The United States government closed its books on fiscal year 2026 with a deficit of nearly $2 trillion, the Congressional Budget Office estimated on Thursday — the third-largest shortfall in American history and the biggest since the pandemic years. The red ink grew even as tax collections rose, because spending climbed twice as fast, and interest payments on the national debt alone topped a record $1.1 trillion.
 |
| The U.S. Treasury Department building in Washington, D.C. The Congressional Budget Office estimated the federal deficit at nearly $2 trillion for fiscal year 2026. |
A $2 Trillion Gap — Third-Worst on Record
The CBO's final estimate for the fiscal year that ended on September 30 put the deficit at $1.993 trillion, according to reporting by The Wall Street Journal — about 12 percent higher than the previous year and the largest since 2021.
Only the two deficits recorded during the COVID-19 pandemic were larger. The federal government collected more than $5.4 trillion in taxes during the fiscal year, an increase of about 3 percent, or $169 billion, driven by larger individual income and payroll tax collections, which jumped by $255 billion, or 6 percent.
But the government spent about $7.4 trillion, a 6 percent increase of $386 billion over the year before. That is why the deficit widened by $218 billion. Even in the final month of the fiscal year, September, the government borrowed another $28 billion, according to the Committee for a Responsible Federal Budget.
Where the Money Went
The spending increase was primarily driven by entitlement programs, the military, and interest payments on the national debt. Spending on the three largest mandatory programs — Social Security, Medicare and Medicaid — rose by $217 billion, or 7 percent. The CBO noted that Social Security spending increased by 5 percent due to higher average benefits and more beneficiaries, while spending on Medicare and Medicaid rose 8 percent. Defense spending climbed by $48 billion, or 5 percent.
"The economy can't keep pace with the relentless growth of programs such as Social Security and Medicare," David Ditch, a policy analyst at the Cato Institute, told Reason. "Seniors are receiving far more in benefits than they paid in payroll taxes. America's leaders should stop pretending otherwise."
Tariffs Didn't Fill the Hole
On the revenue side, the data undercuts one of President Donald Trump's signature economic claims. Reason reported that the CBO's figures contradict the president's oft-repeated claim that tariffs are bringing in "trillions" of dollars for the United States.
Collections of corporate income taxes actually fell by $70 billion, or 16 percent, due in large part to the more generous tax write-offs for investments provided by the 2025 Republican reconciliation bill. And refunds tied to reciprocal tariffs added to the fiscal burden rather than shrinking it, according to The Wall Street Journal's reporting.
A Recession-Sized Deficit in a Growing Economy
What alarms budget experts most is the context. Market watchers expect the deficit as a share of gross domestic product to top 6 percent this year, up from 5.8 percent last year — a gap typically seen during recessions or wars, not after more than six years of economic expansion.
"Running deficits of nearly $2 trillion a year with low unemployment and continued economic growth is an unsustainable trend," said Shai Akabas, executive vice president of economic policy at the Bipartisan Policy Center.
The Committee for a Responsible Federal Budget called it the highest deficit ever recorded outside of a war or recession. "It is no surprise that interest rates have climbed so much over the past few months," said Maya MacGuineas, the committee's president. Treasury yields have touched multiyear highs in recent weeks as traders weigh the government's enormous borrowing needs.
The interest burden is a self-reinforcing problem: driven by both a larger total debt and higher interest rates, net-interest outlays rose by $115 billion last year. Every additional point of interest on that mountain of debt adds tens of billions to the annual shortfall.
 |
| The U.S. Capitol in Washington, D.C. The deficit figures arrive weeks before the November 3 midterm elections. |
What This Means
The numbers land just weeks before the November 3 midterm elections, and they complicate the White House's fiscal story. Since early last year, the Trump administration and Republicans have pushed to narrow the deficit by cutting the federal workforce, scaling back clean-energy tax incentives, and trimming some health-related spending.
Treasury yields touched multiyear highs in recent weeks before easing after the latest bond auction — a sign that investors are charging Washington more to keep lending it money. Every new deficit number is now a data point for the bond market, not just for Congress.
But the overall deficit widened instead. Spending on Social Security and Medicare is also likely to grow further as the population ages, and the debt itself is now the engine of its own growth. The fiscal hawks at the Concord Coalition note that the fiscal year finished with debt held by the public as large as the entire economy, and net interest on the debt at a record $1.1 trillion, consuming more than 20 percent of federal tax dollars.
"Without decisive and prompt action, the problem is only going to get worse," said Carolyn Bourdeaux, executive director of Concord Action.
 |
| The facade of the U.S. Treasury Department building in Washington, D.C. Interest payments on the national debt topped a record $1.1 trillion last year. |
What Happens Next
Budget watchdogs are using the CBO's numbers to renew calls for structural reform. The Concord Coalition repeated its demand for a fiscal commission to tackle the issue. The Committee for a Responsible Federal Budget urged policymakers to treat the new fiscal year as a chance to start over — committing to no new borrowing, requiring new costs to come with double the savings, and aiming to bring deficits down to 3 percent of the economy, or about half of where they are today.
A bipartisan fiscal commission that examines all areas of the budget is one proposal gaining traction. There is also pressure to address the nation's major trust funds — the largest being the Social Security retirement trust fund — which are facing insolvency in the coming years and could trigger automatic across-the-board benefit and payment cuts if Congress does nothing.
The CBO is expected to release more details on fiscal 2026 next month. With the midterms approaching, the $2 trillion question is whether either party is willing to pay the political price of closing the gap — or whether the borrowing simply continues.
Post a Comment