Data released by the U.S. Treasury Department last Friday (October 16) shows that the U.S. budget deficit for fiscal year 2026 will approach $2 trillion, reaching a staggering $1.992 trillion, an increase of approximately 12% from the $1.775 trillion deficit in the previous fiscal year. This will be the third-highest annual deficit in U.S. history, second only to 2020 and 2021, years marked by massive spending during the pandemic stimulus. The U.S. has officially set a record of 25 consecutive fiscal years of deficit operation; the last time it achieved a surplus was in 2001. This report provides the latest commentary on how the rapidly expanding U.S. debt burden is dragging down overall fiscal health.

The deficit has risen to the third highest in history, marking the 25th consecutive year of spending exceeding revenue.

Treasury officials stated that both revenue and expenditure will reach record highs in fiscal year 2026. Data released last Friday also vividly illustrates the erosion of overall fiscal health by the ever-growing U.S. debt. The continuously rising debt bill has exacerbated the anxiety of bond traders, pushing the yields on 10-year and 30-year U.S. Treasury bonds to 24-year highs last week. Signs of fiscal pressure being transmitted to financial markets through Treasury yields are becoming increasingly apparent.

Social security and medical insurance account for the majority of the revenue, while net interest income from government bonds exceeds one trillion yuan.

On the expenditure side, Social Security is the largest item of government spending, approaching $1.7 trillion for the entire fiscal year, a modest increase from approximately $1.6 trillion in fiscal year 2025. Healthcare is the second largest expenditure item, costing nearly $1.1 trillion for the entire fiscal year, compared to slightly less than $1 trillion in fiscal year 2025. Net interest, calculated by subtracting interest received from gross interest earned by the Treasury Department, also exceeded $1 trillion this fiscal year, while total net interest in fiscal year 2025 was $970 billion. In fiscal year 2026, the United States will pay more than $1.3 trillion in interest on public debt, and the total federal debt surpassed $40 trillion earlier this year, more than doubling in ten years. The continuously rising interest burden has become a rigid cost that cannot be ignored in fiscal spending.

Tax revenue is mixed, with customs revenue impacted by Supreme Court ruling.

On the revenue side, personal income tax revenue exceeded $2.8 trillion, an increase of approximately 7% year-on-year. Corporate income tax contributed $381 billion in revenue in fiscal year 2026, a decrease of approximately $70 billion from fiscal year 2025, due to tax cuts included in the "Big and Beautiful Act" passed by Congress last year. Treasury officials stated that total customs revenue reached a record high in fiscal year 2026, but the calculation of total customs revenue was hampered by the need to refund billions of dollars to retailers following a Supreme Court ruling.

Official stance: Debt will be resolved through global growth; tariff strategy will continue to be implemented.

Treasury Secretary Scott Bessent stated in August that the United States could rely on growth to overcome its ballooning debt. He said, "Our message to allies and trading partners is that global growth is the way to get rid of this mountain of debt." President Trump, on the other hand, has portrayed his broad and substantial tariff plans as a means to boost revenue and reduce government debt. Despite the Supreme Court ruling earlier this year that many of Trump's tariffs were unconstitutional, the White House continues to pursue its strategy of imposing tariffs on trading partners. A report released last Friday also showed that the monthly deficit in September was $27 billion, a reversal from the same period last year, when the Treasury recorded a surplus of $198 billion in September 2025.

Conclusion

In summary, the nearly $2 trillion deficit in fiscal year 2026, marking 25 consecutive years of spending shortfalls, coupled with interest payments exceeding $1 trillion, paints a stark picture of the grim reality facing US finances. High levels of mandatory expenditures such as Social Security and Medicare, coupled with a continuously expanding interest burden, mean that despite some increases in personal tax revenue and legal obstacles to tariff strategies, the government still hopes to alleviate the debt crisis through global growth. This increasingly heavy fiscal pressure not only pushes up US Treasury yields and exacerbates market anxiety but also makes the sustainability of the US government's debt a focus of continued global market attention.