The last time the U.S. budget deficit reached $2 trillion was during the 2021 pandemic. This means that the debt exceeds its fiscal revenue. The gross U.S. national debt is $40 trillion in October 2026, which could possibly crescendo and cause problems in times of crisis. The gross debt-to-GDP ratio stands at 126%, and the U.S. paid $963 billion in interest alone. This interest compounds and is paid through federal tax revenues and the rollover of Treasuries. This rollover works by creating new debt at auctions to pay off maturing securities.
This is the third-highest annual deficit in U.S. history, behind only 2020 and 2021. This is a continuum in which the U.S. budget has been in a deficit, continuing from 2001.
This debt is divided into two categories: debt held by the public and intra-governmental holdings. The public debt of a massive $32 trillion is held by three entities:
- Foreign governments and investors
- Federal Reserve System
- Domestic private and institutional investors
The intragovernmental debt stands at $7.8 trillion, which the federal government has borrowed from itself.
This growing debt and deficit only means more stubborn inflation. This deficit is also seen at a time when the economy is growing steadily. The U.S. believes that economic growth can help tackle this debt, though not fast enough.
This deficit comes from rising debt interest, invalidated global tariff refunds from the Supreme Court, Social Security, and rising defense spending. The defense costs jumped by $48 billion in fiscal year 2026, reaching $1 trillion.
