Tariff refunds and record spending drove US budget deficit to a 5-year high

The US federal budget deficit in July 2026 grew to $432.3 billion – up 48% compared to the same month last year. This is the largest monthly deficit since March 2021, when government spending surged due to pandemic support programs.

US budget revenues in July fell by 1% – to $334 billion. Meanwhile, spending increased by roughly 22% and reached $766.3 billion.

Part of July’s spending increase is due to the calendar. Since August 1 fell on a weekend, some social, medical, and veterans’ benefits were paid ahead at the end of July. Without the timing shift, the monthly deficit would have been around $333 billion.

For the first ten months of fiscal year 2026, which began on October 1 in the US, the budget deficit reached $1.799 trillion. That is 10% more than the same period a year earlier, already exceeding the deficit for all of fiscal 2025, which was $1.775 trillion. Two months remain before the end of the current fiscal year.

Revenues were affected by refunds of tariffs introduced by Donald Trump’s administration. In July, the government collected $24.84 billion in tariff payments, but refunded $33.38 billion to importers. As a result, net tariff revenues were negative and amounted to minus $8.55 billion.

The refunds are related to a US Supreme Court ruling which found that the presidential administration could not impose broad emergency tariffs under the International Emergency Economic Powers Act. The White House then began setting new tariffs under different legal bases.

Despite the refunds, over ten months of the fiscal year, net tariff revenues totaled $154.5 billion – 13% more than a year earlier. However, the Congressional Budget Office expects full-year tariff revenues to be about $250 billion below its February forecast.

The Congressional Budget Office raised its full-year 2026 deficit forecast from $1.9 trillion to $2.1 trillion. Among the main reasons for higher spending: higher debt service costs, larger payments for Social Security, Medicare and Medicaid, and higher defense outlays.

Source: US Department of the Treasury, Congressional Budget Office, Barron's