Tax Hot Topics
The federal deficit reached approximately $2 trillion for the third time ever in fiscal 2026, according to data from the Treasury Department and Congressional Budget Office.
The annual deficit was $1.97 trillion from Oct. 1, 2025, to Sept. 30, 2026, the federal fiscal year, according to Treasury. Only deficits in federal fiscal years 2020 and 2021, when emergency relief related to COVID-19 exploded the government’s budget, were higher. This year’s deficit was 11% higher than last year’s. The federal deficit has exceeded $1 trillion in each fiscal year since 2020. Revenues rose 3%, or $169 billion, according to the Congressional Budget Office’s end-of-fiscal-year report (PDF - 0.75KB), while spending outlays increased by $386 billion, about double the rate of revenue growth.
Federal revenues from personal income taxes and payroll taxes increased by $255 billion, while taxes collected from corporate income taxes (-$70 billion) and customs duties (-$22 billion) fell. Despite the decrease in customs duties and tariff collections, revenue collected from those sources remains at exceptionally high levels compared with the last several decades. According to Customs and Border Protection agency data, total duty, taxes and fees collected rose approximately 71% from fiscal 2024 to fiscal 2026, to $307 billion.
Grant Thornton Insight:
The marked increase in federal deficits since fiscal 2020, culminating in this year’s highest deficit outside of the public health and economic emergency of COVID-19, comes with the backdrop of an unusually volatile U.S. Treasury bond market over the last several months. While spending cuts and tax increases are generally unpopular, fiscal reality may force Washington to change course if bond yields continue to rise, putting downward pressure on the economy while raising borrowing costs.
Contacts:
Content disclaimer
This content provides information and comments on current issues and developments from Grant Thornton Advisors LLC and Grant Thornton LLP. It is not a comprehensive analysis of the subject matter covered. It is not, and should not be construed as, accounting, legal, tax, or professional advice provided by Grant Thornton Advisors LLC and Grant Thornton LLP. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this content.
For additional information on topics covered in this content, contact a Grant Thornton professional.
Grant Thornton LLP and Grant Thornton Advisors LLC (and their respective subsidiary entities) practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable law, regulations and professional standards. Grant Thornton LLP is a licensed independent CPA firm that provides attest services to its clients, and Grant Thornton Advisors LLC and its subsidiary entities provide tax and business consulting services to their clients. Grant Thornton Advisors LLC and its subsidiary entities are not licensed CPA firms.
Tax professional standards statement
This content supports Grant Thornton Advisors LLC’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. It is not, and should not be construed as, accounting, legal, tax, or professional advice provided by Grant Thornton Advisors LLC. If you are interested in the topics presented herein, we encourage you to contact a Grant Thornton Advisors LLC tax professional. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein.
The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal, tax, or professional advice provided by Grant Thornton Advisors LLC. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact a Grant Thornton Advisors LLC tax professional prior to taking any action based upon this information.
Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton Advisors LLC assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.
Grant Thornton Advisors LLC and its subsidiary entities are not licensed CPA firms.
Trending topics
Share with your network
Share