US budget deficit widens 12% to $1.99 trillion in fiscal 2026 on interest and tariff refunds

Deficit widens despite spending pledges

The US Treasury said on Friday, 16 October 2026, that the federal deficit for the fiscal year ending 30 September reached $1.99 trillion. That is 12% more than the $1.78 trillion of the year before and the highest level since 2021. Donald Trump had promised voters a sharp cut in government spending after returning to the White House, and Treasury Secretary Scott Bessent set a goal of bringing the deficit down to 3%. The Treasury's estimate puts the gap at about 6.2% of economic output, a figure that remains provisional because GDP data for the period has not yet been published. The deficit rose anyway, which runs against the stated plan to shrink federal borrowing.

Spending, revenue and interest costs

Spending rose by $386 billion, or 6%, to $7.4 trillion, while revenue grew by $169 billion, or 3%, to $5.4 trillion. Outlays therefore expanded at about twice the pace of receipts. Interest payments on the debt climbed by $144 billion, or 12%, to a record $1.36 trillion, making them the third-largest outlay after Social Security and the combined Medicare and Medicaid spending. Defence spending rose by 6% to $917 billion in the year Trump chose to begin a war with Iran.

Tariff refunds and the Supreme Court ruling

The Supreme Court struck down most of Trump's new tariffs in February 2026. Refunds on those duties added $145 billion to the government's outlays during the fiscal year. The tariffs had brought in $202 billion in the previous year, according to BFMTV. Trump has since introduced new tariffs on imports from the main US trading partners, which partly offset the refunds. In September alone the deficit reached $27 billion, compared with a surplus of $198 billion in September 2025, as Reuters reported.

Debt stock and outlook

Total US public debt passed $40 trillion for the first time, a milestone the Treasury announced in August. By 30 September the debt stood at $41.172 trillion, according to BFMTV. Bloomberg points to a record debt burden for the country in the coming years if current trends hold. Nancy Vanden Houten, an economist at Oxford Economics, expects a similarly high deficit in the next fiscal year and warned it could grow larger if the war with Iran lasts well into that year. The Congressional Budget Office projects federal debt at about 101% of GDP in 2026, rising to 120% by 2036 without policy changes. Measured against GDP, the debt remains below its 1946 peak of 106%, even though it is the largest ever in nominal terms.