Enormous budget deficits are becoming the new normal

By the Editorial Team · Sunday, October 18, 2026

The U.S. government closed fiscal year 2026 with a nearly $2 trillion deficit, the largest outside the pandemic era, driven by rising entitlement, defense, and interest spending despite increased revenues. Experts warn this unsustainable debt growth threatens economic stability and urge Congress to reform key programs like Social Security, Medicare, and Medicaid to prevent a fiscal crisis.

The U.S. federal government ended fiscal year 2026 with a deficit approaching $2 trillion, according to data released by the Congressional Budget Office on October 8. This deficit level is the largest outside of the pandemic years 2020 and 2021, occurring despite the absence of a recession or emergency conditions. Analysts note that such substantial deficits may now be considered the new normal for the U.S. budget.

Federal revenues increased by 3% to over $5.4 trillion, buoyed by strong private sector performance. However, government spending grew more sharply, rising 6% to a total of $7.4 trillion, widening the gap. Some attribute part of the reduced revenue to a Supreme Court ruling that struck down many of the tariffs imposed under former President Donald Trump, requiring the government to issue refunds. Nevertheless, even if the $130 billion in previously imposed tariffs had been retained, it would have covered only a fraction of the deficit.

Spending on Social Security, Medicare, and Medicaid—the three primary entitlement programs—rose by 7%, outpacing overall expenditure growth. Defense spending increased by 5%, while interest payments on the national debt climbed 11%, surpassing $1.1 trillion. These interest costs represent the accumulated burden of borrowing from prior years, highlighting concerns over long-term fiscal responsibility.

Comparisons have been drawn to France, a country cited by some proponents of expansive government spending. France’s debt has reached 120% of its GDP, and its rising interest payments accompany slow economic growth and social unrest. While the U.S. benefits from a highly innovative private sector and stronger economic growth, similar fiscal challenges may arise, as U.S. debt is also projected to reach roughly 120% of GDP within a few years. Moreover, growing interest payments place increasing pressure on resources.

Fiscal experts suggest that rising government debt affects the broader economy by pushing up interest rates, thereby hampering economic growth and wage increases. They urge Congress to adopt measures that strengthen fiscal sustainability. Proposed reforms focus on entitlement programs as major drivers of the federal deficit.

For Social Security, the current framework anticipates a roughly 20% reduction in benefits once the program’s trust fund is depleted in the early 2030s. While lawmakers are expected to avoid such cuts, relying instead on additional borrowing is considered unsustainable. Suggested reforms include indexing the retirement age to life expectancy, revising cost-of-living adjustments to use more accurate inflation measures, and transitioning toward a flat, universal benefit model that safeguards lower-income retirees while limiting benefits for wealthier individuals.

Medicare faces challenges as well, with over 40% funded through general revenues rather than payroll taxes. Policy proposals include shifting to a premium support model that would offer beneficiaries fixed contributions to purchase traditional Medicare or private plans, raising the eligibility age to 67, and reducing subsidies for higher-income seniors.

Regarding Medicaid, cost control remains a key issue. Federal funding currently covers 90% of the cost for states’ expanded Medicaid programs for adults, offering limited incentives for efficiency. Implementing risk-adjusted per capita caps to provide states with a fixed amount per enrollee could encourage fiscal discipline and innovation at the state level. Similar reasoning supports devolving more welfare programs, such as the federal portion of SNAP, to states, which must balance their budgets.

While these reforms present challenges and political difficulties, experts caution that failure to act could lead to greater economic hardship. The United States faces a choice between enduring ongoing inflationary pressures driven by unchecked debt or confronting a more abrupt fiscal crisis if investor confidence in government borrowing were to deteriorate.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.