Fiscal 2026 shortfall is the largest since 2021, with refunds of struck-down tariffs erasing customs gains and net interest now costing more than defense
The US federal government ran a deficit of $1.99 trillion in the fiscal year that ended September 30, 2026, the widest gap since fiscal 2021. The Treasury Department’s Monthly Treasury Statement, published on October 16, puts the shortfall at $1,992.5 billion, up $217.1 billion, or 12.2%, from $1,775.4 billion in fiscal 2025.
Spending is outrunning revenue. Receipts rose 3.2% to a record $5.40 trillion. Outlays rose 5.5% to $7.40 trillion.
Lower net customs receipts and higher interest costs together account for $103 billion of the $217 billion deterioration.
Tariff money flows back out
Customs duties were on course for a windfall. Gross collections reached $317.8 billion in fiscal 2026, up from $202.4 billion a year earlier. Refunds, however, came to $144.6 billion, against $7.5 billion in fiscal 2025, and net customs receipts fell to $173.2 billion from $194.9 billion.
The refunds follow the Supreme Court’s February 20, 2026 decision in Learning Resources v. Trump, which held that the International Emergency Economic Powers Act does not authorize the president to impose tariffs. Importers have since been reclaiming duties paid under those orders through a Customs and Border Protection claims process.
Corporate income taxes added to the drag, falling 15.6% to $381.4 billion. Individual income taxes carried the revenue side, rising 7.1% to $2.85 trillion.
Interest passes $1tn
Net interest rose 8.4% to $1,051.8 billion, from $970.4 billion. That is more than the government spent on national defense, at $965.2 billion, and trails only Social Security, at $1.67 trillion, and Medicare, at $1.07 trillion.
Interest now absorbs about 19.5 cents of every dollar the government collects, by BCR’s calculation from the Treasury data.
Defense outlays rose $48.5 billion. Social Security and Medicare added a combined $162.3 billion.
September swings to deficit
The final month of the fiscal year produced a $26.9 billion deficit, against a $197.9 billion surplus in September 2025.
For bond investors the interest line matters most. A wider deficit means more Treasury issuance, and every new bond is financed at current yields, which pushes the interest bill higher still. The government last ran a surplus in fiscal 2001. Treasury’s next monthly statement, covering October, is due on November 12, 2026.