US budget deficit hits July record of $432 billion as tariff refunds drain revenue

The United States federal budget deficit hit a July record of $432 billion, pushing the 10-month cumulative shortfall to $1.799 trillion and exceeding the entire fiscal 2025 deficit. This fiscal deterioration is driven by rising mandatory spending, escalating debt interest costs, and a sharp drop in customs revenue. Following a February 2026 Supreme Court ruling that invalidated President Trump's emergency tariffs, the government has issued approximately $100 billion in refunds, turning net customs receipts negative and prompting the CBO to project a $2.1 trillion full-year deficit.

July 2026 deficit record

• ▪The unadjusted July 2026 budget deficit of $432 billion was the largest monthly deficit recorded by the United States government since March 2021.
• ▪United States federal spending in July 2026 reached an unadjusted record of $766 billion, which was inflated by $99 billion because August 1, 2026 fell on a weekend.
• ▪The United States federal budget deficit for July 2026 reached $432 billion, setting a record for that month.

Supreme Court tariff ruling

• ▪Following the Supreme Court ruling, the Trump administration transitioned to imposing tariffs under Section 122 of the Trade Act of 1974 before shifting to Section 301 of the same law.
• ▪The Trump administration imposed duties of 10% or 12.5% on 60 trading partners in July 2026 over lax enforcement of forced labor restrictions.
• ▪The United States Supreme Court ruled on February 20, 2026 that the Trump administration lacked authority to impose broad tariffs under the International Emergency Economic Powers Act.

Tariff refund revenue losses

• ▪The United States government recorded a net outflow of $9 billion in customs duties in July 2026, refunding $36 billion against $26 billion in gross collections.
• ▪The United States Customs and Border Protection agency processed approximately $100 billion in tariff refunds through the end of July 2026.
• ▪The Congressional Budget Office estimates that full-year 2026 customs duties collections will be $250 billion lower than its February 2026 projections.

Fiscal 2026 deficit projections

• ▪The United States budget deficit for the first 10 months of fiscal year 2026 reached $1.799 trillion, exceeding the entire deficit of $1.775 trillion for fiscal year 2025.
• ▪The Congressional Budget Office projects the full-year fiscal 2026 United States budget deficit will reach $2.1 trillion, up from its February 2026 forecast of $1.9 trillion.
• ▪The unadjusted United States budget deficit for the first 10 months of fiscal year 2026 rose by $170 billion, or 10%, compared to the same period in fiscal year 2025.

Mandatory spending growth

• ▪Combined spending on Social Security, Medicare, and Medicaid rose by $181 billion, or 7%, during the first 10 months of fiscal year 2026.
• ▪Social Security outlays reached $1.38 trillion and Medicare spending reached $955 billion through the first 10 months of fiscal year 2026.

Rising debt interest costs

• ▪Net interest payments on the United States federal debt reached $931 billion through the first 10 months of fiscal year 2026.
• ▪Net interest on the United States public debt rose by $117 billion, or 14%, during the first 10 months of fiscal year 2026.

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