US Budget Deficit Reaches $1.99 Trillion: Record Interest Payments and Falling Tariff Revenues

According to the U.S. Department of the Treasury, reported by Reuters on October 16, the federal budget deficit in fiscal year 2026 increased by $217 billion to reach $1.99 trillion. This is $217 billion higher than in fiscal year 2025 ($1.78 trillion) and the highest figure since 2021, when Washington sharply ramped up spending to combat the COVID-19 pandemic. By scale, this is the third-largest annual deficit in U.S. history. It is noted that fiscal year 2026, which ended on September 30, was the first full fiscal year of President Donald Trump's second term.

Record Debt Interest Payments

A key expenditure item remains interest payments on the national debt: they rose by 12% to a record $1.36 trillion, second in volume only to Social Security payments and Medicare and Medicaid expenditures. The U.S. national debt surpassed the $40 trillion mark approximately two months ago, and rising interest rates have further increased the burden on the budget. Simultaneously, the defense budget grew by another $48 billion: projected defense spending for fiscal year 2026 reached $917 billion, up 6% from the previous year. A Treasury spokesperson stated that it is currently impossible to determine what portion of this increase is related to military operations in the Middle East.

Drop in Customs Duty Revenues

A significant factor in the deficit increase was the decline in customs duty revenues. After the U.S. Supreme Court ruled against most of the tariffs introduced during the first year of Trump's new term, the government had to refund about $145 billion. As a result, net tariff revenues dropped by 11% to approximately $173 billion, which, according to Reuters estimates, further widened the budget deficit alongside interest and other federal expenditures.

Revenues and Expenditures at Record Levels

Statistics show that both federal revenues and expenditures reached historical highs. Total revenues amounted to $5.4 trillion—$169 billion (3%) more than the previous year—while expenditures rose by $386 billion (6%) to $7.4 trillion. The gap between them formed the record deficit. The last month of the fiscal year is particularly contrasting: in September alone, the deficit reached $27 billion, whereas in the same period a year earlier, the government recorded a surplus of $198 billion.

Budget Pressure and Treasury Assessment

According to U.S. Department of the Treasury estimates, the budget deficit for fiscal year 2026 was approximately 6.2% of GDP. These data highlight significant pressure on the federal budget amid high levels of public debt and rising interest payments. Analysts note that the combination of record debt-servicing costs, rising social and defense categories, and declining tariff revenues creates a persistent structural gap that will shape U.S. fiscal policy in the coming years.