The key facts

  • The US budget deficit for fiscal 2026 amounted to $1.99 trillion (+12% from the previous year)
  • Interest payments on the debt rose by $144 billion to a record $1.36 trillion
  • Customs duty refunds totaled $145 billion after the Supreme Court struck down global tariffs

Deficit Reached $1.99 Trillion

The US federal budget deficit in fiscal year 2026, which ended on September 30, grew to $1.99 trillion, the Treasury Department reported. That is 12% higher than the previous year's figure ($1.78 trillion) and the highest value since 2021 — despite President Donald Trump's promises to cut government spending. Budget revenues rose 3% to $5.40 trillion, but spending increased 6% to $7.40 trillion.

Debt Interest and Duty Refunds

A key driver of spending growth was interest payments on the national debt: they increased by $144 billion to a record $1.36 trillion. Total US debt stands at $40.3 trillion, of which about $32 trillion is debt held by the public. Yields on government bonds, which affect mortgage and auto loan rates, rose over the year. Expected revenues from Trump's sweeping tariffs did not fully materialize: the Supreme Court in February struck down his global duties, triggering a wave of refunds. According to the Treasury, $145 billion in customs duties was refunded over the year, mostly due to tariffs, which wiped out a significant portion of the gains from the duties. Growth in individual income tax and customs revenue was offset by the refunds and a decline in corporate taxes.

Administration Policy and Election Context

The Trump administration, since his return to the White House last year, has promised to reduce the deficit and spending: the federal workforce and foreign aid were cut, the Republican-controlled Congress reduced funding for Medicaid and food assistance programs, but at the same time extended expiring tax breaks and allocated new funds for deporting migrants. Spending on defense programs rose by $48 billion (6%) to $917 billion. According to a Treasury official, the deficit-to-GDP ratio is about 6.2%, versus 5.8% a year earlier — diverging from Treasury Secretary Scott Bessent's previously stated goal of reducing the deficit to 3% of GDP. The data was published less than three weeks before the midterm elections, in which Republicans are fighting to retain control of Congress. Trump recently promised to pay $5,000 to every American adult if Republicans retain control of Congress — a plan costing more than $1 trillion. Democrats, for their part, say they intend to reverse the Medicaid cuts and restore healthcare tax credits.

Analysts' Forecasts

Nancy Vanden Houten of Oxford Economics believes the deficit will likely remain at a similar level next year, but warned that 'the risk could be toward a larger budget gap if the war with Iran lasts a significant portion of the fiscal year.' The deficit growth is occurring against the backdrop of concerns about the enormous national debt and rising inflation amid more expensive borrowing.