U.S. Budget Deficit Nears $2 Trillion... Largest Since 2021

Tax cuts and declining tariff revenue add to rising interest costs
Spending rose 6%, while revenue grew just 3%

The U.S. budget deficit is nearing $2 trillion this year, fueling concerns about the federal government's fiscal health.

According to The Wall Street Journal (WSJ) on Oct. 8 local time, the Congressional Budget Office (CBO) said the federal budget deficit for fiscal year 2026 (October 2025-September 2026), which ended on Sept. 30, was provisionally estimated at $1.993 trillion (about 2,682 trillion won). That was a 12% increase from the previous year and the largest deficit since 2021.

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During the same period, federal spending rose 6% from the previous year to $7.4 trillion (about 9,957 trillion won), while revenue increased just 3% to $5.4 trillion (about 7,266 trillion won). The budget deficit is also expected to exceed 6% of gross domestic product (GDP) this year, up from 5.8% last year.

Since taking office last year, The Trump Administration has sought to cut spending by reducing the federal workforce and scaling back clean-energy tax credits, among other measures, but has made little headway in narrowing the deficit.

In particular, the increase in tariff revenue that President Trump had anticipated did not materialize, partly because of refunds following the Supreme Court's ruling that the tariffs were unlawful. Tariff revenue actually fell from the previous year. Corporate tax revenue also dropped 16% as Republicans extended existing tax cuts and introduced additional cuts.

Interest on the national debt is also adding to the fiscal burden. The U.S. government's net interest outlays on the national debt reached $1.1 trillion (about 1,477 trillion won) this year, up 11% from the previous year. The increase in interest spending accounted for more than half of the overall increase in the budget deficit. Interest payments on the national debt also exceeded spending on defense and Medicare, the federal health insurance program for older Americans.

However, with the midterm elections approaching next month, neither Republicans nor Democrats appear to be making deficit reduction a key campaign issue. President Trump has pledged to give every adult U.S. citizen $5,000 (about 6.7 million won) if Republicans retain their majority in Congress. The proposal is estimated to cost more than $1 trillion alone. He is also seeking a major increase in defense spending.

Democrats, meanwhile, say the government should restore healthcare funding cut by Republicans and increase revenue by raising taxes on large corporations and high-income earners and cracking down on tax evasion.

The WSJ said that if control of Congress is split between the two parties after the midterm elections, they could reach a bipartisan agreement on fiscal restraint. But it also warned that the outcome could instead be that both parties tolerate each other's plans to increase spending.

This content was produced with the assistance of AI translation services.