Federal deficit reaches $1.99 trillion for fiscal 2026

The United States federal budget deficit surged to $1.99 trillion for fiscal year 2026, representing the largest annual shortfall in five years as overall national debt surpassed $40 trillion. Driven by record debt-servicing outlays of $1.36 trillion, rising Social Security expenses, elevated military spending, and more than $100 billion in court-ordered tariff refunds, outlays reached $7.40 trillion against $5.40 trillion in revenues. The widening gap poses severe fiscal challenges for President Donald Trump and congressional Republicans ahead of elections.

Federal budget deficit and revenue figures

• ▪Federal outlays for fiscal year 2026 rose 6 percent to a record $7.40 trillion, while total government receipts grew 3 percent to a record $5.40 trillion
• ▪The United States federal budget deficit reached $1.99 trillion (estimated 6.2 percent of gross domestic product) in fiscal year 2026, up $217 billion from $1.78 trillion (5.8 percent) in fiscal year 2025

Deficit targets and administration context

• ▪The fiscal year 2026 budget deficit of $1.99 trillion represents the largest annual shortfall during President Donald Trump's administration, occurring ahead of congressional elections
• ▪Treasury Secretary Scott Bessent had established an initial target to reduce the deficit to 3 percent of gross domestic product, but the deficit-to-GDP ratio rose above 6 percent

National debt and interest costs

• ▪Total United States national debt surpassed $40 trillion in August 2026, driven by cumulative annual budget shortfalls
• ▪Net debt-service outlays rose 12 percent in fiscal year 2026 to a record $1.36 trillion, making interest on the national debt the third-largest federal spending category

Social Security spending and outlook

• ▪Social Security spending reached $1.67 trillion in fiscal year 2026, remaining one of the primary drivers of increased federal expenditures alongside healthcare programs
• ▪The Social Security retirement trust fund faces projected exhaustion in 2032, which could cause a benefit reduction of about one-fifth without congressional intervention

Military and defense spending

• ▪United States military spending increased by 6 percent to $917 billion in fiscal year 2026, representing a $48 billion year-over-year increase
• ▪Treasury Department figures show total defense spending reached $965 billion in fiscal year 2026, remaining below total interest payments made on the national debt