The Zhitong Finance App learned that according to data released by the US Treasury Department on Friday, the US federal government's fiscal deficit widened to nearly 2 trillion US dollars in fiscal year 2026, maintaining this high level for the fourth year in a row. As the yield on US Treasury bonds rose and the size of government debt continued to expand, interest expenses hit a record high, further increasing the pressure on the US fiscal system. Meanwhile, the share of US public debt to gross domestic product (GDP) is expected to break historical records in the next few years.
According to the data, in the 2026 fiscal year ending September 30, the US federal government's fiscal deficit reached 1.99 trillion US dollars, an increase of about 12% over the previous fiscal year of 1.78 trillion US dollars, making it the largest annual fiscal deficit since 2021. Among them, total federal government spending increased by about 6% year on year to reach 7.4 trillion US dollars; fiscal revenue only increased by about 3% to 5.4 trillion US dollars. As spending growth clearly exceeds revenue growth, the US fiscal gap widened further.
In terms of GDP, the US fiscal deficit in fiscal year 2026 accounted for about 6%. In an economic environment where the unemployment rate is relatively low, the size of such a huge fiscal deficit is particularly interesting.
The size of US government debt continues to grow, and US Treasury yields have risen since this year, making interest expenses a key factor driving the expansion of the fiscal deficit. In fiscal year 2026, the US federal government's net interest expenditure increased by 81.4 billion US dollars over the same period last year, reaching a record 1.05 trillion US dollars, making it one of the three major government expenditure items.
Meanwhile, spending on major social welfare programs in the US continues to rise. Among them, social security is still the federal government's largest expenditure item. FY2026 spending increased by 86.4 billion US dollars over the same period last year to reach 1.67 trillion US dollars; health insurance spending increased 76 billion US dollars to 1.07 trillion US dollars.
Notably, although official data showed that the fiscal deficit narrowed in fiscal year 2025, this improvement was partly due to changes in accounting treatment. The 2025 Republican Tax Act tightened restrictions on student loans, and the US Treasury included this as a reduction in spending for the year, rather than being driven entirely by an improvement in actual fiscal conditions.
US Treasury Secretary Bessent previously listed tariff refunds as one of the important reasons for the widening fiscal deficit in the 2026 fiscal year. In February of this year, the US Supreme Court ruled that most of the tariff increases implemented by Trump during his second term were invalid, causing the government to refund some of the tariffs previously levied. Currently, the Trump administration is seeking to restructure the tariff system through additional legal authorization.
Furthermore, the massive tax cuts introduced by the Trump administration in 2025 also had a clear impact on this fiscal year's fiscal balance. According to the data, US personal income tax revenue increased by 189 billion US dollars year-on-year in fiscal year 2026, but corporate income tax revenue decreased by more than 70 billion US dollars. The decline in corporate tax revenue is mainly due to the 2025 Tax Act extending a number of tax reduction measures and introducing new tax deduction policies for businesses.
Looking at September alone, the US federal government spent more than $27 billion in revenue. The ever-widening fiscal deficit means that the US government needs to increase borrowing even more. The US Congressional Budget Office (CBO) warned in February this year that according to current fiscal trends, the ratio of US public debt to GDP is expected to surpass the 106% historical record set in 1946 in 2030.
1946 was shortly after the end of World War II, when America accumulated huge debts due to huge war expenses. Today, America's debt burden is at risk of breaking through this historic high again.
Total US public debt has surpassed 40 trillion US dollars, a record high, further triggering market concerns about America's long-term fiscal sustainability. Regarding how to improve the fiscal situation, Bezent said earlier that the US is expected to reverse the trend of rising debt by speeding up economic growth, especially productivity improvements brought about by the development of artificial intelligence (AI).
However, many heads of international economic agencies and US finance officials are wary of this.
International Monetary Fund (IMF) Managing Director Georgieva said on October 14 that while economic growth certainly helps improve fiscal conditions, growth alone cannot achieve necessary fiscal adjustments quickly enough.
David Zervos, a recently appointed adviser to Bezent, objected to this judgment, arguing that the IMF's economic forecasts in the past had large deviations.
On the same day, ECB President and former IMF Managing Director Lagarde also said that countries facing high fiscal deficits need to take steps to resolve this issue. Phillip Swagel, director of the US Congressional Budget Office, pointed out on October 8 that the idea of relying on economic growth alone to stabilize the level of US debt is unrealistic.
Faced with increasing debt burdens, Bezent has promised to propose a fiscal consolidation plan. If the Republican Party loses control of either house of the Senate and the House of Representatives in next month's midterm elections, Bezent may propose a fiscal consolidation plan during the transition period before the new Congress takes office.
However, Trump has continued to propose new government spending plans recently, in stark contrast to the goal of fiscal consolidation. Among them, Trump called for an increase of nearly 500 billion US dollars in US defense spending. Furthermore, he promised that if the Republican Party continues to control the Senate and House of Representatives in the November 3 midterm elections, it will issue a check of 5,000 US dollars to every American.
These potential spending promises could further increase the US government's future fiscal burden, and make the market more concerned about whether the Trump administration can achieve fiscal discipline goals while boosting economic growth.
As the US fiscal deficit remains high for a long time and the cost of interest on debt continues to rise, whether the future government can effectively control spending and whether AI-driven economic growth can bring sufficient new revenue will become important factors affecting the US Treasury bond market and long-term fiscal prospects.