Treasury Reports $1.99 Trillion Budget Deficit for Fiscal 2026, Largest in Five Years

The federal budget deficit climbed to $1.99 trillion in fiscal 2026, the Treasury Department reported Friday, rising $217 billion from the prior year and marking the largest annual shortfall since the pandemic-era record of 2021.

The deficit for the year ended Sept. 30, the first full budget year of President Donald Trump’s second term, was up about 12% from the $1.78 trillion gap in fiscal 2025, according to Treasury figures. It is the third-largest annual deficit on record, behind only the pandemic years of 2020 and 2021.

Receipts hit a record $5.40 trillion, up $169 billion from fiscal 2025, but spending grew faster: outlays reached a record $7.40 trillion, up $386 billion. For the final month of the fiscal year alone, the Treasury reported a $27 billion deficit in September, compared with a $198 billion surplus in September 2025, according to Reuters.

Record interest costs and tariff refunds drove the widening gap

Servicing the nation’s more than $40 trillion in debt cost a record $1.36 trillion, up $144 billion, or 12%, from the prior year, Reuters reported. That line of the budget is now exceeded only by Social Security and the combined outlays for Medicare and Medicaid. Total U.S. debt crossed the $40 trillion mark about two months ago.

The other driver was a court-ordered retreat from tariffs. After the Supreme Court this year struck down a large portion of the tariffs Trump imposed, the Treasury issued about $145 billion in refunds, Treasury figures show. Net tariff receipts fell by $22 billion, or 11%, to roughly $173 billion.

Budget watchdogs were blunt. “Today’s deficit figures cap off a remarkably dismal year for our fiscal health,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. She said lawmakers must find “something both achievable and aggressive,” warning that “tough choices will be needed to get there, and we’re running out of time to make them.”

Bond markets are already charging Washington more

The official tally landed near the Congressional Budget Office’s earlier $2 trillion estimate.

Investors have taken notice. With the government issuing ever more bonds to cover its spending, the yield on the 10-year Treasury note recently hit its highest level since 2002, CNN reported, pushing mortgage rates higher as well. The average weighted interest rate on the debt outstanding stood at 3.53% at the end of the fiscal year, up from 3.36% a year earlier, according to the Treasury.

Republicans’ sweeping tax law is also starting to show in the numbers. Gross corporate tax revenue fell by $43 billion, or 9%, as companies took larger deductions for investments allowed under the “big, beautiful bill” — a package CNN reported is expected to add trillions to the national debt over the coming decade even after its spending cuts. Most of its largest cuts, notably to Medicaid, do not take effect until next year.

The Treasury calculated a rough deficit-to-GDP ratio of 6.2% for the year, up from 5.8% in fiscal 2025, and more than twice Treasury Secretary Scott Bessent’s stated goal, according to Reuters and CNN. Lawmakers will face the issue again next year, when the government is expected to hit the debt ceiling once more.

Reporting based on coverage by Reuters and CNN.