The US Paid $1.36 Trillion Just to Carry Its Debt

The United States closed the fiscal 2026 budget deficit at $1.992 trillion when the Treasury issued its September figures on Oct. 16. Receipts were a record $5.40 trillion. Outlays were a record $7.40 trillion. The gap is the largest since the pandemic years of 2020 and 2021, and it is $217 billion wider than fiscal 2025.

The line that will not reverse on a vote is the coupon. Gross interest expense hit $1.360 trillion, and more than a fifth of marketable debt now sits in bills that reprice as soon as the Federal Reserve moves.

Treasury Closes the Year $1.992 Trillion Short

The September Monthly Treasury Statement is the scoreboard for the year that ended Sept. 30, the first full budget year of President Donald Trump’s second term. Collections rose $169 billion, or 3 percent, from $5.24 trillion. Spending rose $386 billion, or 6 percent, from $7.01 trillion. Spending grew about twice as fast as revenue, which is how a record tax take still left a $1.992 trillion hole.

A Treasury official put the deficit at 6.2 percent of gross domestic product, against 5.8 percent in fiscal 2025. Treasury Secretary Scott Bessent has said he wants that ratio down to 3 percent. The close leaves the books more than twice that target, in a year with no recession on the ledger.

FY2025 VS FY2026 TOTALS

September itself ran a $27 billion deficit on $558 billion of receipts and $585 billion of outlays, against a $198 billion surplus a year earlier. Individual income taxes brought in $298 billion, more than half of the month, and social insurance and retirement receipts added $149 billion. Calendar quirks between the two Septembers exaggerate the swing. The Peter G. Peterson Foundation notes that, after holiday and weekend payment shifts, the September gap would have been $137 billion larger than the year before, and that a $119 billion student-loan accounting drop in September 2025 did much of the work on last year’s surplus.

For the full year, individual income taxes rose $189 billion and payroll taxes rose $64 billion. Corporate income tax collections fell $71 billion, a hit Bessent’s team ties to the 2025 tax law even as other receipts made new highs.

The $1.36 Trillion Coupon Congress Does Not Vote On

Treasury’s year-end ledger for interest expense on the public debt shows $1.360 trillion for the twelve months through Sept. 30, up $140.4 billion, or 11.5 percent, from $1.220 trillion. That is the first year above $1.3 trillion and the third straight year above $1.1 trillion. In two years the annual interest bill has grown $227 billion.

The Peterson Foundation’s read of the same close is that net interest, the budget line after the government nets what it pays against what it earns, produced the country’s first $1 trillion net interest bill, rising $115 billion. Gross and net are different quantities. Gross counts every dollar credited, including paper the government owes its own trust funds. Net is what competes with other outlays in the deficit.

Debt-service is now the budget category behind only Social Security and the combined Medicare and Medicaid accounts. Social Security outlays rose $86 billion to $1.67 trillion. Medicare rose $76 billion to $1.07 trillion. Defense spending rose $48 billion. Interest still climbed faster than any of those in dollar terms on the gross ledger.

WHERE THE $1.360 TRILLION WENT

• Notes: $507.7 billion, up $73.9 billion from $433.8 billion, the largest single component.
• Bills: $254.1 billion, down $17.6 billion, the only major line that fell.
• Bonds: $179.8 billion, up $21.0 billion as long coupons rolled off the 2020-era lows.
• Trust-fund credits: $291.9 billion in government account series holdings inside Social Security, Medicare, and federal retirement funds.
• Public holders: $1.068 trillion owed on securities held outside the government, the cash that must be taxed or borrowed.

Notes did the damage because paper sold in 2019 through 2021 at coupons near 1 percent is maturing and being replaced at auction yields above 4.9 percent. Bills track the front of the curve, which drifted lower for most of the fiscal year while the Fed held, which is why that line fell even as the stock of bills grew. The average rate on all interest-bearing debt was 3.531 percent on Sept. 30. Recent coupon auctions have cleared between about 4.93 percent and 5.62 percent, so the blended rate still has room to rise as old paper rolls.

More Than a Fifth of Marketable Debt Is Now Bills

The Monthly Statement of the Public Debt for Sept. 30 puts Treasury bills at $7.118 trillion, or 22.36 percent of $31.835 trillion in marketable securities. A year earlier the share was 21.53 percent. Bills grew $721.1 billion over the year, about a third of the new marketable borrowing. The only recent fiscal year-end with a higher bill share was 2020, when emergency sales pushed the ratio to 24.68 percent of a smaller pile.

About a third of marketable debt matures within twelve months. Floating-rate notes add another $708 billion that resets against bill results. Together that is roughly $7.8 trillion that will reprice inside a year. Bill yields already sit near the federal funds target. After the September increase, that target is 3.75 percent to 4 percent, and Chair Kevin Warsh’s committee meets again on Oct. 27 and 28.

Each tenth of a percentage point on a $40 trillion-plus debt stock is worth about $40 billion a year. Gross public debt is above $40.3 trillion. Debt held by the public finished the fiscal year at $32.2 trillion, up from $30.2 trillion. The interest bill can climb in a year when Congress does not raise a single benefit, because the rollover does the raising.

DOGE Folded and the Court Sent Refunds

Two advertised repairs were supposed to lean against this arithmetic. Neither is on the books in any form that shows up in the $1.992 trillion close.

The Department of Government Efficiency was created by executive order on Inauguration Day 2025 with a charter through July 2026. Elon Musk left in May 2025. By November, Office of Personnel Management Director Scott Kupor was telling questioners the project was over.

That doesn’t exist.

Scott Kupor, Director, Office of Personnel Management

Kupor said it was no longer a centralized entity. Functions moved into OPM and other agencies. DOGE’s own site had claimed about $214 billion in savings, a figure outside reviewers have called overstated. Against a $7.40 trillion spending year, even the claimed total is a rounding error. Outlays still rose $386 billion.

THE YEAR THE FIXES FELL OFF

1. January 20, 2025: Trump signs the order that stands up DOGE and sets a July 2026 end date.
2. May 2025: Musk exits after a public break with the White House, and the cut drive slows.
3. November 2025: Kupor says DOGE no longer exists as a central shop, eight months before the charter lapses.
4. February 20, 2026: The Supreme Court rules 6-3 in Learning Resources that IEEPA does not authorize tariffs.
5. April 20, 2026: Customs opens the first phase of an administrative refund portal for those duties.
6. September 2026: The Fed raises the funds rate to a 3.75 percent to 4 percent range, a unanimous vote.
7. October 16, 2026: Treasury posts the fiscal 2026 close, with $145 billion of tariff refunds inside the year.

Bessent has pointed at those refunds as a reason the deficit widened. Net tariff receipts fell $22 billion after about $145 billion went back out. Customs duties in September alone were down $24 billion from a year earlier. The Court did not design the refund machinery. An IEEPA tariff refund process for importers now runs through Customs’ CAPE portal, and the legal fight has shifted from whether the duties were lawful to who gets paid, how fast, and on what paperwork. Sectoral tariffs under other statutes were not struck. The IEEPA stack that had been sold as a revenue offset was.

Washington still talks about household thrift as if the federal ledger followed the same rule. It does not. The year that was supposed to prove the cuts and the tariffs could close the gap instead sent money back to importers and left the coupon larger than it started.

Who Collects the Interest Washington Pays

A $1.360 trillion interest bill is a transfer, not a fire. Someone cashes it.

Holders of publicly traded Treasuries received $1.068 trillion. That group is domestic funds, banks, insurers, households, the Federal Reserve, and foreign official accounts. The other $291.9 billion is an internal credit to trust funds that already hold government paper, which is why Social Security’s interest income and the general fund’s interest cost can rise together. The trust-fund credit does not require a new auction. The $1.068 trillion does.

Note holders took the raise because that is where the low-coupon pandemic debt is rolling. Bill holders took a slightly smaller check even as the supply of bills grew, because short yields eased for most of the year. That pattern flips the moment Warsh’s board lifts the front end again, because 22.36 percent of the marketable stock is already inside the one-year window.

The people who do not collect are the programs that now share a budget with a coupon they cannot amend. Interest does not come up for reauthorization. It clears because the securities clear. That is the quiet crowding-out, and it is already visible in the ranking: Social Security, health programs, then the debt service, with defense further down the list even after a $48 billion increase.

Only the Pandemic Years Still Rank Higher

Fiscal 2026 is the third-largest annual deficit on record, behind the Covid years. The Congressional Budget Office’s historical table puts fiscal 2020 at $3.13 trillion and fiscal 2021 at $2.77 trillion. The OMB federal surplus or deficit series shows those same crisis peaks, then a run of shortfalls that never returned to the pre-2020 scale. Fiscal 2025 closed at $1.775 trillion. Fiscal 2026 is worse than that, and still smaller than the two pandemic prints.

That ranking is the part the collapse writeups skip. A $1.992 trillion gap in a growing economy with low unemployment is a peacetime problem of a size the United States used to reserve for wars and crashes. It is also not a new high. What is a new high is the coupon, and the share of the debt that will reprice before the next fiscal year is out.

Gross debt is already above $40.3 trillion. Publicly held debt finished the year at $32.2 trillion. The October meetings will argue over a quarter point. The bills will roll either way. Fiscal 2027 starts with a blended rate still below the coupons Treasury is now paying to replace them, which is how a closed year of $1.360 trillion in interest can be the floor rather than the peak.