U.S. Annual Budget Deficit Nears $2 Trillion, Largest Since Pandemic

Recorded budget deficits for 25 consecutive years

The U.S. budget deficit is set to approach $2 trillion this year, the largest since 2021.

According to CNBC and other foreign media outlets, the U.S. Treasury Department said on October 16 local time that the federal budget deficit for fiscal year 2026 totaled $1.992 trillion (KRW 2,664.3 trillion).

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That was an increase of about 12% from the previous year. It was also the third-largest annual deficit in U.S. history, after those in 2020 and 2021, when large-scale economic stimulus measures were rolled out in response to the COVID-19 pandemic. The United States has now recorded budget deficits for 25 consecutive years.

Both revenue and spending reached record highs, but their growth rates differed. Spending rose 6% to $7.4 trillion, while revenue increased 3% to $5.4 trillion.

One of the main factors behind the widening deficit was interest on Treasury debt. Accumulated national debt and higher borrowing costs pushed interest payments to a record $1.36 trillion. Spending also rose for Social Security, the largest spending category, to $1.67 trillion, and for Medicare, to $1.07 trillion.

Tariff revenue also failed to reduce the deficit as much as initially expected. U.S. Treasury Secretary Scott Bessent has identified tariff refunds as a major factor in the widening deficit. The government continued issuing tariff refunds after the U.S. Supreme Court ruled in February that much of U.S. President Donald Trump's tariff increases were invalid.

The widening budget deficit is also seen as a challenge for Republicans ahead of the midterm elections in November.

Strong demand for Treasury issuance and interest costs could limit the government's room for future fiscal maneuver, while rising Treasury yields could also affect private borrowing costs, including mortgage rates.

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