In keeping with America’s broader fiscal story, the problem is almost all about spending.
The Congressional Budget Office (CBO) released its monthly budget review for September today, and the findings aren’t wonderful: “The federal budget deficit totaled $2.0 trillion in fiscal year 2026, the Congressional Budget Office estimates, $218 billion more than the deficit recorded in fiscal year 2025.” That’s up from February, when the CBO expected this year’s deficit to be only $1.9 trillion, and significantly higher than last year’s deficit of $1.8 trillion.
What caused the fiscal gap to widen? It wasn’t falling tax receipts from last year’s reconciliation law, since total revenue was up by 3 percent. Income and payroll tax revenue together increased by $255 billion, or 6 percent from last year, more than compensating for a fall in corporate taxes by $70 billion.
Rather, in keeping with America’s broader fiscal story, it’s almost all about spending: “Outlays in fiscal year 2026 were $7.4 trillion, CBO estimates, $386 billion (or 6 percent) more than in fiscal year 2025.”
It’s true, the Trump administration and Republicans in Congress have cut spending in some visible areas. Outlays are down in the Environmental Protection Agency, the Commerce Department, and food stamps. But these categories were small parts of the budget to begin with, and their reductions were swamped by growing entitlements. Spending on Social Security rose by $86 billion, or 5 percent, because of “increases in average benefits and in the number of beneficiaries.” Medicare and Medicaid each grew by 8 percent, or $132 billion combined, because of increased enrollment and higher health-care costs.
Net interest costs also continued spiraling upward. As debt accumulated and interest rates jumped, servicing expenditures automatically rose by $115 billion last year, or 11 percent — the greatest increase of any single category.
We are reaching the point where interest on the debt exceeds economic growth, ensuring that costs will rise even if we somehow balanced the underlying budget. Which we won’t. The entitlement programs driving the deficit — Social Security, Medicare, and Medicaid — run on autopilot, expanding each year based on predetermined formulas. They are projected to grow much larger over the next ten years. Congress has zero appetite to reform these programs and make them fiscally sound.
Before 2026, the deficit eclipsed $2 trillion only in the pandemic years of 2020 and 2021, and we had never seen a deficit of even $1 trillion except in the four years after the 2008 financial crisis. Based on current law, the CBO projects we’ll hit $3 trillion within a decade, $4 trillion by 2042, $5 trillion by 2046, $6 trillion by 2049, $7 trillion by 2052, and $8 trillion by 2055. That is the baseline, assuming no new recessions, wars, tax cuts, or spending programs — and also assuming that interest rates on the debt stay indefinitely below where they currently are.
For now, we’ll have to settle for a $2 trillion deficit. Soon that number will seem quaint.