Treasury Borrows $155 Billion Monthly as Deficit Surges to $1.4 Trillion
The federal deficit hit $1.4 trillion in nine months as spending rose faster than revenue. Tariff refunds and soaring interest costs push the nation toward a $2 trillion annual shortfall.
Every month of fiscal 2026, the federal government borrowed $155 billion. The tally reached $1.4 trillion through the first nine months, up $29 billion from the same stretch last year. Higher taxes did not slow the bleeding. Spending jumped $172 billion while revenue climbed only $143 billion.
The Supreme Court's decision to strike down Trump-era emergency tariffs compounded the damage. The ruling triggered roughly $70 billion in refund payments that flipped customs duties from a revenue stream into a $26 billion net outflow in June alone.
The numbers expose a simple truth: Washington's fiscal crisis is a spending problem, not a revenue shortfall. The deficit grew despite a 4 percent increase in tax collections. Higher tax rates cannot fix an unsustainable spending trajectory.
The Treasury Department confirmed the $1.4 trillion cumulative deficit for the first nine months of fiscal year 2026. June alone added $120 billion in red ink.
The Supreme Court delivered its blow on Feb. 20, striking down IEEPA tariffs 6-3 in Learning Resources v. Trump. The Penn Wharton Budget Model estimated up to $175 billion in potential refunds. Treasury opened the CAPE system for refund claims on April 20 and has since processed approximately $70 billion in May and June combined.
June 2026 turned tariffs into a drain. Gross collections totaled $24 billion while refunds hit $50 billion. The $26 billion net outflow marked a $53 billion swing from the $27 billion collected in June 2025.
Treasury Secretary Scott Bessent warned in September 2025 that refunds "would be terrible for the Treasury." He said in February 2026 that the matter remains "in dispute" and could be "dragged out for weeks, months, years."
Revenue growth tells a divided story. Individual income tax receipts rose $136 billion, or 7 percent. Payroll taxes climbed $34 billion, or 3 percent, driven by higher wages. Corporate income tax fell $87 billion, or 24 percent, after the One Big Beautiful Bill Act expanded investment deductions. The Congressional Budget Office noted the law allowed corporations "to take larger deductions for certain investments, thereby reducing some payments."
Entitlement programs absorbed nearly the entire spending increase. Social Security, Medicare, and Medicaid together added $169 billion, or 7 percent. The three programs accounted for almost all of the $172 billion rise in federal outlays.
Social Security spending increased $63 billion, or 5 percent. Medicare rose $57 billion, or 8 percent. Medicaid jumped $49 billion, or 10 percent. Defense spending grew $31 billion, or 4 percent, and Veterans Affairs spending rose $27 billion, or 10 percent.
Interest costs now rank as the second-largest government expenditure. Net interest reached $857 billion through nine months, up $98 billion, or 13 percent, from the prior year. The CBO attributed the increase to larger total debt and higher long-term interest rates.
Interest spending this year exceeded Medicare outlays. It surpassed total military spending. It outpaced the combined budgets of Commerce, Education, Homeland Security, the EPA and the Small Business Administration.
"Only three months left in FY 2026, and the Treasury Department just confirmed the deficit has now surpassed the FY 2025 deficit over the same period," said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. "At $1.4 trillion in the first nine months of FY 2026 – including $120 billion in the month of June alone – we are on track to borrow $2 trillion or more this fiscal year."
The CBO projects the full-year deficit at $1.9 trillion. Treasury faces $2 trillion or more. Debt held by the public reached $31.7 trillion at the end of June. The total national debt stands at $39.4 trillion.
MacGuineas warned that major trust funds face insolvency within seven years. "There is little time left to avoid across-the-board cuts to benefits," she said.
The federal deficit has not fallen below 3 percent of GDP since 2015. The last federal surplus arrived in 2001. CBO projects debt held by the public will hit 101 percent of GDP in 2026, 108 percent by 2030, and 120 percent by 2036. The Cato Institute projects that by 2036, Social Security, Medicare, Medicaid and interest costs will consume nearly 100 percent of all federal revenue.
"The federal deficit has not fallen below 3 percent of GDP since 2015," said House Budget Committee Chairman Jodey Arrington. "According to current projections, it will continue to exceed 5 percent of GDP every year for the next three decades. Throughout our history, deficits this large have only appeared in the shadow of wars and economic collapse."
Some agencies saw cuts amid the broader spending surge. Education spending fell $55 billion, or 55 percent, largely from a downward revision of student loan costs. EPA spending dropped $20 billion, or 61 percent, after "clean" energy grants paid in late 2024 failed to recur. Homeland Security spending decreased $13 billion, or 15 percent, mostly from lower disaster costs.
"Rather than continuing the same unsustainable path, adopting a realistic fiscal target like bringing the deficit down to 3 percent of GDP or creating a bipartisan commission to address the nation's laundry list of fiscal challenges would be a great start," MacGuineas said.
Families pay taxes to fund programs they may never use, while watching interest on national debt outpace the budgets of departments that serve them directly. The ledger shows a nation borrowing against tomorrow to cover today's choices. When entitlements and interest costs approach 100 percent of all revenue, Americans will face a reckoning that no amount of economic growth can outrun.