US closes fiscal 2026 with two-trillion-dollar deficit, net interest tops a trillion dollars for first time, debt service on pace to overtake Social Security by 2028

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zerohedge.com

The US Treasury's September budget statement closed the books on fiscal 2026 with a deficit of $1.992 trillion — more than $200 billion worse than the previous year and the third-largest on record. Only the pandemic years of 2020 and 2021 were worse. Net interest on the debt passed $1 trillion for the first time, finishing the year at $1.05 trillion.

Gross interest expense came to a record $1.360 trillion for the fiscal year, up 12 percent, or $1.4 trillion on a trailing-twelve-month basis. Social Security, at $1.67 trillion, is still the larger budget line, but it grows slowly; on the trend the Treasury's figures trace, ZeroHedge projects interest overtakes it before the end of 2028.

The arithmetic compounds against the budget. The Federal Reserve has raised rates and further increases are expected, and 23 percent of marketable US debt now sits in T-Bills — the paper that reprices the moment the Fed moves. Every rate increase lands on the interest bill, which widens the deficit, which adds to the debt that must be refinanced at the new rates.

September itself looked almost orderly: receipts of $558 billion against outlays of $585 billion, a monthly deficit of $27 billion and a sharp improvement on August's $167 billion. The improvement was a calendar artifact. Outlays ran 70 percent above the same month last year because the Supreme Court struck down the tariffs and the government spent the following months issuing refunds; in September it was collecting net tariff revenue again, at the rates that prevailed before the trade war. Receipts rose 2.6 percent year on year — $298 billion from individual income taxes, $149 billion from social insurance and retirement contributions.

The wider picture is less orderly. On a trailing six-month basis, federal spending is on pace to surpass its all-time high from the COVID period, while revenue remains stuck in a much narrower range.

DOGE, the office created to cut federal spending, was disbanded more than a year ago. The deficit it was meant to shrink came in $200 billion wider than the year before.