The federal budget deficit is projected to surpass $2 trillion in fiscal year 2026, driven by higher spending on national debt interest and entitlement programs, according to the Congressional Budget Office. Maya MacGuineas of the Committee for a Responsible Federal Budget warned that borrowing at this scale during an economic expansion is abnormal.
The federal government ran a nearly $1.8 trillion deficit through the first 10 months of fiscal year 2026, marking a $169 billion increase over the same period in fiscal year 2025, according to a monthly budget update released by the nonpartisan Congressional Budget Office. Total federal spending reached $308 billion more than a year ago, out-pacing a $139 billion rise in tax receipts across the same timeframe.
Based on financial data available through the end of July, the CBO now estimates the full-year deficit will reach $2.1 trillion—a $200 billion upward revision from its previous February projection. Calendar variations also played a role in the monthly tally, with matching the 2025 calendar would have placed the 10-month shortfall closer to $1.7 trillion.
Interest Payments and Entitlements Drive Outlays Higher
Rising outlays stem primarily from the cost of servicing the federal government’s more than $39 trillion national debt, alongside increased mandatory spending for Social Security, Medicare, and Medicaid. Expenses tied to interest on the debt jumped $117 billion, or 14%, during the first 10 months of the fiscal year compared to the prior year, propelled by higher long-term interest rates and a larger total debt burden.
Entitlement programs showed consistent growth across the board. Spending on Social Security rose $70 billion, or 5%, due to higher average benefits following inflation adjustments and an expanding beneficiary population. Medicare expenses increased $66 billion, or 8%, driven by heavier enrollment and higher payment rates for healthcare services, while Medicaid spending climbed $45 billion, or 8%, because of rising costs per enrollee.
Tax Revenue Shifts and Tariff Refund Impacts
On the revenue side, combined payroll and individual tax receipts rose by $202 billion, or 5%. Worker paycheck withholdings increased $141 billion, or 5%, amid climbing wages and salaries. Individual tax refunds grew by $23 billion, or 7%, influenced by provisions tied to the One Big Beautiful Bill Act passed by Republicans and signed into law by President Donald Trump.
Conversely, corporate income tax collections dropped $89 billion, or 23%, as provisions in the same legislation expanded deductions for business investments and reduced immediate tax receipts. Customs duties and tariff collections presented a complex picture: while collections were higher through April, net revenues declined sharply starting in May after the government began issuing tariff refunds following a Supreme Court ruling handed down in February. The CBO reported that approximately $100 billion in tariff refunds have been issued so far.
“CBO expects 2026 outlays to be close to the February baseline amounts. Revenues, by contrast, are anticipated to be about $200 billion below the February projections, mostly because of smaller-than-expected collections of tariff duties – a result of a Supreme Court ruling handed down after CBO’s baseline was released.”
Congressional Budget Office, via Fox Business
Fiscal Watchdogs Sound Alarms on Deficit Trajectory
The widening fiscal gap prompted swift criticism from budget watchdogs. Maya MacGuineas, president of the Committee for a Responsible Federal Budget, criticized the pace of federal borrowing in a public statement.
“We’re on track to surpass $2 trillion in borrowing this fiscal year despite not being in a recession. That is not normal. Incredibly, such an enormous level of borrowing barely scratches the surface of our fiscal deterioration. We are about to hit the sobering milestone of $40 trillion in gross national debt, and things are only likely to get worse.”
Maya MacGuineas, Committee for a Responsible Federal Budget
MacGuineas urged lawmakers to target a reasonable fiscal goal, such as limiting deficits to 3% of gross domestic product, and to establish a bipartisan commission to formulate a corrective path before gross debt hits $40 trillion.
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