WASHINGTON — The federal budget deficit is on track to reach $2.1 trillion for fiscal year 2026, the Congressional Budget Office said Monday, marking one of the largest shortfalls on record. The deficit through the first 10 months of the fiscal year, ending July 31, stood at nearly $1.8 trillion.
The updated projection represents a $200 billion increase from the agency's February forecast, as spending growth continues to outpace tax receipts. The deficit for the first 10 months of fiscal 2026 rose $169 billion compared with the same period in fiscal 2025.
Federal spending climbed $308 billion from a year ago, far outpacing the $139 billion rise in tax receipts. The CBO identified debt-servicing costs and increased mandatory spending as the primary drivers.
Interest payments on the national debt climbed $117 billion, a 14 percent increase, during the first 10 months of fiscal 2026 compared with a year earlier. Higher long-term interest rates and the growing national debt, which now exceeds $39 trillion, drove the increase.
Social Security spending rose $70 billion, or 5 percent, from the previous year, driven by higher average benefits following inflation adjustments and a larger number of beneficiaries. Medicare costs grew $66 billion, or 8 percent, as enrollment rose and payment rates for healthcare services increased. Medicaid spending rose $45 billion, or 8 percent, reflecting higher costs per enrollee.
On the revenue side, collections are expected to come in about $200 billion below the CBO's February projections, even as overall tax receipts rose from a year ago.
The CBO cited smaller-than-expected tariff collections as a key factor. A Supreme Court ruling issued after the CBO's February baseline reduced those collections, directly cutting into Treasury revenue.
Total payroll and other tax revenue rose $202 billion, or 5 percent, from a year ago. Withholdings from workers' paychecks increased $141 billion, or 5 percent, during a period of rising wages and salaries. Tax refunds paid to individuals rose $23 billion, or 7 percent, because of provisions in the One Big Beautiful Bill Act.
The ballooning deficit puts pressure on President Trump and Congress to confront the imbalance. Speaker Mike Johnson and Senate Majority Leader John Thune control the legislative levers — including the spending and tax decisions embedded in the One Big Beautiful Bill Act — while the Supreme Court's tariff ruling has further tightened the revenue picture.
The national debt now surpasses the size of the United States economy for the first time since World War II.
