Uncle Sam's bills continue to pile up
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The US government spent nearly $2 trillion more than it collected in 2026, marking the largest annual federal deficit outside the pandemic years of 2020-21, according to new Treasury data.
By the numbers: The federal deficit reached $1.992 trillion in the fiscal year ending September 30, up 12% from last year and equivalent to ~6% of US GDP.
- The Congressional Budget Office (CBO) originally forecast a $1.85 trillion deficit earlier this year, but an extra ~$145 billion in Supreme Court-ordered refunds for President Trump’s tariff policy helped push the final figure higher.
- Meanwhile, net interest on America’s national debt reached $1.05 trillion, making it the US government's third largest expense behind Social Security ($1.67 trillion) and Medicare ($1.07 trillion).
Why it’s a big deal: When the government consistently spends more than it brings in, it has to borrow money to cover the difference and adds to the national debt, which stood at roughly $40.3 trillion in mid-October (~125% of US GDP).
Higher interest rates have also pushed up the cost of servicing the debt, with net interest payments reaching a record-high 3.3% of GDP this year, per the nonprofit Committee for a Responsible Federal Budget (CRFB).
How high is the alarm level?
Fiscal watchdogs say the trend is becoming increasingly dangerous, as interest eats up more of the federal budget following a decade-plus stretch of lower rates that ended post-Covid.
But the Trump admin argues some policies adding to today’s deficits will generate future economic growth and tax revenue, including recent business-related tax cuts they say will spur investment that pays off down the road.
Looking ahead…Economists and analysts widely expect the Federal Reserve to raise interest rates by another quarter-point in December, following a similar hike last month, as US inflation remains above target.
The expected move would increase America’s interest payments on the national debt, which rise by ~$95 billion for every percentage-point rate hike by the Fed, per a CBO analysis this month.
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Sprinkles from the Left
- Some commentators argue that rising government borrowing costs could push the US into a debt crisis, as higher interest payments add to an already growing federal deficit. They argue that Washington needs to gradually rein in spending and borrowing before the problem gets worse, rather than relying on economic growth or new technologies like AI to solve it.
- Others contend that both parties have failed to adequately address the rising cost of living, despite affordability being a top concern for voters. They argue that reducing the federal deficit through higher taxes on the wealthy and cuts to wasteful spending, alongside removing regulations that drive up prices, could help lower inflation and borrowing costs for Americans.
- “As Bond Yields Rise the US Is Flirting With Disaster” –Bloomberg Editorial Board
- “Voters Say It Is Their Top Concern. Why Aren’t Politicians Acting on It?” –Matthew Yglesias, NY Times
- “$2 trillion deficit — and no excuse for not cutting it” –Veronique de Rugy, Antelope Valley Press
Sprinkles from the Right
- Some commentators argue that America's growing national debt could soon leave the government with little room to borrow money when emergencies like recessions, wars, or natural disasters arise. They argue that bringing the deficit under control will require bipartisan agreements to rein in spending, particularly on entitlement programs, rather than relying primarily on tax increases.
- Others contend that the federal government's $2 trillion deficit shows how Washington continues to spend beyond its means, even as tax revenues increase. They argue that Congress needs to break its habit of unchecked spending by adopting a more aggressive approach, such as Sen. Rand Paul's plan to balance the budget within five years.
- “A nation’s success depends on fiscal space. America is almost out.” –WaPo Editorial Board
- “‘Like giving whiskey and car keys to teenage boys’” –Las Vegas Review-Journal Editorial Board
- “America Needs More Capital” –Larry Fink, WSJ
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