher gas prices are expected to have a major impact. “We expect weak real consumption growth over the coming months,” Goldman’s economists say. They now forecast 1.5% consumption growth for 2026 (or (1.2% on a Q4/Q4 basis, which they say is well below the 1.8% consensus estimate), with particularly weak results for those in the bottom 20% of income earners. Or as the Goldman team says: “The very uncertain outlook for oil prices implies significant uncertainty around consumer spending, especially for lower-income households that spend a larger share of their budget on gasoline.” And if oil prices stay higher for longer, the consumer spending outlook would be commensurately worse.