Additional Coverage:
- Budget deficit hits $1 trillion in first five months of fiscal year: CBO (foxbusiness.com)
Federal Budget Deficit Hits $1 Trillion Mark in Early 2026, Showing Slight Improvement Over Last Year
The federal budget deficit has once again breached the $1 trillion mark, reaching just over $1 trillion in the first five months of fiscal year 2026. However, there’s a glimmer of good news: this figure represents a $142 billion, or 14%, decrease when compared to the same period in fiscal year 2025, according to the nonpartisan Congressional Budget Office (CBO).
Federal spending for the period from October through February totaled a little over $3.1 trillion, an increase of $64 billion (2%) from the previous year. Meanwhile, federal tax revenue saw a more substantial jump, rising by $206 billion (11%) to nearly $2.1 trillion.
This increase in tax revenue is largely attributed to higher collections from individual income taxes and payroll taxes, which together accounted for approximately two-thirds of the rise. Additionally, increased tariff rates contributed to a surge in import taxes collected.
Tax Collections See Boost, but Tariff Refunds Loom
Individual income tax collections saw a 10% increase, rising by $99 billion, while payroll tax collections climbed 5% ($34 billion) compared to the prior fiscal year. Customs duties, which include tariffs, experienced a remarkable 308% increase, totaling $144 billion – a $109 billion jump from the same period last year.
However, the future of some of these tariff collections remains uncertain. A U.S.
Supreme Court ruling declared the Trump administration’s tariffs under the International Economic Emergency Powers Act (IEEPA) unconstitutional. This could lead to refunds for businesses and individuals who paid them, potentially reducing federal tax revenue and widening the deficit.
While replacement tariffs are being implemented, they may face similar legal challenges and collection delays.
Conversely, corporate income tax collections dipped by $33 billion (23%) in the first five months of the year. This decline is linked to provisions in the 2025 reconciliation bill that expanded tax deductions for companies making specific eligible investments.
Mandatory Spending Programs Drive Expenditure Increases
The most significant increases in federal spending were seen in mandatory programs like Social Security and Medicare, which continue to see growing enrollment due to the nation’s aging population.
Social Security spending reached $676 billion, an 8% ($48 billion) increase from last year. This rise is attributed to the annual cost-of-living adjustment for benefits and the Social Security Fairness Act, which expanded benefit eligibility to previously non-covered professions, accounting for about $7 billion of the increase.
Medicare spending also surged by $34 billion (9%) to $475 billion, driven by higher enrollment and increased payment rates for services. Medicaid followed a similar trend, with outlays increasing by $22 billion (8%) to $285 billion.
Interest expenses on the national debt also saw a notable rise, with net interest costs reaching $433 billion – an 8% ($31 billion) jump from the previous year. This is a direct result of both a larger national debt and higher interest rates.
While spending for the Department of War and the Department of Veterans Affairs increased, several agencies experienced notable decreases. The Environmental Protection Agency (EPA) saw a 74% ($20 billion) decrease, primarily because a significant clean energy grant expenditure in late 2024 had no comparable outlay in 2025. Similarly, the Department of Homeland Security’s spending declined by 23% ($12 billion), largely due to a relative decrease in disaster-related spending, despite an uptick in immigration enforcement costs.
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- Budget deficit hits $1 trillion in first five months of fiscal year: CBO (foxbusiness.com)