The Fiscal Picture Gets Worse

Many posts have discussed federal deficits and the federal debt. 

 James C. Capretta at AEI

The Treasury Department will release the official tally for fiscal year 2026 later this month, but the Congressional Budget Office (CBO) has provided a useful early look that is likely to be close to where the more carefully scrubbed numbers eventually land. The bottom line is that the federal government’s fiscal position continues to deteriorate, with rapid spending increases on the main entitlements and net interest on past borrowing accounting for most of the growing fiscal pressure.

The final deficit figure for 2026 is $1.993 trillion, or $218 billion above what was recorded in 2025. Revenue was up 3 percent in 2026 relative to 2025, but spending grew even faster at 6 percent.

On the spending side, Social Security, Medicare, and Medicaid continue to dominate the outlook, with all three growing at rates exceeding the rate of increase for federal revenue. Social Security outlays rose by 5 percent in 2026, while Medicare and Medicaid were up 8 percent. Their combined spending increase in 2026 was $217 billion, which accounts for 80 percent of the entire increase in noninterest outlays recorded for the entire federal government.

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What should be most worrisome to policymakers is the combination of rising entitlement obligations and newly emerging pressure on net interest costs. In 2026, net interest payments were $1.143 trillion, up $115 billion compared with 2025 payments. Servicing federal debt now accounts for 15 percent of all federal spending, up from 8.5 percent in 2006.