As lawmakers returned home for the final stretch of the fall campaign, we got an update on a major problem that will be confronting the new Congress when it comes to Washington. In the 2026 fiscal year that concluded at the end of September, the annual deficit reached a stunning $2 trillion. The size of the deficit is particularly alarming given that we are in an economic expansion and do not have a large number of troops in combat.
In its latest review of federal finances, the Congressional Budget Office reported that while the government collected $169 billion more in revenue than it did a year earlier, it spent nearly $400 billion more than it had previously — bringing total federal spending to $7.4 trillion.
The towering number serves as yet another reminder that despite all of the hoopla, the effort to slash spending by downsizing the workforce was overblown both by its boosters and harshest critics. In reality, the major drivers of spending continue to be Social Security, Medicare, and Medicaid, which alone accounted for $3.5 trillion of total spending, up $218 billion from a year earlier.
Meanwhile, as a result of rising interest rates and a higher amount of accumulated debt, interest expenses rose by $115 billion. We spent $1.1 trillion on interest in 2026, which eclipsed what we spent on the entire defense budget. In fact, the price of paying off the debt each year is now greater than any other government program besides Social Security.
The story of how we got here was not written under the leadership of Donald Trump, although he has made the problem worse. Our federal debt has been building for decades thanks to lawmakers who have repeatedly avoided doing anything to address entitlements that are fueling our fiscal mess. They did nothing despite having advance knowledge that as the Baby Boomers retired and health-care costs rose, spending would explode.
Over the course of this century, Democrats have advanced an ever-increasing number of social welfare programs. Republicans, while at times purporting to be concerned about the debt, have chosen not to offset large tax cuts with spending cuts elsewhere.
During the Covid pandemic, the federal government spent trillions of dollars — to fight the pandemic, to prop up the economy, and eventually to finance Joe Biden’s progressive policy wish list. But while in previous crises, notably World War II, spending retreated as the crisis subsided, this time, lawmakers just baked in higher spending levels. And the U.S. never returned to the pre-pandemic trajectory, as 2026 spending was 20 percent higher than what CBO expected it to be in an estimate released on March 6, 2020 — or about a week before the start of the Covid lockdowns. For all the publicity they generated (both for and against), the DOGE cuts to federal staffing didn’t make a noticeable dent in our nation’s finances.
Many people try to blame military spending or “endless wars” for our national debt. And yes, it’s true that at $900 billion, the military is a significant outlay. But the actual story is of spending on entitlement programs crowding out defense spending rather than the other way around. Defense spending as a percentage of the economy was under 3 percent every year from 2022 to 2025 (CBO has not yet released this statistic for the most recent fiscal year). That is lower than at any point in the post–World War II period other than the few years at the turn of the current century that were sandwiched between the end of the Cold War and the 9/11 military buildup. In contrast, since 2000, mandatory spending (which includes the major entitlements and other welfare programs such as Obamacare) rose from 10 percent of the economy to 15 percent.
With debt held by the public now at over $30 trillion, the risks keep growing for a major fiscal crisis in which investors become reluctant to purchase U.S. debt and demand some combination of sudden and severe cuts to government programs and massive tax increases that will have a crippling effect on the economy. In the meantime, we’ll continue to throw more than a trillion dollars a year at paying off interest before a single dollar is spent on any national priorities, and we’ll keep depleting our military capacity and our ability to counter China or other emerging threats.
The solutions to this spending problem may not be easy, but they are obvious — lawmakers and the president need to get serious about reforming entitlement programs so that we can afford them.