The United States closed fiscal year 2026 with a federal budget deficit of $1.992 trillion, up from $1.775 trillion in fiscal 2025 — the largest annual shortfall in five years, according to the latest Treasury figures (original report). Shortfalls of this size are covered by federal borrowing, which adds to the national debt — the base on which interest costs accrue.

The federal fiscal year runs from October 1 through September 30, and the final month of the period offered a sharp contrast with the year before. September 2025 produced a $198 billion surplus, while the most recent September showed a $27 billion deficit. The swing was driven primarily by spending: outlays jumped $239 billion year-over-year to $585 billion, versus $346 billion a year earlier, while receipts rose just 2.6%, to $558 billion from $544 billion.

Interest Costs Emerge as the Main Deficit Driver

Gross interest on the debt reached a record $1.36 trillion for the fiscal year, an increase of $144 billion, or 12%. That rise accounts for roughly two-thirds of the $217 billion increase in the full-year shortfall, making interest the single largest contributor to the widening gap.

The report notes that the Treasury will continue rolling over maturing debt at higher rates while the Federal Reserve debates rate increases rather than cuts, meaning interest costs have nowhere to go but up. That linkage is why the government's funding costs have become a focal point for fiscal watchers: the Fed's policy path directly shapes how much the Treasury pays to service its obligations.

Customs Receipts Largely Offset by Refunds

Customs collections were among the most notable details in the release. Gross customs receipts came in at $25.27 billion, roughly in line with the recent run rate. However, refunds of $19.36 billion absorbed 77% of that total, leaving net customs receipts of just $5.91 billion. Customs duties are the levies collected on imported goods, and refunds — returned after duties are initially collected — are a routine feature of the customs system, which is why the net figure is the one that matters for the deficit.

The report cautions that year-ago September comparisons are notoriously noisy because of payment timing, so the full-year figure is the more meaningful gauge. It concludes that the United States is in a substantial fiscal hole even amid currently favorable growth conditions, and argues that the shortfall cannot be resolved through growth alone.

With fiscal 2027 now underway, the coming monthly Treasury statements will show whether receipts growth can keep pace with spending, how net customs receipts evolve once refunds are netted out, and where the Fed's rate deliberations land — the inputs that will define the next round of deficit and interest-cost figures.