2026 budget deficit goes over $1 trillion in February. And it'll be higher in March

The official numbers come out from the US Treasury tomorrow, but the Congressional Budget Office has already released its budget numbers through February, and we are already at a 13-figure budget deficit for FY 2026.

The U.S. Treasury’s borrowing showed no signs of slowing as the U.S. headed deeper into fiscal year 2026, with the Congressional Budget Office (CBO) reporting that another $1 trillion was added to the federal deficit in the first five months of the year….

Of course, with more borrowing comes higher interest costs on the debt. Between October 2025 (when the 2026 fiscal year started) and February, the Treasury spent an additional $31 billion on net interest on public debt, compared to the prior year. As a result, in just five months, the Treasury forked out a total of $433 billion to service public debt, which is now nearing $38.9 trillion.

The CBO said that outlays for interest increased “because the debt was larger than it was in the first five months of fiscal year 2025 and because of higher long-term interest rates.” It added: “Declines in short-term interest rates partially mitigated the overall rise in interest payments.”

Despite the eye-watering sums, the deficit was actually an improvement on last year’s borrowing. For the same period (October 2024 to February 2025), the government needed to borrow an additional $142 billion compared to this year’s figure.

The CBO mentions that the reason the deficit has shrunk by that $142 billion vs 2025 is because of an 11% increase in receipts through February.

But that progress on reducing the deficit is likely to end in a few months. One reason why is that the thing that has caused some of that increase in goverment receipts was recently ruled illegal by the US Supreme Court. Trump's tariff policy led to an increase in customs duties for the first 5 months of this fiscal year that outpaces the year-to-date increase in individual income taxes and payroll taxes.

Now those tariffs won’t be collected (although Trump threw a tantrum after the SCOTUS decision and claimed he put in new and higher tariffs) and may have to be paid back. The CBO mostly ignored Trump's new tariffs, and recently explained the fiscal costs of SCOTUS' decision..

CBO has regularly updated Congress about how changes in tariff policy affects projected revenues. In a November blog post and in The Budget and Economic Outlook: 2026 to 2036, we discussed the effects of trade policies in place as of November 2025. On February 20, 2026, the Supreme Court ruled that the Administration could not impose tariffs under the authority of the International Emergency Economic Powers Act (IEEPA). The Administration terminated those tariffs shortly after. (Other tariffs imposed last year, such as the product-specific tariffs implemented under section 232 of the Trade Expansion Act of 1962, remain in effect.) Revenue collected under IEEPA authority accounted for roughly 50 percent of the approximately $300 billion in total customs duties collected between January 2025 and February 20, 2026.

As a result of that ruling, we estimate the following:

The effective tariff rate (ETR) on imported goods is lower by 8 percentage points.
Primary deficits, not accounting for changes to the economy, will be $1.6 trillion larger over the 2026–2036 period than they were in the projections we reported in February.
Less tariff revenue means that the federal government needs to borrow more, so outlays for interest will be $0.4 trillion higher than previously projected. That results in an increase in total deficits of $2.0 trillion over the 2026–2036 period.

Another item that’s going to grow the deficit is Trump/GOP Tax Scam 2.0. Most of that hasn't shown up in the budget numbers yet, because the amount of income taxes withheld from paychecks has never changed. But many of the new provisions kicked in for tax year 2025, so there will likely be larger income tax refunds as people file. That’s certainly been the case so far, as the IRS says the average tax refund is up by $360 and total refunds have increased by $11.7 billion through the end of February.

This increase in refunds will likely grow to something a lot more than $11.7 billion during March, but it also likely will increase the deficit as those refunds are paid out. Too bad for Trump/GOP that the higher gas and oil prices we've already seen will offset a lot of the extra money being sent back in refunds.

"Bloomberg Economics estimates that the oil breakeven price for the OBBB Act's tax refunds is $83/barrel ... meaning oil at $83 would be enough to wipe out the average gains to households coming from refunds" (via Schwab / Gordon)

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— Nicholas Brown (@nicholasabrown.bsky.social) March 10, 2026 at 12:31 PM

Add in the increased health insurance premiums and other higher costs that people are already dealing with in 2026, and I'm not counting on the bump in economic activity that GOPs were hoping for in tax filing season. But the deficit will still go up from the higher refunds.

And oh yeah, this month's military adventures against Iran also have a cost. The Center for Strategic and International Studies estimated that the first 4 days of the war cost $3.7 billion, and 1 week later, that price tag would be at around $10 billion at the same pace. Granted, we could still pay for that without adding to the military budget, because the US Department of Defense is already getting $41 billion in additional funding for Fiscal Year 2026 from Trump/GOP’s Big Bunch of Bollocks that got signed into law in July.

But here's Wisconsin Congressman/Insurrectionist Asshole Scott Fitzgerald saying that he expects a supplemental funding bill for the war in the "near future", which would add even more to the deficit to pay for this idiocy!

So those are three items that are likely to raise our deficit well past the $1 trillion that it's already at for FY 2026, and last month's CBO estimates of a $1.85 trillion deficit when the fiscal year ends on Sept 30 already will likely need to be revised higher.

We haven't seen the massive deficits cause inflation by itself, or a major increase in interest rates because so much debt that needs to be taken up. But if you're pissing off a large amount of the world, and you lose possible buyers of debt as a result, that'll raise rates. And if you're printing money like it's going out of style, it's not going to do much to slow inflation past the 2.5%-3% range we were in before oil prices went through the roof.

Anyone who still thinks GOPs are better on the economy or on "fiscal responsibility" in 2026 is an absolute fool. And there isn't a good way out of this situation.