Tax refund benefits offset by gasoline price shock, weakening the US consumption outlook

Overview

This report reassesses the key drivers of US consumer spending in 2026, focusing on tax-season cash flow and rising gasoline prices. Goldman Sachs believes that the tax refunds and lower tax payments generated by last year’s fiscal bill OBBBA amount to about $75-90bn, but this benefit is largely offset by higher capital gains taxes, making it difficult to create a meaningful consumption tailwind; meanwhile, rising gasoline prices are a more direct drag on real disposable income, especially weighing on low-income households and discretionary spending.

Core views

The core judgment is that the US consumer faces a more challenging near-term environment. First, tax season is not a strong stimulus: higher refunds and lower tax payments improve cash flow, but net taxes are roughly flat versus last year. Second, the energy shock is more negative: gasoline prices have risen nearly 40%, currently equivalent to a $140bn annualized drag on income, and even if benchmark oil prices fall back, the report still expects a drag of about $70bn for full-year 2026. Third, the shock is unevenly distributed: gasoline spending as a share of after-tax income for the lowest income quintile is about four times that of the highest income quintile, making their spending and income growth more vulnerable. Fourth, the consumption forecast is below consensus: the report forecasts 2026 real consumption growth of 1.2% Q4/Q4, below the 1.8% market consensus.

Analysis framework

The report uses a combination of tax cash-flow estimation, income distribution analysis, oil price scenario analysis, and high-frequency retail sales indicators. On taxes, it compares federal personal tax refunds, non-withheld income tax payments, and model-implied taxes; on energy, it converts changes in gasoline prices into a drag on household income and analyzes the impact across income groups and consumption categories; for the macro forecast, it combines indicators related to real disposable income, real consumption, retail sales, and PCE.

Methodology notes

• Fiscal Cash Flow AnalysisTax-season refund and tax payment decomposition

  Separately assess higher refunds, lower tax payments, and higher capital gains taxes to judge the net impact of tax season on consumption.

  The report estimates that OBBBA boosts tax-season cash flow by about $75-90bn, but because capital gains tax payments rise, net taxes are roughly unchanged from last year, so the marginal boost to consumption is limited.

• Energy Shock AnalysisGasoline price income drag estimation

  Translate rising gasoline prices into an annualized drag on household income and conduct scenario analysis based on Brent oil price paths.

  The current rise in gasoline prices corresponds to about a $140bn annualized income drag; under the baseline assumption that Brent returns to $80/bbl by year-end, the drag narrows to about $60bn annualized by year-end and about $70bn for the full year.

• Distributional Macro AnalysisConsumption exposure analysis by income quintile

  Compare gasoline spending as a share of after-tax income and the distribution of fiscal benefits across income quintiles.

  Gasoline spending as a share of after-tax income for the lowest income quintile is about four times that of the highest income quintile, while cuts to government benefits will also weigh on income growth for low-income households.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• US consumer spending

  Core research subject

  Strengths

  Tax-season cash flow still provides some support, with middle- and high-income groups benefiting more clearly from the fiscal bill.

  Weaknesses

  Real disposable income is being squeezed by gasoline and food costs, with low-income groups more vulnerable.

  Comparison

  The report’s 2026 consumption growth forecast is below market consensus.

  Risks

  Further oil price increases, cuts to government benefits, and weak job growth could continue to weigh on consumption.

• Brent crude oil and gasoline prices

  Key macro driver

  Strengths

  The baseline scenario assumes Brent returns to $80/bbl by year-end, which would gradually narrow the income drag.

  Weaknesses

  Current gasoline prices have already created a significant annualized drag on income.

  Comparison

  In the adverse scenario, Brent averages $100/bbl in 2026Q4, while the severely adverse scenario is $115/bbl.

  Risks

  A delay in the reopening of the Strait of Hormuz or Middle East production losses could push oil prices higher and enlarge the drag on consumption.

• Discretionary consumption categories

  Consumption direction crowded out by the energy shock

  Strengths

  Some activities, such as World Cup-related spending and nonprofit organization spending tied to the midterm elections, may provide modest support in the second half.

  Weaknesses

  Discretionary categories such as autos and dining are more sensitive to real income shocks.

  Comparison

  Nominal retail sales may appear stronger due to higher gasoline spending, but real retail sales are expected to be weaker.

  Risks

  If low-income households cut non-essential spending, revenues in related categories may come under pressure.

Key data

• YoY change in tax-season refunds+17%, about +$50bnAt the time of the report, refunds were up 17% YoY and are expected to be about $50bn higher than last year by the end of May.
• YoY change in tax payments+ $40-55bnTax payments are expected to increase YoY, but remain $25-40bn lower than in a no-OBBBA scenario.
• Total OBBBA tax-season benefitabout $75-90bnSlightly below the $90bn previously assumed after the bill was passed.
• Increase in gasoline pricesnearly 40%The increase since the war began.
• Current gasoline price income dragabout $140bn annualizedEstimated based on current gasoline price levels.
• Baseline scenario 2026 full-year gasoline dragabout $70bnAssumes Brent returns to $80/bbl by year-end.
• 2026 real consumption growth forecast1.2% Q4/Q4, 1.5% full yearOn a Q4/Q4 basis, below the 1.8% market consensus.
• Real income growth for the lowest income quintile0.7%Affected by gasoline, food costs, and cuts to government benefits.
• 2026 Q2 consumption growth forecast0.9% quarter-over-quarter annualizedBelow the 1.7% consensus, with the oil price shock expected to be most evident.

Impact & implications

From an investment perspective, the report points to slowing US consumption momentum, pressure on low-income spending, and damage to discretionary categories. Higher gasoline spending will crowd out discretionary spending such as autos and dining, and while nominal sales may rise in the short term due to gasoline prices, real consumption is weaker. If oil prices remain high, the risk of downward revisions to consumption growth is significant and may further widen income inequality.

Risks

• Brent oil prices remain above the baseline path and stay near $100/bbl or $115/bbl.
• Gasoline prices continue to erode real income for low-income households.
• Cuts to government benefits such as Medicaid and SNAP intensify pressure on low-income consumption.
• The tax-season cash-flow benefit comes in below expectations or is more concentrated among high-income groups, resulting in a lower consumption multiplier.
• Weak job growth may further weigh on income and consumer confidence.

What to watch

• The nominal and real gap between headline sales and the control group in March retail sales.
• Final tax-season data for federal personal tax refunds and non-withheld income tax payments.
• Whether Brent oil prices fall back to $80/bbl along the baseline path.
• The crowding-out effect of gasoline prices on autos, dining, and other discretionary consumption.
• Real income growth for the lowest income quintile and changes in government benefits.
• Whether real consumption growth in 2026 Q2 comes in below consensus.