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The federal government’s annual budget deficit reached $2 trillion after the first 11 months of fiscal year 2026, the nonpartisan Congressional Budget Office (CBO) reported.
The CBO’s monthly budget update for August noted that the 11-month deficit total was $6 billion lower than the same period last year, though it explained that the difference was caused by shifts in the timing of certain payments around Labor Day in 2025 and that the current deficit would’ve been $82 billion more than last year’s shortfall if not for those shifts.
Federal spending has risen by $147 billion, or 2%, compared with last year, though CBO noted that figure would be an increase of $235 billion, or 4%, after accounting for those timing adjustments. Tax receipts are up $154 billion compared with the same period last year.
The increase in spending was driven mainly by mandatory spending programs – including Social Security, Medicare and Medicaid – as well as interest expenses incurred from servicing the national debt.
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Spending on Social Security benefits rose by $78 billion, or 5%, from last year due to increases in average benefit amounts and the number of beneficiaries. Medicare spending rose $73 billion, or 8%, due to increased enrollment – while Medicaid outlays increased $47 billion, or 8%, due to higher costs per enrollee.
Interest expenses on the national debt increased by $111 billion, or 12%, because of the larger national debt relative to a year ago and because of higher long-term interest rates. Declines in short-term interest rates partially mitigated the overall rise in interest payments.
Other notable spending increases occurred within the Department of Veterans Affairs, which saw a rise of $41 billion, or 14%, due to more people receiving veterans’ benefits and higher spending per person; while the Department of Defense’s spending rose by $41 billion, or 5%, from a year ago due to higher spending on military personnel and research and development.
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Spending by the Department of Education decreased by $79 billion, or 56%, though this was largely due to a reduction of $53 billion being recorded in the estimated costs of outstanding student loans in June 2026 after a $24 billion increase was recorded in July 2025.
CBO reported that tax receipts have risen 3% in FY2026, up $154 billion from a year ago. Individual income tax receipts rose $189 billion, or 8%, while payroll taxes increased $50 billion, or 3%, in the first 11 months of the fiscal year. Customs duties, including tariffs, were up $1 billion, or 1%, in that period.
Those tax revenue gains were partially offset by a decline of $96 billion, or 25%, in corporate income taxes due to 2025 tax reforms under the One Big Beautiful Bill Act.
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Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, said in a statement that the federal government’s borrowing this year has surpassed what was borrowed in the entirety of last year, and may rise further in September, the final month of FY2026.
“Such extraordinarily high deficits are just one piece of our fiscal situation that is falling apart. The gross national debt recently hit the sobering milestone of $40 trillion; we’re now spending more on yearly interest costs than on our national defense; debt held by the public exceeds the size of our entire economy; and trust funds for programs that tens of millions of Americans rely on face insolvency in less than a decade,” MacGuineas said.
“It is clear that we have delayed the hard choices for far too long,” she added. “If lawmakers want to fix our laundry list of issues, they should come together and agree to a plan to target reducing deficits to 3% of GDP – half their current level – and get to work on shoring up our trust funds,” MacGuineas said. “If not, we risk leaving future generations with damage that can’t be undone.”
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