Source Credit : Portfolio Prints
The U.S. federal budget deficit surged to a record $432 billion in July, driven by higher government spending and a sharp reversal in tariff-related revenues, according to the U.S. Treasury.
The July deficit was $141 billion, or 48%, higher than a year earlier, making it the largest monthly shortfall since March 2021, when the deficit reached $660 billion amid heavy COVID-19 relief spending. Only two other months have recorded larger deficits: June 2020, at $864 billion, and April 2020, at $738 billion, when the pandemic severely disrupted economic activity and tax collections.
July's deficit also pushed the 2026 fiscal-year-to-date shortfall to $1.799 trillion, already exceeding the entire $1.775 trillion deficit recorded in fiscal 2025, with two months remaining before the fiscal year ends on September 30.
Treasury data showed that federal outlays reached a record $766 billion in July, up $137 billion, or 22%, from the same month last year.
However, the figure was significantly affected by calendar timing. Because August 2026 benefit payments fell on a weekend, approximately $99 billion in payments were made in July instead.
After adjusting for this and other calendar effects, the July deficit was estimated at $333 billion, still $50 billion, or 18%, higher than the adjusted deficit a year earlier.
Federal receipts totaled $334 billion in July, down $4 billion, or 1%, from a year earlier. A major factor was the reversal in tariff collections.
The government recorded negative net customs receipts of $8.55 billion for the month after issuing $33.38 billion in tariff refunds. July marked the third consecutive month in which tariff-related payments resulted in a net outflow.
The refunds followed the U.S. Supreme Court's decision to strike down broad emergency tariffs imposed by President Donald Trump last year. Although July's refunds were lower than the $49.2 billion issued in June, they continued to weigh heavily on federal revenues.
U.S. Customs and Border Protection said in a recent court filing that it had processed approximately $100 billion in tariff refunds through the end of July. The agency had previously estimated that roughly $166 billion had been collected under the duties that were subsequently invalidated.
Despite the court ruling, the Trump administration has continued efforts to rebuild tariff collections through alternative legal mechanisms.
Last month, the administration imposed tariffs of 10% or 12.5% on 60 major trading partners, covering more than 99% of U.S. imports, citing concerns including enforcement of forced-labor restrictions. Additional tariff measures are expected in the coming weeks.
The Congressional Budget Office, however, now expects customs duties to generate roughly $250 billion less during the current fiscal year than it projected in February. That reduction could weaken tariffs as a source of federal revenue at a time when the government is facing a widening structural deficit.
Tariff revenue had helped the U.S. government achieve a modest reduction in the fiscal 2025 deficit, which fell to $1.775 trillion.
That improvement has quickly been overtaken in fiscal 2026. Through the first 10 months of the current fiscal year, the federal government has accumulated an unadjusted deficit of $1.799 trillion, surpassing the entire previous year's shortfall.
The year-to-date deficit is $170 billion, or 10%, higher than the $1.629 trillion recorded during the same period of fiscal 2025.
After accounting for calendar shifts and other timing effects, the Treasury estimates that the fiscal-year-to-date deficit would have been approximately $1.700 trillion, representing a $79 billion, or 5%, increase from the comparable period last year.
With two months still remaining in the fiscal year, the latest figures highlight the growing pressure on U.S. government finances as spending continues to rise while tariff revenues have become increasingly uncertain.
