The US federal budget deficit surged to a record $432 billion in July, pushing the fiscal 2026 shortfall above the entire deficit recorded in fiscal 2025, as higher government spending and weaker tariff revenues put further pressure on the nation’s finances, Reuters reported.
According to the U.S. Treasury, the July deficit was 48% higher than the $291 billion recorded in the same month last year and marked the largest monthly shortfall since March 2021. It was also the third-largest monthly deficit on record, behind the pandemic-era gaps recorded in April and June 2020, Reuters said.
The latest figures mean the U.S. government has accumulated a deficit of $1.799 trillion in the first 10 months of fiscal 2026, already exceeding the $1.775 trillion deficit for the whole of fiscal 2025. The current fiscal year ends on September 30.
The Reuters report added that the July deficit was partly distorted by calendar shifts, with $99 billion in benefits normally due in August paid during July because the month began on a weekend. After adjusting for such timing effects, the July deficit stood at about $333 billion, up 18% from a year earlier.
Government spending reached a record $766 billion in July on an unadjusted basis, rising 22% from a year earlier. Receipts, meanwhile, fell 1% to $334 billion.
Tariff revenues were a major drag on receipts. The government recorded a net outflow of $8.55 billion in customs revenue during July after issuing $33.38 billion in tariff refunds. It was the third consecutive month in which tariff refunds exceeded collections.
The refunds followed the U.S. Supreme Court’s decision to invalidate broad emergency tariffs imposed by President Donald Trump last year. U.S. Customs and Border Protection has processed about $100 billion in refunds through the end of July, according to a recent court filing, Reuters said.
The Trump administration has continued pursuing tariffs through other legal mechanisms. New duties were imposed last month on major trading partners, while additional tariff measures are expected in the coming weeks.
The Congressional Budget Office has sharply reduced its estimate for customs revenue in fiscal 2026. It now expects tariff collections to be about $250 billion below its February projection, weakening a revenue stream that had been expected to make a growing contribution to the federal budget.
The deterioration in the fiscal position comes despite tariff revenue helping to narrow the deficit modestly in fiscal 2025. The $1.775 trillion shortfall recorded last year was slightly below the previous year’s level.
For the first 10 months of fiscal 2026, the unadjusted deficit was 10% higher than the $1.629 trillion recorded during the corresponding period a year earlier. After accounting for calendar shifts, the Treasury estimated the year-to-date deficit at $1.700 trillion, representing a 5% increase from the comparable period last year, Reuters reported.
With two months remaining in the fiscal year, the latest figures highlight the growing challenge facing the U.S. government as spending remains elevated and tariff-related revenue expectations weaken.
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