US Deficit Hits $1.97 Trillion With One Month Left in Fiscal 2026, Already Topping Last Year's Full Total

Since the 10-year Treasury yield hit 4.92% this week amid heavy Japanese bond sales, the numbers explaining why investors want more money to hold U.S. debt are now on the table.

The U.S. Treasury's August Monthly Treasury Statement, released Friday, puts the fiscal 2026 deficit at $1.97 trillion through eleven months, according to the Treasury. That already exceeds the full fiscal 2025 deficit of $1.775 trillion, per the same report. One month remains in the fiscal year.

The Congressional Budget Office's own tracking, released the same day, puts the figure at roughly $2.0 trillion for the same eleven-month stretch. The two numbers use slightly different accounting but convey the same underlying fact: this is the third-worst fiscal year on record, trailing only the pandemic years of 2020 and 2021, according to figures compiled by ZeroHedge.

The August Numbers, Unpacked

August alone showed a $166.8 billion deficit, per Treasury, or $168 billion per CBO. That's a steep drop from the $432 billion deficit in July and from August 2025's shortfall.

The improvement warrants caution. Reuters reported the drop was largely a calendar quirk: August 1, 2026 fell on a Saturday, so Medicare and Social Security payments normally made on the first of the month were pushed into July instead. Strip out that shift and the Treasury says August's adjusted deficit was actually $248 billion, up $7 billion from a year earlier.

August receipts came in at $360 billion, up from $344 billion a year ago, with individual income taxes contributing $179 billion and Social Insurance and Retirement receipts adding $141 billion, according to Treasury data. Outlays were $527 billion, down from $689.1 billion in August 2025, again mostly a timing effect rather than actual restraint.

Where the Money's Actually Going

Fox Business, citing the CBO's monthly review, broke down what's driving the growth: Social Security spending rose $78 billion (5%) year-to-date, Medicare rose $73 billion (8%), and Medicaid rose $47 billion (8%). Veterans Affairs spending climbed $41 billion (14%), and Defense Department spending rose $41 billion (5%).

Interest expense on the national debt rose $111 billion, or 12%, according to CBO, which attributed the jump to a larger debt balance and higher long-term interest rates, partly offset by lower short-term rates. Education spending actually fell $79 billion, or 56%, but CBO said that was mostly an accounting swing tied to a $53 billion downward revision in estimated student loan costs recorded in June.

On a trailing twelve-month basis, gross interest expense has now crossed $1.4 trillion, a record, growing at roughly 12% annually according to TFTC's analysis of the Treasury data. That's up from $970 billion in all of fiscal 2025, per figures from the Peter G. Peterson Foundation cited in that same reporting, a roughly $430 billion jump in two years.

Why Rates Matter More Than the Headline Number

A Washington Post opinion piece laid out the mechanical problem: interest payments already surpassed defense spending last year, and under CBO's own projections they're set to exceed Medicare spending by 2029 and the entire discretionary federal budget by 2038.

The piece noted the average maturity of outstanding federal debt is under six years, meaning the government must constantly refinance old debt into new bonds at whatever rate the market demands. In 2025 alone, Treasury issued $9 trillion in bonds just to roll over existing debt, on top of the roughly $2 trillion in new borrowing for that year's deficit. Unlike a homeowner who locked in a 30-year mortgage at 3%, Washington never locked in the near-zero rates of the 2010s. It's paying today's higher rates on debt issued a decade ago.

Even a freeze on new spending doesn't stop old debt from rolling into higher rates. The interest bill keeps climbing regardless of what Congress does next, unless rates fall or the debt itself shrinks.

Tariffs Haven't Closed the Gap

One bright spot Treasury flagged: net customs receipts hit $12.84 billion in August, the first monthly increase since April, according to Reuters, after the Trump administration issued $10.54 billion in tariff refunds that month. That followed the Supreme Court's February ruling that the administration lacked authority to impose tariffs under the International Emergency Economic Powers Act, after which the administration shifted to other legal authorities to keep collecting duties. Year to date, Treasury has collected $292.5 billion in gross customs receipts but refunded $125.2 billion, for a net inflow of $167.3 billion, according to Treasury figures reported by Reuters. That's real money, but it's a rounding error against a $1.97 trillion hole.

The Political Response

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, called the trajectory unsustainable in a statement, noting the gross national debt recently crossed $40 trillion, debt held by the public now exceeds the size of the entire U.S. economy, and trust funds for programs "tens of millions of Americans rely on" face insolvency within a decade. She called on lawmakers to agree on a plan to cut the deficit to 3% of GDP, roughly half its current level.

Nobody in Washington, Republican or Democrat, has put forward a plan that does that. Social Security and Medicare growth are driven by an aging population and existing law, not any single administration's choices. Defense and VA spending grew under a Republican administration this year. Neither party is volunteering to touch the entitlement programs actually driving the math, and neither is proposing tax increases large enough to close a $2 trillion gap.

The final month of fiscal 2026 reports in October. If the pattern from 2025 holds, when the final month narrowed the annual gap, this year's total could still land around $2.1 to $2.2 trillion, per ZeroHedge's projection, cementing 2026 as the third-worst deficit year on record. The bigger unresolved question is what happens after 2031, when the last batch of near-zero-rate bonds from the 2010s finally roll off and get replaced at whatever rate the market sets then.