Federal Deficit Hits $2 Trillion in FY 2026, Highest Outside War or Recession

WASHINGTON, The federal government ran a $2 trillion budget deficit in fiscal year 2026, the nonpartisan Congressional Budget Office reported Oct. 8, marking the widest annual shortfall since the pandemic and the largest ever recorded outside a war or recession.

<cite index="19-1">The deficit totaled $2.0 trillion in fiscal year 2026, CBO estimates, $218 billion more than the deficit recorded in fiscal year 2025.</cite> The fiscal year ended Sept. 30.

<cite index="21-5">The figure came in $140 billion above the $1.9 trillion deficit CBO projected in its latest baseline.</cite>

<cite index="25-2">The $1.993 trillion shortfall was 12% above the prior year, driven by rising interest costs, entitlement spending, and tariff refunds.</cite>

<cite index="25-3,25-4">Federal spending totaled $7.4 trillion for the year, a 6% increase, while the government took in $5.4 trillion in revenue, a gain of 3%. The deficit widened because spending grew at twice the rate of revenue collection.</cite>

<cite index="22-8">Spending on the three largest mandatory programs, Social Security, Medicare, and Medicaid, rose by $217 billion, or 7%.</cite> <cite index="25-5">Net interest on the public debt rose $115 billion, or 11%, reaching $1.143 trillion, a sum that exceeded what the federal government paid out for national defense or Medicare.</cite>

<cite index="25-7">Corporate income tax revenue fell $70 billion, or 16%, to $382 billion, as the 2025 reconciliation act allowed companies to take larger deductions for certain investments, including research and development costs and manufacturing facilities, according to the CBO.</cite>

<cite index="25-8">Collections of customs duties also declined, falling $22 billion, or 11%, because the administration issued an estimated $130 billion in refunds for tariffs that the Supreme Court ruled were imposed without legal authority.</cite>

<cite index="25-9">Individual income and payroll taxes rose $255 billion, or 6%, partially offsetting those declines, as wages and salaries grew and non-withheld tax payments increased.</cite>

<cite index="21-11">As a share of the economy, the FY 2026 deficit was an estimated 6.2% of gross domestic product, 0.3 percentage points higher than the 5.8% of GDP recorded in FY 2025.</cite>

<cite index="23-5">The deficit ranks among the highest in U.S. history and is the highest ever outside of a war or recession,</cite> according to the Committee for a Responsible Federal Budget, which reviewed the CBO data.

Budget analysts said the scale of the gap is notable given the current economic environment. Shai Akabas of the Bipartisan Policy Center, <cite index="22-12">quoted by The Wall Street Journal, called running $2 trillion deficits "in a growing economy with low unemployment and no major emergency situation going on" an "unsustainable trend."</cite>

<cite index="28-7">Before 2026, the deficit eclipsed $2 trillion only in the pandemic years of 2020 and 2021, and the U.S. had never seen a deficit of even $1 trillion except in the four years following the 2008 financial crisis.</cite>

<cite index="28-8">Based on current law, the CBO projects the deficit will hit $3 trillion within a decade, $4 trillion by 2042, and $8 trillion by 2055.</cite> <cite index="28-9">That is the baseline, assuming no new recessions, wars, tax cuts, or spending programs, and also assuming interest rates on the debt stay indefinitely below where they currently are.</cite>

The CBO's monthly budget review for September is the primary source of the figures. The agency said it expects to publish a more detailed accounting of fiscal year 2026 results next month.

Sources cited:
- Congressional Budget Office, Monthly Budget Review: September 2026 (https://www.cbo.gov/publication/61985)
- The Fiscal Times (https://www.thefiscaltimes.com/2026/10/08/Deficit-Rose-2-Trillion-2026-Fiscal-Year-CBO)
- Yahoo Finance (https://finance.yahoo.com/economy/policy/articles/u-federal-budget-deficit-hits-122041579.html)
- American Action Forum (https://www.americanactionforum.org/insight/cbo-fy-2026-budget-deficit-totaled-2-trillion/)
- Committee for a Responsible Federal Budget (https://www.crfb.org/press-releases/cbo-estimates-20-trillion-deficit-fiscal-year-2026)
- National Review (https://www.nationalreview.com/corner/the-federal-deficit-is-now-2-trillion/amp/)