The United States government borrowed $1 trillion in the first five months of fiscal year 2026, racking up roughly $50 billion in new debt every week from October through February, according to data released by the Congressional Budget Office on Monday.
The figures paint a stark picture of federal finances at a time when small business owners are already navigating rising costs from tariff increases, elevated interest rates, and geopolitical uncertainty stemming from the ongoing conflict with Iran.
Federal Spending Outpaced Revenue by $1 Trillion in Five Months
Total federal spending reached $3.1 trillion in the first five months of FY2026, up $64 billion (2%) from the same period a year ago. Tax revenue collected came in at nearly $2.1 trillion, a jump of $206 billion (11%) over last year. Despite the revenue gains, the government still ran a deficit just over $1 trillion.
The deficit was actually an improvement over last year. The same five-month period in FY2025 saw $142 billion more in borrowing than FY2026, a 14% decline. But the numbers still far exceed what economists consider sustainable, with the deficit-to-GDP ratio hovering between 5% and 6%, well above the recommended 3% target.
Tariff Revenue Surged 308% While Corporate Taxes Dropped
One of the most striking figures in the CBO data is the surge in customs duties. Tariff collections reached $144 billion, a 308% increase driven by $109 billion in additional revenue compared to the prior year. The jump reflects the impact of sweeping new import taxes that have drawn legal challenges from small business coalitions across the country.
Individual income taxes rose $99 billion (10%), while payroll taxes climbed $34 billion (5%). On the other side of the ledger, corporate income tax revenue fell $33 billion, a 23% decline, largely due to increased tax deductions for eligible business investments.
The CBO noted that some of the collected tariff revenue may ultimately be refunded following a Supreme Court ruling that deemed tariffs imposed under the International Economic Emergency Powers Act unconstitutional. Any refunds would reduce revenue and push the deficit higher.
Social Security, Medicare, and Interest Payments Drove Spending Higher
The largest spending increases came from mandatory programs. Social Security outlays reached $676 billion, up $48 billion (8%), boosted by cost-of-living adjustments and the Social Security Fairness Act expansion, which added approximately $7 billion. Medicare spending hit $475 billion, up $34 billion (9%), driven by higher enrollment and increased service payment rates. Medicaid spending rose to $285 billion, up $22 billion (8%).
Net interest payments on the national debt reached $433 billion in just five months, an increase of $31 billion (8%) from the same period last year. The rise was driven by a larger national debt, which now stands at $38.9 trillion, combined with elevated interest rates.
Why This Matters for the Broader Economy
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, warned that interest payments alone are expected to exceed $1 trillion for the full year and could surpass $2 trillion annually by 2036. The CBO projects the government will run a $1.9 trillion deficit for all of fiscal year 2026, with national debt on track to surpass its historical record as a share of GDP by 2030.
For business owners watching borrowing costs and consumer spending patterns, the trajectory of federal debt has direct implications. Higher government borrowing can crowd out private lending, keep interest rates elevated, and limit fiscal flexibility for programs that support entrepreneurs and small businesses. The February CPI report, released today, will provide additional data on whether inflation pressures are easing enough for the Federal Reserve to consider rate cuts at its meeting next week.
