US Deficit Nears $2 Trillion as Debt Interest Tops $1 Trillion

The U.S. government concluded fiscal year 2026, ending in September, with a deficit of $1.992 trillion, a roughly 12% increase from the previous year's $1.775 trillion. This marks the third-largest deficit on record, trailing only the pandemic years of 2020 and 2021. Despite the absence of a pandemic or emergency stimulus packages, and record-high tax revenues, the deficit grew. The Treasury Department reported that individual income tax collections exceeded $2.8 trillion, up about 7%, with both total revenues and expenditures reaching unprecedented levels. Conversely, corporate tax revenue fell to $381 billion, a decrease of approximately $70 billion from the prior year, largely due to tax breaks in last year's budget law.

For the first time, net interest payments on the national debt surpassed $1 trillion, up from $970 billion the previous year. Gross interest payments, before accounting for interest the government itself receives, exceeded $1.3 trillion. This figure now surpasses the U.S. defense budget and approaches the nearly $1.1 trillion spent on Medicare, the health insurance program for seniors. Social Security remains the largest budget item, at nearly $1.7 trillion, an increase from $1.6 trillion the year before. These costs, along with healthcare expenditures, are growing due to the aging Baby Boomer generation and are politically difficult to reduce.

The national debt has reached approximately $40.4 trillion, more than double its level a decade ago. Former President Donald Trump's tariffs, intended to reduce the debt, generated record gross collections but saw net revenue diminish after the Supreme Court ruled a significant portion unconstitutional, requiring billions in refunds to importers. The administration continues to impose new tariffs. Treasury Secretary Scott Bessent maintains that rapid economic growth can outpace spending and reduce the debt.

September alone closed with a $27 billion deficit, a sharp contrast to the $198 billion surplus in the same month last year, following a record monthly deficit in July. This extends a streak of 25 consecutive years where U.S. spending has exceeded revenue, with the last surplus recorded in 2001. The yield on 10-year U.S. Treasury bonds ended the week around 5.1%, nearing a 24-year high, while 30-year bonds stood at about 5.4%. These rising yields, driven by the need to finance a growing debt, impact mortgage rates, corporate loans, and stock valuations. The U.S. debt, exceeding $40 trillion, competes for capital with the AI boom, and the nation lost its final AAA credit rating last year when Moody's downgraded it. Israeli pension funds, holding significant U.S. assets, are affected by these trends, as U.S. Treasury yields tend to influence global markets.