Budget deficit hits $1 trillion in first five months of fiscal year: CBO

• Customs duties surged $109 billion (308%) to $144 billion due to higher tariff rates, though collections may face refunds after a court ruled Trump administration tariffs unconstitutional
• Social Security spending increased $48 billion (8%) to $676 billion, driven by cost-of-living adjustments and the Social Security Fairness Act's benefit expansion
• Net interest costs on the national debt jumped $31 billion (8%) to $433 billion, reflecting larger debt levels and higher interest rates

Summary

The Congressional Budget Office (CBO) reports that the U.S. federal budget deficit reached $1 trillion during the first five months of fiscal year 2026 (October-February), representing a 14% decrease ($142 billion) compared to the same period in fiscal 2025.

Key Financial Data:

• Federal spending: $3.1 trillion (up 2% or $64 billion year-over-year)
• Tax revenue: $2.1 trillion (up 11% or $206 billion year-over-year)
• Individual income tax collections: increased $99 billion (10%)
• Payroll taxes: rose $34 billion (5%)
• Customs duties/tariffs: $144 billion (up 308% or $109 billion), driven by higher tariff rates

Notable Spending Increases:

• Social Security: $676 billion (up 8%), driven by cost-of-living adjustments and the Social Security Fairness Act
• Medicare: $475 billion (up 9%)
• Medicaid: $285 billion (up 8%)
• Net interest on national debt: $433 billion (up 8%), reflecting larger debt and higher interest rates
• Defense Department: increased 4%

Spending Decreases:

• EPA: down 74% ($20 billion) due to previous year's clean energy grants
• Department of Homeland Security: declined 23% ($12 billion)
• Corporate tax collections: down 23% ($33 billion) due to 2025 reconciliation bill provisions

Market Implications:

The deficit improvement was primarily revenue-driven, though potential tariff refunds following a Supreme Court ruling declaring certain Trump administration tariffs unconstitutional could increase the deficit. Legal challenges to replacement tariffs may further impact collections and fiscal projections.