US fiscal deficit of $2 trillion, highest since 2021... Treasury Announcement

(New York = Yonhap News) Correspondent Kim Yeon-sook = The U.S. fiscal deficit this year is close to $2 trillion, the largest in five years.

Government expenditures increased faster than revenues, and increased interest costs on government bonds and tariff refunds contributed to the expansion of the deficit.

According to foreign media such as CNBC and Bloomberg News on the 16th (local time), the U.S. Treasury announced that the U.S. federal government's fiscal deficit for fiscal 2026 was calculated to be $1.992 trillion.

This is an increase of approximately 12% from the previous year and is the largest since 2021.

In particular, it is the third-largest annual deficit in U.S. history, following 2020 and 2021, when large-scale economic stimulus measures were implemented due to the COVID-19 pandemic.

As a result, the United States has recorded a fiscal deficit for 25 consecutive years. The last surplus was in 2001.

Both tax revenues and expenditures reached record highs.

However, while expenditures increased by 6% to $7.4 trillion, tax revenues only increased by 3% to $5.4 trillion.

One of the main factors in the expansion of the deficit is government bond interest costs.

Due to the accumulation of national debt and rising borrowing costs, interest payments reached a record high of $1.36 trillion.

Spending on Social Security ($1.67 trillion) and Medicare ($1.7 trillion), which are the largest sources of expenditure, also increased.

Tariff revenue also did not contribute to reducing the fiscal deficit as initially expected.

Treasury Secretary Scott Besant has pointed to tariff refunds as a major factor in the expansion of the deficit.

As the U.S. Supreme Court ruled that much of President Donald Trump's tariff increase measure was invalid last February, the government's tariff refund continued.

U.S. Treasury officials estimated that the fiscal deficit to gross domestic product (GDP) ratio rose from 5.8% last year to about 6.2% this year.

Concerns about fiscal soundness are growing as the fiscal deficit reaches around 6% of GDP even in times of economic recession or war.

This is also far from Minister Besant's existing goal of lowering the fiscal deficit to about 3% of GDP and raising economic growth to 3%.

The Trump administration and the Republican Party have pledged to reduce government spending.

Congress reduced the federal civil service workforce and foreign aid, and reduced the budget for Medicaid, a medical assistance system for low-income people, and the federal food assistance program.

However, at the same time, policies were also implemented to increase fiscal expenditures or reduce revenues, such as extending existing tax cuts that were scheduled to expire and expanding the budget for immigration deportation policies.

The expansion of the fiscal deficit could also be a burden for the Republican Party ahead of the midterm elections in November.

High demand for issuance of government bonds and interest costs may narrow the room for future financial operations, and rising government bond interest rates may also affect private borrowing costs, such as home mortgage loans.

Nancy Vanden Houten of Oxford Economics forecasts that the U.S. fiscal deficit will remain at a similar level next year, but pointed out that there is a risk that the deficit will widen further if the war with Iran continues.