US federal budget deficit outpaces last year, trending to near $2 trillion

Key Points:

• The federal budget deficit for FY2026 has reached $1.373 trillion through the first nine months, surpassing last year's deficit by $35 billion due to faster growth in federal spending compared to tax revenue.
• Increased spending is largely driven by the cost of servicing the $39 trillion national debt and rising expenses for Social Security, Medicare, and Medicaid, with net interest on the debt rising $98 billion (13%) from a year ago.
• Social Security benefits increased by $62 billion (5%) due to higher average benefits and more beneficiaries, while Medicare and Medicaid spending rose by $58 billion (8%) and $49 billion (10%) respectively, driven by enrollment and cost increases.
• Tax revenues grew by $142 billion, mainly from higher individual income and payroll taxes, and a 51% rise in customs duties due to tariffs, although recent tariff refunds reduced revenues by about $70 billion in May and June.
• Experts warn that the deficit is likely to exceed $2 trillion this fiscal year, emphasizing the urgent need for policymakers to address entitlement spending and fiscal imbalances to avoid severe future cuts and escalating borrowing.