The U.S. federal government's budget deficit reached $2 trillion in the first 11 months of fiscal year 2026, according to the Congressional Budget Office (CBO) monthly update for August [1]. This figure is $6 billion lower than the same period last year, but the CBO clarified that this decrease is due to shifts in payment timing around Labor Day in 2025. Without these timing adjustments, the deficit would have been $82 billion higher than last year's shortfall [1].
Federal spending increased by $147 billion, or 2%, compared to last year, and after accounting for timing adjustments, the increase would be $235 billion, or 4% [1]. The rise in spending was mainly attributed to mandatory programs such as Social Security, Medicare, and Medicaid, as well as higher interest expenses from servicing the national debt. Social Security spending rose by $78 billion, or 5%, due to increases in both average benefit amounts and the number of beneficiaries. Medicare spending increased by $73 billion, or 8%, and Medicaid outlays rose by $47 billion, or 8%, reflecting higher costs per enrollee and increased enrollment [1].
Interest expenses on the national debt surged by $111 billion, or 12%, driven by a larger national debt and higher long-term interest rates, though declines in short-term rates partially offset the overall rise [1]. The Department of Veterans Affairs saw spending rise by $41 billion, or 14%, due to more recipients and higher per-person spending, while the Department of Defense's spending increased by $41 billion, or 5%, mainly from higher personnel and R&D costs [1]. In contrast, Department of Education spending fell by $79 billion, or 56%, largely due to a $53 billion reduction in estimated costs of outstanding student loans in June 2026, following a $24 billion increase in July 2025 [1].
Tax receipts rose by $154 billion, or 3%, in FY2026, with individual income tax receipts up $189 billion, or 8%, and payroll taxes up $50 billion, or 3%. Customs duties increased by $1 billion, or 1%. However, these gains were partially offset by a $96 billion, or 25%, decline in corporate income taxes, attributed to 2025 tax reforms under the One Big Beautiful Bill Act [1]. Maya MacGuineas, president of the Committee for a Responsible Federal Budget, noted that federal borrowing this year has already surpassed the total borrowed in the previous year [1].
CONCLUSION
The CBO's report highlights a significant and persistent rise in the federal deficit, fueled by increased mandatory spending and debt servicing costs, despite higher tax receipts. The sharp decline in corporate tax revenue due to recent reforms further exacerbates fiscal pressures. This trend signals ongoing challenges for U.S. fiscal policy and could have substantial implications for financial markets and future government borrowing.