US budget deficit climbs 12 percent to nearly $2 trillion, third-highest in history
The United States federal budget deficit reached nearly $2 trillion in fiscal year 2026, the third-highest in the country's history. Only during the coronavirus pandemic, in fiscal 2020 and 2021, had larger deficits been recorded. The figure also marks 25 consecutive years in which the world's largest economy has run an annual budget deficit.
According to the US Treasury Department, the deficit grew by about 12 percent compared with fiscal 2025. The US fiscal year begins in October and ends the following September; on that calendar, fiscal 2026 ended on September 30.
Over that period, total federal revenue stood at $5.4 trillion, up 3 percent from the previous year. Of that, $2.8 trillion came from individual income taxes and $1.8 trillion from payroll taxes.
Government spending, meanwhile, rose 6 percent to about $7.4 trillion. The gap between revenue and spending is what pushed the deficit to nearly $2 trillion.
The largest spending categories included Social Security at $1.7 trillion, Medicare at $1.1 trillion, net interest payments on the debt at $1.1 trillion, health at $1 trillion and defence at $965 billion.
The interest-payment line drew particular attention. It is now the third-largest expense in the federal budget, a sign that the accumulated debt burden is weighing directly on the government's routine spending.
The deficit figures emerged just a few weeks after the US national debt crossed $40 trillion. High interest rates and the sheer size of the debt keep pushing the government's interest costs upward.
Analysts say it is unusual for deficits and debt to keep growing in this way while the economy is moving at a good pace, without a pandemic or a major recession. Such large deficits are normally associated with war or economic crisis; in normal times, they see the trend as a warning sign.
Budget watchdogs say fiscal policy has to change. Maya MacGuineas of the Committee for a Responsible Federal Budget warned that America's fiscal health is at serious risk and that realistic steps must be taken now to deal with it.
MacGuineas argued that instead of unrealistic goals such as balancing the budget in one stroke or paying off all the debt overnight, lawmakers should adopt a realistic plan: "To restore fiscal discipline, we have to choose something that is both tough and achievable," she said.
As a target, she proposed bringing the deficit down to 3 percent of GDP, roughly half its current level. That, she said, would stabilise the debt-to-GDP ratio. But she cautioned that reaching it would require hard decisions, and that time is short.
With 25 straight years of deficits and a debt mountain that has now passed $40 trillion, the debate over America's fiscal future looks set to intensify. The Treasury's latest numbers have added fresh fuel to that debate.
