U.S. federal deficit hit nearly $2 trillion in fiscal 2026, CBO estimates

The federal government closed the books on fiscal year 2026 with a deficit of roughly $1.99 trillion, according to a preliminary estimate from the Congressional Budget Office, making it one of the largest shortfalls in American history outside of a war or a recession. The fiscal year ended September 30, and the shortfall was roughly $218 billion, or 12 percent, larger than the $1.775 trillion deficit recorded in fiscal 2025.

The nonpartisan Committee for a Responsible Federal Budget said the government borrowed $2.0 trillion over the year, including $28 billion in September alone, and that the total "ranks among the highest deficits in our history – and the highest ever outside of a war or recession." A final, official tally is still to come: the Treasury Department's own Monthly Treasury Statement, which reconciles actual cash receipts and outlays, typically follows CBO's estimate by a few weeks.

The numbers

Federal spending rose about 6 percent over the year to nearly $7.4 trillion, while tax receipts grew only 3 percent, to roughly $5.4 trillion, according to the CBO figures reported by Fox Business. The gap between those two growth rates is what drove the deficit higher even as revenue itself increased. CBO estimated the deficit equaled 6.2 percent of gross domestic product, up from 5.8 percent in fiscal 2025.

• Net interest on the national debt rose $115 billion, or 11 percent, as a larger debt load met higher long-term rates.
• Social Security spending rose $86 billion, or 5 percent, a figure CBO said would have grown less without one-time retroactive payments tied to the Social Security Fairness Act.
• Medicare spending rose $77 billion, or 8 percent, and Medicaid rose $55 billion, also 8 percent.
• Individual income and payroll tax collections rose $255 billion, or 6 percent, while corporate income tax receipts fell $70 billion, or 16 percent, which CBO attributed in part to larger investment deductions created by last year's tax law.
• Customs duties, including tariffs, fell $22 billion, or 11 percent, after refunds began following a Supreme Court ruling that struck down a major set of tariffs imposed under emergency powers.

Those swings sit against a backdrop of a national debt that has now passed $40 trillion, a figure International Monetary Fund Managing Director Kristalina Georgieva cited this month in Bangkok while urging Washington to tighten its fiscal policy. Treasury's own debt-to-the-penny dataset, maintained by the Bureau of the Fiscal Service, tracks that total daily.

How Washington got here

The widening gap reflects several forces that built through the year. Last year's tax law, known as the One Big Beautiful Bill Act, cut corporate tax collections through expanded investment write-offs even as it kept individual tax revenue climbing alongside wages and employment. Tariff revenue, which the administration had counted on as a significant new income stream, shrank after the Supreme Court ruled that tariffs imposed under the International Emergency Economic Powers Act exceeded the president's authority, forcing the government to begin processing refunds.

At the same time, the costs of servicing the debt itself kept climbing, a mechanical consequence of years of large deficits combined with interest rates that have not fallen as quickly as some in the administration had hoped. Mandatory spending on Social Security, Medicare and Medicaid, the three largest and fastest-growing categories of the federal budget, continued its long-term upward trajectory as the population ages, with this year's growth compounded by the one-time retroactive Social Security payments. The result is a budget in which the three biggest expense categories, entitlements and interest, grew faster than an economy that itself kept expanding.

Who is affected

The immediate effects are diffuse rather than dramatic. Higher federal borrowing competes with private borrowers for capital in bond markets, a dynamic economists say contributes to the stickiness of long-term interest rates that affect mortgages, auto loans and business credit. Retirees and near-retirees have a direct stake in the solvency of Social Security and Medicare, whose trust funds are projected to face shortfalls within the coming decade absent changes to benefits, taxes, or both. Federal workers and contractors are affected indirectly, since large and growing deficits sharpen the politics around the periodic spending bills that keep agencies funded. And taxpayers broadly bear the cost over time, since interest payments on the debt are now one of the fastest-growing lines in the federal budget, competing for room against defense, education and health spending.

Reaction

The scale of the shortfall drew pointed comments from fiscal watchdogs and from the IMF, which does not typically single out member countries by name but did so this month with the United States.

"You have to go in a direction of tightening, bringing it down, bringing the deficit down," Georgieva told reporters at the IMF and World Bank's autumn meeting in Bangkok, adding that growth alone "cannot deliver fast enough the necessary adjustments" and that "there is no magic" fix available to policymakers.

Georgieva said Treasury Secretary Scott Bessent and other U.S. officials already recognize that the deficit and the debt are too large, according to her own account of conversations with American officials, though she did not quote them directly. Maya MacGuineas, president of the Committee for a Responsible Federal Budget, struck a similar note domestically, calling on lawmakers to revisit the idea of a bipartisan fiscal commission. "A new fiscal year means an opportunity for change," she said, "and though it is not always easy, it is necessary."

What happens next

CBO's preliminary figures will be followed by Treasury's final accounting for fiscal 2026 and by the agency's first detailed budget and economic outlook for fiscal 2027, typically published early in the new year, which will show whether the deficit trajectory keeps worsening or levels off. Congress faces its own recurring test in the coming months, since government funding and the future of expiring tax and health provisions will again require legislative action, and the size of the deficit is likely to shape those fights. Proposals for a bipartisan commission to address long-term entitlement and tax policy have circulated in Congress for years without gaining traction, and nothing in the current political environment, including a midterm election year, suggests an imminent change of course. For now, the $40 trillion debt figure and the nearly $2 trillion annual deficit stand as the backdrop against which those arguments will play out.