Federal deficit projected to reach $2.1 trillion, $200 billion higher than CBO's February estimate

The Congressional Budget Office projected that the fiscal year 2026 federal deficit will reach $2.1 trillion, $200 billion higher than its February estimate. This increase is primarily driven by a $250 billion shortfall in tariff revenues following a Supreme Court ruling striking down emergency levies. Additionally, rising costs for Social Security, Medicare, Medicaid, and a $117 billion increase in net interest payments on the $39.8 trillion national debt have pushed federal outlays higher.

Federal deficit projection increase

• ▪The Congressional Budget Office projected on August 10, 2026, that the fiscal year 2026 federal deficit will reach $2.1 trillion, which is $200 billion higher than its February 2026 projection of $1.9 trillion.
• ▪If not for a timing shift of payments due on August 1, 2026, into July 2026, the federal deficit for the first 10 months of fiscal year 2026 would have been $1.7 trillion, which is $71 billion more than the same period in fiscal year 2025.
• ▪When accounting for timing adjustments, federal outlays from October 2025 through July 2026 exceeded $6.2 trillion, representing an increase of $209 billion compared to the same period in fiscal year 2025.
• ▪Through the first 10 months of fiscal year 2026, the federal deficit reached $1.8 trillion, which Maya MacGuineas, president of the Committee for a Responsible Federal Budget, described as "astounding."

Tariff revenue shortfall

• ▪As of July 31, 2026, U.S. Customs and Border Protection had refunded approximately $100 billion of the roughly $166 billion it collected in tariff duties, according to a court filing.
• ▪The tariff revenue shortfall in fiscal year 2026 was driven by the U.S. Supreme Court's February 2026 decision striking down levies imposed by President Donald Trump under the International Emergency Economic Powers Act.
• ▪The Congressional Budget Office estimated in August 2026 that all tariffs and customs duties collected in fiscal year 2026 will be approximately $250 billion below earlier projections.

Social Security spending growth

• ▪The Trump administration projected in June 2026 that Social Security's Old-Age and Survivors Insurance Trust Fund will be able to cover all scheduled benefits only until the final quarter of 2032, after which it will pay 78 percent of benefits.
• ▪Senators Bill Cassidy and Tim Kaine proposed a plan to invest $1.5 trillion in a fund to cover Social Security's unfunded liability.
• ▪Higher spending on Social Security benefits, driven in part by an increase in the number of beneficiaries, accounted for a significant portion of the yearly rise in federal outlays.

Public debt interest costs

• ▪The Congressional Budget Office attributed the rise in net interest payments to the growing national debt, which is approximately $39.8 trillion, and higher long-term interest rates.
• ▪Net interest paid on the public debt increased by $117 billion year-over-year, representing the largest fluctuation for federal outlays.

Corporate tax revenue decline

• ▪Federal receipts from corporate income taxes decreased by $89 billion because the One Big Beautiful Bill Act allowed corporations to take larger deductions for certain investments.
• ▪Rising wages and salaries contributed to an increase of $141 billion in federal tax money withheld from workers' paychecks during the first 10 months of fiscal year 2026.

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