A budget deficit is the amount by which spending exceeds revenue during a set period. For the U.S. federal government, deficits are financed by borrowing and add to the national debt; they are not the same thing as the debt itself. This article covers the federal budget, though states, local governments and other countries use the same basic term under different rules.
What is a budget deficit?
The U.S. Treasury defines a deficit as the gap when “the money going out exceeds the money coming in for a given period.” For the federal government, that means outlays exceed revenues during a fiscal year. The deficit is a flow: it measures a period’s shortfall, rather than a total accumulated over time. Treasury’s guide to the national deficit explains the distinction.
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Deficit and debt are different
The national debt is a stock of accumulated borrowing used to finance deficits, plus associated interest owed to holders of Treasury securities. A deficit describes the shortfall during one period; debt reflects borrowing accumulated over time. The two figures answer different questions and should not be used interchangeably.
Total deficit and primary deficit
The Congressional Budget Office (CBO) defines the total federal deficit as the amount by which outlays exceed revenues. The primary deficit excludes net interest outlays; the total deficit includes them. When comparing figures, check which measure is being reported: a difference may reflect the treatment of interest rather than a different estimate of other spending or revenue. CBO’s 2026–2036 budget outlook uses these measures.
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What causes a budget deficit?
The arithmetic is straightforward: a deficit grows when outlays rise, receipts fall, or both. Economic conditions and government policy affect each side. Treasury notes that when people and businesses earn less, the government collects less revenue; spending and revenue policies also shape the gap.
- Higher outlays: New or expanded spending, or growing costs in existing programs, can increase the amount the government pays.
- Lower receipts: Weaker earnings or changes in tax policy can reduce the revenue collected.
- Interest costs: Net interest is part of the total deficit. As interest outlays rise, they add to spending even if other budget categories do not change.
In its 2026 baseline, CBO projects higher outlays over the projection period, including greater spending for Social Security and Medicare and rising net interest costs. These are components of a forecast, not proof that any one program or policy alone explains the deficit. The estimate depends on economic conditions, legislation and other assumptions.
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How the federal deficit is financed
When the federal government runs a deficit, it borrows to pay for programs, including by selling Treasury securities. That borrowing adds to the national debt and carries interest costs. Interest payments then appear in the budget as net interest outlays, which are included in the total deficit. The relationship is cumulative: borrowing finances a period’s gap, while the resulting debt and interest affect later budgets.
What the current CBO outlook projects
CBO’s 2026–2036 baseline is a projection, not the final result for fiscal year 2026. In that outlook, CBO projects a FY 2026 deficit of $1.9 trillion, equal to 5.8% of GDP. It projects the deficit at 6.7% of GDP in 2036; for comparison, the report says deficits averaged 3.8% of GDP over the past 50 years.
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CBO’s baseline projects FY 2026 outlays of $7.4 trillion and revenues of $5.6 trillion. It also projects net interest payments rising from 3.3% of GDP in 2026 to 4.6% in 2036. These are baseline estimates under the assumptions in the outlook, not guaranteed outcomes. CBO notes that timing shifts in certain payments can distort comparisons between fiscal years and presents adjusted projections to address that issue. See the 2026–2036 outlook for the estimates and assumptions.
How to compare deficit figures
Before comparing a headline number with another estimate or a policy proposal, check what each figure measures. The unit, accounting definition and forecast period can change the meaning of a comparison.
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- Dollars or share of GDP: Dollar totals show the size of the gap in money; a percentage of GDP relates it to the size of the economy.
- Total or primary: Confirm whether net interest is included.
- Actual or projected: A completed fiscal-year result is not the same as a CBO baseline forecast.
- Fiscal year and horizon: Identify the year being measured and the projection period. Different outlooks may use different horizons.
- Timing adjustments: Check whether shifted payments have been adjusted when comparing one year with another.
- Assumptions: Estimates depend on economic conditions, enacted and assumed policies, and other forecast assumptions.
What effects can persistent deficits have?
A deficit requires borrowing, which adds to debt and creates interest costs. The consequences of persistent deficits depend on the size and trajectory of debt and on economic and policy conditions; a deficit in a particular year does not, by itself, establish a particular economic outcome.
In its long-term outlook, CBO warns that mounting debt would slow economic growth, push up interest payments to foreign holders of U.S. debt, and pose significant risks to the fiscal and economic outlook. It says debt could also constrain lawmakers’ policy choices. These are risks associated with mounting debt over the long term—not a guarantee that every deficit immediately produces each effect. The assessment appears in CBO’s 2025–2055 long-term budget outlook, which uses a different projection horizon from its 2026–2036 outlook.
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Interest is a budget outlay, so higher net interest costs can widen the total deficit if revenue and other spending do not offset them. Borrowing therefore can affect future budgets as well as finance current spending. How large that effect becomes depends on the debt path and the assumptions in the relevant outlook.
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