More Revenue, More Red Ink: Washington’s Fiscal Reckoning Cannot Wait

Washington collected more money during the first nine months of fiscal 2026 than it did during the same period last year. It still ran a larger deficit.

The Congressional Budget Office’s July 9 Monthly Budget Review estimated that the federal government took in $4.151 trillion from October through June and spent $5.523 trillion. The resulting $1.373 trillion deficit was $35 billion larger than the shortfall recorded during the corresponding nine months of fiscal 2025. Receipts increased by $142 billion; outlays increased by $178 billion.

That is the current record, but it requires an important qualification. These figures are preliminary fiscal-year-to-date estimates based on Treasury data. They are not final results for fiscal 2026, which ends September 30, and CBO’s monthly report did not replace the agency’s February full-year baseline.

Still, the direction deserves attention. Individual income and payroll-tax receipts rose by a combined $169 billion, helped by higher wages and salaries. Net customs duties were $55 billion higher than in the first nine months of fiscal 2025. Corporate income-tax receipts, however, fell by $86 billion; CBO attributed part of that decline to larger deductions for certain investments under the 2025 reconciliation law.

Tariff revenue also illustrates why fiscal policy cannot be reduced to one favored talking point. Higher tariff rates increased customs collections over the nine-month period, but a February Supreme Court ruling triggered substantial refunds. CBO estimated that roughly $70 billion in refunds went out during May and June. In June, refunds exceeded gross tariff collections, producing a net customs-duty outflow for the month.

Tariffs can materially affect federal revenue. CBO’s February baseline estimated that higher tariffs would reduce projected deficits by $3 trillion over the budget window after accounting for related economic and interest effects. But tariff receipts are affected by legal rulings, administrative choices, imports, and changes in business and consumer behavior. They are neither irrelevant nor a substitute for controlling the government’s structural spending commitments.

The spending side of the July report is the harder warning. Combined outlays for Social Security, Medicare, and Medicaid increased by $169 billion, or 7 percent, over the first nine months. Net interest on the public debt reached $857 billion—up $98 billion, or 13 percent. CBO said the increase reflected a larger debt load and higher long-term rates, partly offset by lower short-term rates.

Interest buys no border security, no ship, no road, and no medical treatment. It is the price of past borrowing, and it increasingly limits the choices available to future taxpayers and elected officials.

CBO’s February baseline placed the current snapshot in longer perspective. Under laws in effect on January 14, the agency projected a $1.9 trillion deficit for all of fiscal 2026. It projected deficits totaling $23.1 trillion from 2026 through 2035, with debt held by the public rising from 101 percent of GDP this year to 120 percent in 2036. Annual net-interest costs were projected to grow from roughly $1 trillion to $2.1 trillion.

Those numbers are projections, not destiny. Congress can change laws. Economic growth can surprise in either direction. Courts and administrations can alter policy. But uncertainty is not a reason to ignore the baseline; it is a reason to build more room for error.

The conservative response should begin with honesty. Discretionary savings, anti-fraud work, faster economic growth, and stronger tariff revenue can all help. None removes the need to address the large mandatory programs and recurring primary deficits that drive borrowing over time. Nor can Congress protect every politically favored program while demanding sacrifice only from the other side.

A credible fiscal plan should set a public debt-to-GDP target, establish enforceable annual milestones, and require Congress to account for the interest costs created by new legislation. Emergency spending should be reserved for genuine emergencies. Temporary programs should expire unless lawmakers affirmatively justify their continuation. Social Security and Medicare reforms should be phased in predictably, protect people already dependent on promised benefits, and make the programs solvent for future generations.

The Government Accountability Office has recommended that Congress adopt a broad fiscal strategy with rules and targets. That is a better approach than waiting for another debt-limit crisis, when the bills have already been incurred and the available choices are needlessly dangerous.

Limited government is not measured by rhetoric. It is measured by whether government lives within durable rules, performs its legitimate duties, and leaves the next generation a country strong enough to choose its own future.

Nine months into fiscal 2026, the federal ledger is sending a clear warning. Revenue growth is welcome. Spending discipline is still missing. Washington should act before interest costs make the decisions for us.