US Annual Budget Gap Hits Nearly $2 Trillion, Largest in 5 Years

  • The US budget deficit rose by $217Bn to nearly $2Tn in the 2026 fiscal year, fueled in part by tariff refunds and record spending to service the nation's more than $40Tn in debt, marking the largest budget shortfall in five years, Treasury Department figures showed on Friday. Continued increases in spending for social benefits programs like Social Security and Medicare and a $48Bn jump in defence spending also factored into the increase.
  • The $1.99Tn deficit for the year ⁠ended September 30, the first full budget year of President Donald Trump's second term, was up from $1.78Tn in fiscal 2025. It was the largest shortfall since fiscal 2021's $2.77Tn budget gap, then fueled by COVID-19 pandemic relief spending, and is the third-largest annual deficit ever.
  • Total receipts for fiscal 2026 were a record $5.40Tn, up $169Bn, or 3%, from the $5.24Tn in fiscal 2025. Fiscal 2026 outlays also were a record $7.40Tn, up $386Bn, or 6%, from the $7.01Tn in the prior fiscal year.
  • Debt-service outlays totalled a record $1.36Tn, climbing by $144Bn, or 12%, a spending category now eclipsed only by Social Security and ⁠the combined outlays for Medicare and Medicaid. Total US debt breached the $40Tn milestone about two months ago.
  • Another driver of the widening shortfall was a $22Bn drop in net tariff receipts following a Supreme Court ruling this year negating a large portion of the tariffs Trump had imposed during his first year in office. That triggered $145Bn ⁠of tariff refunds over this year, resulting in an 11% decline in net tariff income to about $173Bn. Defence spending for the year rose by 6% to $917Bn. A US Treasury official said it was not clear how much ⁠of the increase could be attributed to the war Trump and Israel started against Iran earlier this year.
  • The Treasury official said the department calculated an estimated deficit-to-GDP ratio of 6.2% for fiscal 2026 but declined ⁠to say what GDP estimate was used. This figure compares to an actual 5.8% deficit-to-GDP ratio for fiscal 2025. For the 2026 fiscal year's final month of September, the Treasury reported a deficit of $27Bn versus a $198Bn surplus a year earlier.

(Source: Reuters)