The United States budget deficit approached $2 trillion in the 2026 fiscal year, its highest level since the pandemic, as spending on the military, safety net programs and interest on the debt dwarfed the Trump administration’s cost cuts, Treasury Department figures showed on Friday.
The widening gap between what the government spends and what it collects in taxes and other revenue comes at a critical moment. Investors are nervous about America’s surging debt load, along with stubborn inflation, and have driven up borrowing costs. Treasury bond yields, which influence interest rates for mortgages, credit cards and auto loans, hit their highest levels in two decades earlier this month before easing.
Those higher borrowing costs come as many Americans, already feeling beleaguered by the cost of living, head to the polls for an election that will determine whether Republicans retain control of Congress. While the deficit has been driven up by spending and tax decisions by both political parties, President Trump and Republicans added to the shortfall with an expensive tax cut package in 2025. Mr. Trump, who had promised to curb federal spending, has instead seen it rise on his watch.
The rising deficit, which increased to $1.99 trillion this fiscal year from $1.78 trillion in 2025, is notable because it comes at a time when the economy is growing steadily. The last time the deficit topped $2 trillion was in 2021, when the pandemic prompted Congress to approve a huge stimulus package to help keep the economy afloat. But there is not an immediate crisis that the nation is tackling. Instead, the shortfall stems from increased spending on the military, interest payments on the debt and Social Security benefits, coupled with falling corporate tax receipts as a result of the tax cut package.
The growing deficit could leave the United States in a vulnerable position the next time a national emergency arises.
“When the next crisis strikes, we will almost certainly be more indebted than ever before when entering a crisis, which will limit our capacity to respond and exacerbate the damage we face,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.
The fiscal shortfall for the year underscores the difficult battle that the United States is facing as it tries to reduce the national debt, which is a cumulative measure of annual deficits. U.S. debt topped $40 trillion in August. Despite expressions of public concern about deficits, lawmakers have for years continued to cut taxes and allow spending to soar.
“Without real action on these vital fiscal issues, America is careening toward an ominous fiscal crisis that would leave all of us much worse off sooner than anyone in Washington apparently wants to believe,” said Carolyn Bourdeaux, executive director of Concord Action, an advocacy group that promotes deficit reduction.
The problem is a global one with few easy solutions. Deficits have been mounting around the world as nations have increasingly turned to government subsidies to develop advanced technology. Conflicts in the Middle East and in Ukraine have forced countries to spend more on military equipment. Rising interest rates are deepening the fiscal malaise.
“The higher that interest rates move in the government bond market, the less likely it is that governments can finance these interest expenses in a sustainable way, so the stress begets more stress,” said Daleep Singh, chief economist at Prudential Global Investment Management. “It crescendos in the absence of a credible fiscal plan, which is not forthcoming”
The Congressional Budget Office said last week that spending in the United States has been pushed higher by the growing cost of Social Security benefits and payments to military personnel. Higher long-term interest rates increased the cost of interest on the debt by more than $100 billion from 2025. Overall, spending was up 6 percent to $7.4 trillion.
Tax revenue increased by 3 percent to $5.4 trillion, with individual income tax receipts growing because of higher wages. Corporate tax revenue declined as a result of larger business investment deductions enacted by the 2025 tax legislation.
The biggest setback to the Trump administration was a drop in customs duties as a result of the Supreme Court ruling that the tariffs that Mr. Trump imposed for national security reasons were illegal. The government was required to refund more than $100 billion of tariff revenue this year.
The larger annual deficit deals a blow to the fiscal ambitions of Treasury Secretary Scott Bessent, who upon taking the job said that his goal was to bring the deficit as a share of the economy to 3 percent. After falling from 6.3 percent in 2024 to 5.9 percent in 2025, the measure rose above 6 percent again this year.
Mr. Bessent pledged to produce a fiscal consolidation plan that he has yet to deliver. He has also said that the United States will ultimately have to address its debt problems by accelerating economic growth.
At a news conference in Bangkok this week, Kristalina Georgieva, the managing director of the International Monetary Fund, suggested that Mr. Bessent was putting too much emphasis on the ability of growth to address America’s fiscal situation.
“We believe that growth, of course, helps, but it cannot deliver fast enough the necessary adjustment,” Ms. Georgieva said during the annual meetings of the I.M.F. and the World Bank.
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