The US budget deficit rose to $1.99 trillion in fiscal 2026, the largest in five years, as debt-service costs hit a record and tariff refunds cut revenue. CNBC reports that Treasury yields above 5% make the shortfall harder to close.
The US budget deficit rose by $217 billion to $1.99 trillion in the 2026 fiscal year, Treasury Department figures showed on Friday. Reuters reported that tariff refunds and record spending to service the nation's more-than $40 trillion in debt helped drive the increase.
Record spending outpaces record revenue
The year ended September 30 was the first full budget year of President Donald Trump's second term. The deficit compared with $1.78 trillion in fiscal 2025 and was the third-largest annual deficit ever.
Receipts reached a record $5.40 trillion, up 3%. Outlays, however, also set a record at $7.40 trillion, up 6%.
Debt-service outlays totaled a record $1.36 trillion, up 12%. Only Social Security and the combined outlays for Medicare and Medicaid are larger.
Tariff ruling cuts revenue
A Supreme Court ruling this year negated a large portion of the tariffs Trump imposed during his first year in office. The decision triggered $145 billion of tariff refunds, an 11% decline in net tariff income to about $173 billion.
A Treasury official said the department estimated a deficit-to-GDP ratio of 6.2% for fiscal 2026, against an actual 5.8% for fiscal 2025.
High yields complicate the fix
CNBC's analysis argues that higher interest rates make debt reduction tougher. It notes that the 10-year Treasury traded at 5.1% on Friday, up 114 basis points since the end of February.
The Congressional Budget Office estimates that if rates stay a half-point above its expectations, the cumulative 10-year deficit would come in $1.9 trillion higher, according to CNBC.
Treasury Secretary Scott Bessent has argued the US should target a deficit lower than 4% of GDP by the end of Trump's term. CNBC's analysis says there is almost no way the US will hit that target.
Sources: Investing.com (Reuters), CNBC
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