US budget deficit nears $2 trillion for fiscal 2026, up 12 per cent in a year

The $1.992 trillion shortfall was the third-highest annual deficit in US history, behind only 2020 and 2021, when the federal government distributed trillions of dollars in pandemic stimulus. Both receipts and outlays set records for the year, and the United States has now recorded a deficit for 25 consecutive fiscal years. The government last ran a surplus in 2001.

Social Security was the largest single spending item, at nearly $1.7 trillion, up from roughly $1.6 trillion in fiscal 2025. Medicare cost almost $1.1 trillion, compared with slightly under $1 trillion a year earlier. Net interest on the national debt topped $1 trillion for the year, up from $970 billion, and gross interest paid on the public debt exceeded $1.3 trillion.

On the revenue side, individual income taxes brought in more than $2.8 trillion, an increase of about 7 per cent year on year. Corporate income tax receipts fell by about $70 billion to $381 billion, a decline the Treasury linked to the tax cuts in the One Big Beautiful Bill Act passed by Congress last year.

The figures add to investor unease about the federal debt, which exceeded $40 trillion earlier this year and has more than doubled over the past decade. Yields on 10-year and 30-year US Treasuries hit 24-year highs last week.

Treasury Secretary Scott Bessent told CNBC in August that the United States can "grow our way out" of its debt pile. "Our message to our allies, our trading partners, is that global growth is the way to take care of this mountain of debt," he said.

Analysis

Why This Matters

The US is running its third-largest deficit on record in an expansion year, with net interest costs surpassing $1 trillion for the first time.
Larger deficits and heavy federal borrowing help push long-term Treasury yields up, raising financing costs for businesses and homebuyers.
With total debt above $40 trillion and rising, the fiscal trajectory is set to dominate budget fights and could weigh on the global economy.

Background

The United States has not recorded a full-year budget surplus since 2001. Deficits widened during the 2008 financial crisis and again during the Covid-19 pandemic, when stimulus spending produced the two largest annual shortfalls on record. In recent years, mandatory programs such as Social Security and Medicare, together with interest on the debt, have accounted for an increasingly large share of federal spending. The total public debt has more than doubled over the past decade, sharpening the debate between officials who argue faster growth will close the gap and economists and bond markets that warn the current path is unsustainable.

Key Perspectives

The administration: Treasury Secretary Scott Bessent has argued that global growth, not austerity, is the way to manage the debt, telling CNBC the US can "grow our way out." Bond investors: Traders sent long-term Treasury yields to 24-year highs last week, a sign markets are demanding more compensation for the risk of holding US debt. Fiscal critics: The third-largest deficit in history during a period of economic expansion, with interest costs above $1 trillion, is likely to be cited as evidence that current tax and spending policies are on an unsustainable course.

What to Watch

Whether 10-year and 30-year Treasury yields extend their climb, and how upcoming debt auctions are received.
The path of corporate tax receipts as the effects of the One Big Beautiful Bill Act tax cuts phase in.
Whether economic growth, the administration's stated remedy, keeps pace with the cost of servicing the debt.

Analysis

Why This Matters

Background

Key Perspectives

What to Watch

Sources