Washington’s books show a massive hole. The US government spent $1.99 trillion more than it collected in fiscal 2026, the Treasury Department confirmed on Friday. That figure marks the largest annual shortfall in five years and the third-biggest on record. It was also the first full year of Donald Trump’s second term.
The math is grim. Revenue climbed 3% to a record $5.40 trillion. But spending surged 6% to an unprecedented $7.40 trillion. The gap widened by $217 billion compared to the previous fiscal year. For context, the last time the deficit was this high was in 2021, when pandemic relief pushed it to $2.77 trillion.
Interest payments are the real culprit. Debt service costs hit a record $1.36 trillion, up 12% from the prior year. This category now sits behind only Social Security and Medicare/Medicaid. Total US debt crossed the $40 trillion mark just two months ago. A Treasury official told Reuters the department cannot yet isolate how much of the 6% rise in defense spending—now at $917 billion—links to the conflict with Iran.
Tariffs offered a bitter pill. A Supreme Court ruling invalidated many of Trump’s early tariffs, forcing $145 billion in refunds. Net tariff income dropped 11% to $173 billion. September ended with a $27 billion shortfall, a stark contrast to the $198 billion surplus seen in the same month last year. The deficit now stands at 6.2% of GDP, up from 5.8% in fiscal 2025.