U.S. budget deficit nears $2 trillion in fiscal 2026, widest since 2021, CBO says

Why it matters

The Congressional Budget Office said Thursday, Oct. 8, that the federal budget deficit for fiscal year 2026 (October 2025 through September 2026, ending Sept. 30) reached $1.993 trillion — $218 billion above the $1.775 trillion shortfall in fiscal 2025, an increase of 12% and the widest since 2021. The Treasury Department will release the official tally later this month; the CBO's preliminary estimate usually lands close to the final number.

Federal spending reached $7.4 trillion, up 6% from a year earlier, while revenue came to $5.4 trillion, up 3%. Because outlays expanded at twice the pace of receipts, the deficit widened. The deficit as a share of GDP is expected to top 6%, up from 5.8% last year — The Wall Street Journal noted the U.S. is running a deficit typically seen during recessions or wars even though the economy has been expanding for more than six years.

The largest spending increase was net interest on the national debt: up $115 billion (+11%) to $1.143 trillion — exceeding what the government spent on national defense or Medicare. The CBO attributed the rise to a larger debt burden and higher long-term interest rates. The three largest mandatory programs also grew substantially: Social Security spending rose $86 billion (+5%) to $1.654 trillion; Medicare outlays increased $77 billion (+8%) to $1.069 trillion; and Medicaid spending rose $55 billion (+8%) to $723 billion.

On the revenue side, corporate income tax receipts dropped $70 billion (-16%) to $382 billion; the CBO said the 2025 reconciliation act let companies claim larger deductions for certain investments, including research and development costs and manufacturing facilities. Customs duty collections fell $22 billion (-11%) after the administration issued an estimated $130 billion in refunds for tariffs the Supreme Court found had been imposed without legal authority. Individual income and payroll taxes rose $255 billion (+6%), partly offsetting those declines.

"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. Analysis from the American Enterprise Institute noted that rapid spending growth in Social Security, Medicare and Medicaid, plus net interest on past borrowing, accounted for about 80% of the entire increase in noninterest outlays across the federal government.