U.S. Debt Hits $40 Trillion as Interest Costs Overtake Defense Spending

WASHINGTON — The gross national debt has reached an unprecedented $40 trillion, while the federal budget deficit climbed to $2 trillion during the first 11 months of fiscal year 2026, according to the latest monthly report from the nonpartisan Congressional Budget Office (CBO).

The CBO’s August budget update said the cumulative 11-month deficit was technically $6 billion lower than the shortfall recorded during the same period in the previous fiscal year. That comparison was affected by calendar anomalies, including shifts in the timing of certain federal payments around Labor Day in 2025. Without those adjustments, the underlying deficit for the first 11 months of fiscal year 2026 would have been $82 billion higher than during the same period last year.

Federal spending reached $147 billion, up 2% from the prior year. After adjusting for payment timing, spending rose by $235 billion, or 4%. Mandatory programs accounted for much of the increase as the baby-boom generation ages, while rising interest expenses added further pressure.

Social Security benefits increased by $78 billion, or 5%, reflecting cost-of-living adjustments and a growing number of beneficiaries. Medicare spending rose by $73 billion, or 8%, because of higher enrollment. Medicaid outlays also increased by $47 billion, or 8%, as costs per enrollee climbed.

Interest payments on the public debt rose by $111 billion, or 12%, during the first 11 months of the fiscal year. The increase was driven by the size of the debt and elevated long-term interest rates, although recent declines in short-term interest rates provided some relief to borrowing costs. The Department of Defense, by comparison, saw spending rise by 5% to $41 billion over the same period.

The Department of Veterans Affairs recorded a $41 billion, or 14%, spending increase, driven by a larger number of veterans receiving benefits and higher average costs per recipient. Department of Education spending fell by $79 billion, or 56%, largely because of a technical accounting adjustment rather than a permanent policy cut. The change followed a $53 billion reduction in the estimated future costs of outstanding student loans recorded in June 2026, compared with a $24 billion upward revision recorded in July 2025.

Overall federal tax receipts grew by 3%, or $154 billion, over the past year. Individual income tax receipts rose by $189 billion, or 8%, and payroll taxes increased by $50 billion, or 3%. Corporate income taxes moved in the opposite direction, falling by $96 billion, or 25%, after structural tax policy changes enacted under the One Big Beautiful Bill Act of 2025. Customs duties, including tariffs, rose by only $1 billion, or 1%, and remained largely flat.

The fiscal strain has fueled economic policy debates in Washington. On the business program *Kudlow*, David Bahnsen, founder and managing partner of wealth management firm The Bahnsen Group, assessed President Donald Trump’s broader economic policies. The discussion took place after the federal deficit had reached $1.8 trillion within the first 10 months of fiscal year 2026.

Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, said federal borrowing had already exceeded the total borrowed during the entirety of the last fiscal year. She expects the deficit to rise further when September’s figures close out the fiscal year.

MacGuineas said the federal government is facing a systemic breakdown in its fiscal architecture. She noted that debt held by the public now exceeds the size of the entire U.S. economy. The Social Security Old-Age and Survivors Insurance (OASI) Trust Fund and the Medicare Hospital Insurance (HI) Trust Fund are projected to face insolvency in less than a decade if Congress does not make structural adjustments.

Fiscal analysts have also warned that subsequent legislative proposals could add to the country’s red ink. President Trump’s proposed $5,000 dividend program is projected to add an estimated $1.2 trillion to the federal deficit.

Budget experts are urging lawmakers to adopt a comprehensive plan that would reduce annual deficits to 3% of GDP, approximately half of their current projected levels, to prevent long-term damage to future generations.