U.S. deficit tops $1 trillion through February but runs below year-ago pace

• Customs duties totaled $151 billion through the first five months, up $113 billion or 294% year-over-year, exceeding corporate tax receipts for an unusual fiscal shift
• Corporate tax revenue fell $27 billion or 17% compared to the prior year period
• Net interest payments on the nearly $39 trillion national debt reached $79 billion in February alone, exceeding all spending categories except Social Security, income security, and health care

Summary: U.S. Budget Deficit Through February 2026

Key Figures

The U.S. budget deficit reached $1.004 trillion through the first five months of fiscal year 2026 (October-February), representing a 12% decline compared to the same period in 2025. February's monthly deficit totaled $308 billion, consistent with the prior year.

Primary Drivers

Tariff Revenue Surge: Customs duties experienced dramatic growth, reaching $151 billion—a 294% increase ($113 billion) year-over-year. Notably, tariff revenues have exceeded corporate tax receipts for the fiscal year, marking an unusual reversal in federal revenue composition.

Corporate Tax Decline: Corporate tax revenue dropped significantly, falling $27 billion (17%) compared to the previous year.

Interest Expense Burden: Net interest payments on the $39 trillion national debt totaled $79 billion in February alone, ranking as the fourth-largest expenditure category behind only Social Security, income security programs, and healthcare.

Market Implications

The deficit improvement stems from government revenues rising faster than spending, driven primarily by aggressive tariff policies under President Trump. However, recent court rulings striking down many tariffs have not yet impacted the data, potentially due to processing lags, pre-ruling import surges, or ongoing legal uncertainties regarding refunds on collected duties.

The elevated interest burden reflects the impact of higher rates on federal finances, creating long-term fiscal sustainability concerns. The shift from corporate tax revenue to tariff-dependent receipts represents a significant change in federal funding structure with potential implications for trade policy, business competitiveness, and international relations.

Economists continue monitoring whether tariff collections will sustain current levels given legal challenges and policy uncertainties.