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U.S. Budget Deficit Surges to Nearly $2 Trillion, CBO Reports

By sterlingashworth // 2026-10-09

The federal budget deficit climbed to nearly $2 trillion in the fiscal year that ended Sept. 30, the Congressional Budget Office reported, deepening a pattern of persistent red ink that has alarmed budget analysts across the political spectrum. The gap between what the government collects in taxes and other revenue and what it spends widened even as revenue rose, a reflection of spending that grew faster than tax receipts.

Deficit Remains Unusually High for Economic Expansion

The preliminary full-year reading showed federal finances stuck in a pattern that budget experts say is atypical for a period of economic growth. Deficits of this magnitude historically have been associated with recessions, wars or national emergencies, yet the nation has been running budget gaps normally seen only under those conditions ^[1]. Those costs effectively accounted for more than half of the deficit increase and exceeded what the government spent on national defense, the report stated. Only Social Security and Medicare consumed more federal dollars ^[2]. The publicly held debt stands at roughly $32 trillion, and rising bond yields have made the trajectory more difficult. The 10-year Treasury yield pushed above 5% during the year, reaching its highest level since 2007, amid a global bond sell-off driven by soaring energy prices, mounting government debt and inflation fears ^[3]. Higher rates filter into the budget only gradually, as older debt comes due and is refinanced at current market rates, officials said.

Policy Changes Cut Some Spending but Added to Deficits

The administration and the Republican-controlled Congress took steps since early 2025 aimed at reducing red ink, including shrinking the federal workforce, curtailing clean-energy tax breaks and lowering food-stamp enrollment. Those efforts were offset by other policy choices that increased borrowing, including expanded immigration-enforcement spending, extended tax cuts and additional tax reductions, officials said. The hoped-for surge in tariff revenue did not fully materialize. While the federal government collected a record $30 billion in tariff revenue in August 2025, it was insufficient to offset soaring government spending ^[4]. Mandatory spending on Social Security and Medicare, along with net interest payments of $1.124 trillion, continued to drive the totals higher ^[4]. Corporate tax revenue decreased by roughly $70 billion, or 16%, partly reflecting retroactive research tax breaks and expanded accelerated deductions for factories, equipment and data-center servers, according to the budget office. A change to student-loan repayment rules was accounted for as a one-time spending reduction of $131 billion in 2025, making year-over-year comparisons more difficult. Reductions in projected Medicaid spending have not yet taken effect, the report stated.

Structural Pressures Drive Debt Higher

Social Security and Medicare are the government's largest programs, and both are growing faster than the rest of the budget as the population ages. Both are also broadly popular with voters, which has made them politically difficult to restructure. As uncontrollable outlays have continued to rise in relation to the total funds Congress approves each year, it has meant less money for the programs legislators can control, with the domestic discretionary budget hardest hit ^[5]. The publicly held debt is surpassing 100% of gross domestic product and heading toward the post-World War II record within a few years, budget experts said. After World War II, military spending declined and the U.S. sometimes ran annual budget surpluses, which drove the debt burden downward. Now, structural forces are driving deficits and debt steadily higher, officials said. Shai Akabas, vice president of economic policy at the Bipartisan Policy Center, said running $2 trillion deficits in a growing economy with low unemployment and no major emergency is an unsustainable trend. He said it is not what the government should be doing when circumstances are relatively calm.

Lawmakers Differ on Fiscal Approach Before Midterms

Heading into next month's midterm elections, neither party has emphasized deficit reduction, and both have floated ideas that could increase deficits. President Trump has promised $5,000 checks for adult U.S. citizens at a cost of more than $1 trillion if voters keep Republicans in control of Congress, and he wants to boost military spending sharply. The idea of distributing $5,000 checks has drawn criticism from fiscal analysts who note the government cannot afford such payments ^[6]. Senate Budget Committee Chairman Ron Johnson (R., Wis.) said Congress pushed up spending during the pandemic and has not done enough to reduce it. Johnson said in an interview that he harangued his colleagues and it was completely ignored, adding that it is out-of-control spending that Congress refuses to rein back in to a reasonable level. Johnson stepped into the budget chairmanship facing a record federal debt of $40 trillion and has said the situation is "wrong" and "immoral" ^[7]. Trump administration officials have said they would release a fiscal consolidation plan to reduce deficits toward Treasury Secretary Scott Bessent's target of 3% of GDP. Bessent has repeated that goal before congressional committees even though the government's own budget projections do not currently support it ^[8]. Democrats say the government should reverse declines in tax enforcement and raise taxes on corporations and high-income households. Rep. Brendan Boyle (D., Pa.) said the deficits are unsustainable and that any serious plan must include making billionaires shoulder more of the burden. Douglas Holtz-Eakin, a former CBO director who now runs the conservative American Action Forum, said they could have blown it up worse, and they wanted to, some of them, but they did not make any real progress, so the country just wandered along.

Fiscal Path Depends in Part on Election Results

The fiscal path ahead will depend in part on next month's election results. Divided control of the government now looks likely, which sometimes leads to bipartisan deals for fiscal restraint but also sometimes yields agreements where each party agrees to back the other's deficit-expanding plans. At the international level, the debt trajectory is drawing comparisons to other sovereigns under pressure. French bond markets have swung sharply as investors weigh that country's fiscal and political crisis, with analysts describing the pressure as pushing both the Macron government and Marine Le Pen's National Rally toward greater fiscal discipline ^[9]. For its part, China's holdings of U.S. debt have fallen to their lowest point since 2008, the latest Treasury International Capital report showed, amid ongoing trade tensions and broader discussions among foreign central banks about reserve diversification ^[10].

References

1. Federal budget deficit projected to double to $2 trillion. https://cbsaustin.com/news/nation-world/federal-budget-deficit-projected-to-double-to-2-trillion-us-debt-government-spending-gdp-interest-rates-social-security-medicare-program-reform
2. US government to pay an additional 11 TRILLION in interest for country's debt over the next 10 years... - NaturalNews.com, February 23, 2024
3. US Treasury yield highest since 2007 ahead of Fed’s interest-rate decision. https://www.rt.com/business/645767-us-treasury-yield-highest/?utm_source=rss&utm_medium=rss&utm_campaign=RSS
4. A fiscal reckoning Soaring spending outpaces record tariff revenue - NaturalNews.com, September 13, 2025
5. Americas hollow government how Washington has failed the people by Goldstein Mark L_1
6. We Can't Afford $5,000 "Dividend" Checks. https://www.zerohedge.com/markets/we-cant-afford-5000-dividend-checks
7. From $14 trillion to $40 trillion in 15 years: Sen Budget Chair Johnson ready to stare down crisis. https://justthenews.com/politics-policy/debt?utm_source=justthenews.com&utm_medium=feed&utm_campaign=external-news-aggregators
8. Bessent backs 3% deficit goal despite 5% budget forecasts. https://justthenews.com/nation/states/center-square/bessent-backs-3-deficit-goal-despite-5-budget-forecasts?utm_source=justthenews.com&utm_medium=feed&utm_campaign=external-news-aggregators
9. Le Pen Seen As Most Credible Presidential Candidate As French Bonds Suffer Worst Decade Since 1803. https://www.zerohedge.com/markets/le-pen-seen-most-credible-presidential-candidate-french-bonds-suffer-worst-decade-1803
10. China’s Holdings of U.S. Debt Fall to 18-Year Low. https://www.naturalnews.com/2026-09-21-china-holdings-us-debt-fall-year-low.html

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