US 2026 Budget Deficit Hits $1.97 Trillion With One Month Left; Interest At Record $1.4 Trillion

With DOGE disbanded more than a year ago, and tariffs struck down by the Supreme Court, the US is no longer even pretending that there is any hope to normalize spending, or any kind of happy ending to the US debt trajectory. 

At 2pm today the US Treasury published the latest, August, monthly budget deficit data, and it should come as no surprise to anyone that things are looking ever worse. 

Total US receipts were $360 billion, a modest improvement from the $344 billion a year ago, with individual income taxes accounting for $179 billion, or half of the total, and the bulk of the balance coming from Social Insurance and Retirement receipts of $141 billion.

On the spending side, things were ugly: total outlays were $527 billion, a modest improvement to the $689.1 billion a year ago, but much of that had to do with the calendar impact of tariffs. 

Putting receipts and spending in context, a chart of the trailing 6 months of government revenue and spending shows that the two trendlines are rapidly diverging, with spending on pace to surpass the covid all time high, even as government revenue remains stuck in a much more narrow range.

The difference between the two, is of course, the US budget deficit, which in August was $166.8 billion, an improvement from July’s massive $432 billion deficit, which however was the result of some calendar discrepancies between the two months. What matters more is that fir the first 11 months of fiscal 2026 (with just one month left in the fiscal year), the total US deficit is now $1.97 trillion, identical with last year, although since 2025 saw a big drop in the final month of the year, we are confident that 2026 will be about $200bn worse than the previous year when all is said and done, and be the 3rd worst year for the US deficit on record, with just the crisis years of 2020 and 2021 worse.

Finally, turning to the elephant in the room, namely interest expense, in August the US spent $98 billion on gross interest expense, which means that with 1 month left in fiscal 2026, total US interest spending is now $1.267 trillion, up 12% from a year ago…

… while on an LTM basis, it is now a record $1.4 trillion, and is set to surpass Social Security (which was $1.66 trillion LTM but growing much slower), by the end of 2028. 

And since 23% of marketable US debt is now T-Bills, which will see an immediate impact from any Fed hikes, the moments the Fed raises rates, US interest expense is going to rise even more sharply, signaling that while the debt endgame for the US is guaranteed, the only question is whether Warsh will bring it on even faster.