Improvement in the US deficit will fade as 2026 unfolds
The budget deficit is set to widen in 2026, influenced by tariff policies and tax cuts, raising concerns about future revenue growth. Discover more insights.
The budget deficit is projected to widen as 2026 progresses, reversing recent improvements. The first four months of FY2026 saw a deficit reduction of $142 billion compared to the same period last year, primarily driven by increased customs duties from tariff policies.
Customs duties contributed significantly to revenue growth, accounting for nearly half of the 12% year-on-year increase. However, as the full impact of the One Big Beautiful Bill Act (OBBBA) tax cuts materialises, revenue growth may face challenges, particularly evident in income tax refunds and lower tax payments post-April 15.
The cumulative budget deficit for the initial four months of FY2026 stands at $697 billion, with calendar quirks affecting comparisons. While tariff collections may remain robust, uncertainties surrounding the USMCA renegotiation and potential Supreme Court rulings on tariffs introduce risks to the forecast.
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