U.S. Budget Deficit Hit $2 Trillion in Fiscal 2026, CBO Reports

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

<cite index="10-1">The deficit totaled $2.0 trillion in fiscal year 2026, CBO estimated, $218 billion more than the deficit recorded in fiscal year 2025.</cite> <cite index="16-2">The deficit rose 12%, according to the CBO's Thursday report.</cite>

<cite index="14-5">The FY 2026 deficit came in $140 billion above the $1.9 trillion CBO had projected in its latest baseline.</cite>

<cite index="10-3">Although revenues rose by $169 billion, or 3 percent, outlays rose more, by an estimated $386 billion, or 6 percent.</cite> <cite index="12-7">Outlays in fiscal year 2026 were $7.4 trillion, according to the CBO estimate.</cite>

<cite index="12-8,12-9">Spending on the three largest mandatory programs -- Social Security, Medicare and Medicaid -- rose by $217 billion, or 7 percent. Driven by a larger total debt and higher interest rates, outlays for net interest on the public debt rose by $115 billion, or 11 percent.</cite> <cite index="16-8">Net interest reached roughly $1.14 trillion for the year.</cite> <cite index="12-10">Defense spending rose by $48 billion, or 5 percent.</cite>

On the revenue side, individual and payroll taxes posted gains while corporate collections fell. <cite index="12-5">The increase in revenues, which totaled $5.4 trillion, was driven by larger collections of individual income and payroll taxes, which jumped by $255 billion, or 6 percent.</cite> <cite index="16-11">Receipts from corporate income taxes decreased by 16 percent, attributed to the GOP's One Big Beautiful Bill Act, which allows corporations to take larger deductions for certain investments, according to the report.</cite>

<cite index="14-11">As a share of the economy, the FY 2026 deficit was an estimated 6.2 percent of gross domestic product, 0.3 percentage points higher than the 5.8 percent of GDP recorded in FY 2025.</cite>

<cite index="17-5">The Committee for a Responsible Federal Budget said the deficit ranks among the highest in U.S. history and is the highest ever outside of a war or recession.</cite>

Budget analysts pointed to the combination of a growing economy and rising red ink as the core concern. <cite index="12-12">Shai Akabas of the Bipartisan Policy Center told The Wall Street Journal that "running $2 trillion deficits in a growing economy with low unemployment and no major emergency situation going on is an unsustainable trend."</cite>

<cite index="5-7">The Federal Reserve raised rates by 25 basis points on Sept. 16, its first hike since July 2023.</cite> <cite index="5-8">Minutes released Oct. 7 said "most participants" saw another increase as likely appropriate "by year end."</cite> Higher borrowing costs amplify the federal government's interest burden, which already accounts for more than $1 trillion of annual outlays.

CBO's September 2026 Monthly Budget Review is the agency's full-year close-out estimate. The Treasury Department is expected to release its own final budget totals in the coming weeks, which could revise the figures slightly.

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)
- 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)
- The Washington Times (https://www.washingtontimes.com/news/2026/oct/8/federal-budget-deficit-climbed-2-trillion-fiscal-26/)
- Admiral Markets (FOMC minutes and rate decision) (https://admiralmarkets.com/analytics/traders-blog/fed-rate-decision-october-2026)