The promise was easy and seductive: Pass the One Big Beautiful Bill Act, flood American wallets with historic tax refunds, and watch the shopper economic system roar. For a number of weeks this winter, it seemed prefer it may truly work. Then the bombs began falling on Iran.
Now Wall Street has delivered its verdict. Two of the most carefully watched financial analysis groups on the Street—Goldman Sachs and Morgan Stanley—reviewed the numbers and reached the identical sobering conclusion: The Iran war’s knock-on impact on oil costs has virtually fully canceled out the greatest shopper tax windfall in years. For lower-income Americans, the ledger could also be in the pink.
The setup
When Congress handed the OBBBA final yr, economists have been genuinely bullish. The laws—retroactive to the 2025 tax yr—included no taxes on suggestions and extra time, the next youngster tax credit score, the next customary deduction, an expanded SALT deduction, and a brand new senior deduction. Even the Committee for a Responsible Federal Budget, the nonpartisan assume tank that typically opposes deficit-increasing laws and has gotten right into a war of phrases with Treasury Secretary Scott Bessent on account of its criticism, acknowledged that it could result in a “sugar high” for the economic system, boosting progress in the quick time period.
In late 2025 and early 2026, Trump and the White House ran an aggressive promotional marketing campaign round the refund season. On Truth Social in February, Trump wrote that refunds could be “substantially greater than ever before,” claiming “in some cases, estimates are that over 20% will be returned to the taxpayer.” He urged Americans: “Don’t spend all of this money in one place!”
The White House formally declared in January that Trump was delivering “the largest tax refund season in U.S. history,” projecting that common refunds would rise by $1,000 or extra in comparison with 2025. The House Ways and Means Committee amplified that determine, citing a Piper Sandler evaluation projecting $91 billion in complete refund progress. Early estimates pegged complete shopper tax aid at $135 billion to $150 billion, with Bank of America Research projecting refunds alone operating 18% increased than 2025. The concept was simple: Put money in Americans’ palms in the first half of the yr, and so they spend it.
The refunds are actual. Through April 10, federal tax refunds totaled $265 billion—up 16% yr over yr—and the common test clocked in at $3,462, an 11.2% bump. Goldman Sachs estimates complete refunds will finish the season roughly $50 billion above final yr, with extra OBBBA advantages flowing by decrease tax funds, for mixed aid of $75 billion to $90 billion. Not nothing. But it additionally isn’t sufficient, or what was promised.
The wipeout
On Feb. 28, U.S. and Israeli forces struck Iran. Within days, Brent crude surged previous $120 a barrel as Iran closed the Strait of Hormuz—by which flows roughly 20% of the world’s oil provide—triggering what the International Energy Agency known as “the largest supply disruption in the history of the global oil market.” American fuel costs, which stood at roughly $3.54 a gallon in early March, climbed to $4.11 by mid-April.
Goldman Sachs put a dollar figure on the damage: Higher gasoline prices now represent a roughly $140 billion annualized headwind to household incomes. Morgan Stanley’s math is even blunter at the individual level—a sustained 15% rise in gas prices is all it takes to fully offset the average bump in tax refunds. Prices have risen nearly 40%.
“Rising gasoline prices on the heels of the conflict in the Middle East are likely to neutralize most, if not all, of the anticipated fiscal impulse to household spending,” was the verdict from the Morgan Stanley U.S. economics team, led by Michael Gapen, something reiterated by Heather Berger, another economist on the Morgan Stanley U.S. team.
Who gets crushed
The pain is not distributed equally—and the skew is punishing. Higher-income households captured the largest OBBBA benefits through SALT deductions and bracket changes, while the gas price shock hits hardest at the bottom. Goldman Sachs finds that households in the lowest income quintile spend roughly four times as much on gasoline as a share of after-tax income compared to those at the top. Combined with cuts to Medicaid and SNAP benefits, Goldman now projects real income growth for the bottom quintile of just 0.7% this year.
Meanwhile, the ceasefire announced April 7 hasn’t fully reopened the Strait of Hormuz, and a U.S. seizure of an Iranian cargo ship last week has kept tensions—and prices—elevated. Several analysts are starting to marvel if the Strait of Hormuz will ever look the way it used to, earlier than the war.
Wall Street downgrades the American shopper
Both banks have revised their outlooks decrease. Goldman now forecasts actual consumption progress of simply 1.2% for 2026 on a This autumn/This autumn foundation—properly under the 1.8% Wall Street consensus—with the second quarter anticipated to soak up the worst of the oil worth hit. Morgan Stanley, which already minimize its GDP forecast in March and attributed 0.3 proportion factors of that downgrade on to weaker personal consumption, tasks private consumption progress of 1.7%.
In a worst-case state of affairs the place Brent averages $115 a barrel by year-end, Goldman warns general consumption progress would fall one other half-point under its already lowered baseline—with the greatest cuts concentrated, once more, amongst the lowest earners.
The One Big Beautiful Bill was purported to be the financial counterweight to tariff uncertainty and a tightening labor market. Instead, a war the U.S. helped begin in Iran might have turned Trump’s marquee tax minimize right into a wash—or worse, a loss—for the very voters it was designed to reward.
For this story, Fortune journalists used generative AI as a analysis instrument. An editor verified the accuracy of the info earlier than publishing.
