US Budget Deficit Rises to Third Highest in History

Happy Friday! We hope you had a better day than Katie Zacharia, who was ousted as White House press secretary just one week after President Trump announced her hiring. It wasn't a very happy day for budget watchers, either, as the Treasury confirmed that the fiscal 2026 deficit rose to almost $2 trillion. Here's what you should know heading into the weekend.

US Budget Deficit Rises to Third Highest in History

The federal budget deficit for fiscal 2026 totaled nearly $2 trillion, the Treasury Department reported Friday. The fiscal year runs from October through September, and fiscal year 2026 ended two weeks ago on September 30.

The $1.99 trillion 2026 deficit is the third-largest in U.S. history, trailing only the pandemic years of 2020 and 2021. The U.S. has now recorded an annual budget deficit for 25 years in a row.

The deficit is about 12% larger than the deficit recorded in fiscal year 2025. Receipts in 2026 totaled $5.4 trillion, up 3% from the year before, with the majority of revenues coming from individual income taxes ($2.8 trillion) and payroll taxes ($1.8 trillion). Outlays were 6% higher at nearly $7.4 trillion, with the largest spending categories being Social Security ($1.7 trillion), Medicare ($1.1 trillion), net interest on the debt ($1.1 trillion), health ($1 trillion) and defense ($965 billion).

The latest deficit tally comes just weeks after the national debt crossed the $40 trillion mark. The sheer size of the debt, combined with rising interest rates amid persistent inflation, has sharply raised the Treasury's cost of making interest payments, which are now the third-largest category of outlays in the federal budget. The big jump in deficits and debt comes at an unusual time, in the absence of severe external strains such as a pandemic or recession, and while the economy is growing at a decent clip.

Budget watchdogs said the latest deficit numbers are a reminder that the country needs to change its fiscal course. "America's fiscal health is failing, and we need to take action to address it," said Maya MacGuineas of the Committee for a Responsible Federal Budget, which advocates for deficit reduction.

MacGuineas said lawmakers need to come up with a realistic plan to change course, rather than calling for impractical goals like balancing the budget or paying off the debt. "Fiscal discipline requires finding something both achievable and aggressive, and bringing deficits down to 3% of GDP - half their current level - fits that bill and would stabilize debt as a share of the economy," she said in a statement. "Tough choices will be needed to get there, and we're running out of time to make them."

Katie Zacharia Fired as White House Press Secretary After Five Days

President Trump today pushed aside Katie Zacharia, his new White House press secretary after just five days on the job. Zacharia had a rough week, including a widely panned 14-minute introductory press conference on Tuesday and days of questions about her background and claims to be a lawyer. That scrutiny was capped by a pair of rocky interviews with Fox News last night and this morning.

Before he departed Friday for a campaign event in Georgia, Trump told reporters that he had told Zacharia that she should "reconsider" her role, though he blamed a "nasty" news media for the scrutiny and struggles she faced. Multiple news reports quickly confirmed that Zacharia had been fired.

"Records are made to be broken," Anthony Scaramucci, who famously served as the White House communications director for 11 days in Trump's first term, wrote on social media. "But I take no pleasure in other people's pain."

Scaramucci's name ended up being used jokingly as a unit of time marking short political tenures, and Zacharia's Tuesday appearance at Tuesday's White House news briefing quickly sparked speculation about how many Scaramuccis she might last in her new job. In the end, she only made it about half a Scaramucci. It remains to be seen whether a "Zacharia" sticks around longer as a new unit of time.

Republicans' 2025 Tax Cuts Aren't Providing a Big Campaign Boost: Poll

With less than three weeks to go before Election Day, it's become abundantly clear that Republicans aren't getting the campaign boost they had hoped for from the major legislative success of President Trump's second term, the 2025 One Big Beautiful Bill Act.

As Politico's Bernie Becker reports, the GOP's attempted rebranding of the bill as the "Working Families Tax Cuts" may improve perceptions of the legislation but it hasn't helped sway the public all that much given voters' limited awareness of the new law. AT the same time, while Politico polling finds that 70% of Americans say taxes are an important issue, just 9% call it the most important issue in this election, compared to 12% who say taxes aren't that important or don't matter at all.

The poll also found that 31% of respondents weren't sure what the "Working Families Tax Cuts" are, 31% had not heard of them and 18% did not know. Fewer than one in 10 name the tax cuts as among the biggest successes of Trump's second term, Becker writes. "It's not, the results make clear, the tax cut election that Republicans wanted."

After pollsters explained what was in the GOP law, including tax cuts, reduced funding for Medicaid and food assistance and more money for defense and immigration enforcement, 35% of respondents said they support the legislation strongly or somewhat - and the same percentage said they oppose it strongly or somewhat.

The poll also found that 38% of Americans still associate the Democratic Party with "cutting taxes for working Americans," compared with 32% who say the same of the Republican Party. And when asked what tax policies they want midterm candidates to support, 35% of those polled pointed to raising taxes on billionaires and 26% said ending tax breaks for large corporations, compared to 22% who said cutting taxes on tips and overtime pay.

Nearly 40% of those polled said that they would be more likely to support a candidate who said they want to repeal the Republican tax law, while just 20% said it would make them less likely to back the candidate.

Read more at Politico.

Fiscal News Roundup

• US Budget Deficit Nears $2 Trillion, a Reality Check for Trump's Cost Cutting – New York Times
• The GOP's Hopes of a Tax Cut Election Are Falling Flat, Poll Shows – Politico
• Republicans Turn on Donald Trump's Tariffs in Battle for 'Political Survival' – Financial Times
• House Democrat Introduces Bipartisan Bill to Block Trump's Russian Diesel Deal – Politico
• Warsh Vows to Tame Inflation as AI Delivers 'Shock' to Economy – New York Times
• Trump Increased Investments in Drugmakers That Benefited From Medicare Exemptions, Democrats Say – Associated Press
• Megadonors Are Powering Republicans' Spending Advantage – Politico
• Power Struggle Erupts in Trump's White House as Midterm Losses Loom – Washington Post
• US Steel Prices Climb to Four-Year High as Trump's Tariffs Bite – Bloomberg
• Brent Oil Tops $110 for First Time Since May as Risks Swirl – Bloomberg
• White House Preservation Group Took $2.5M From Man Who Wanted to Demolish East Wing – Washington Post
• Nevada Takes Back $52 Million for Rural Broadband Amid Fears of Missed Spending Deadline – Associated Press
• After Booting 760K People From ACA Plans, Trump Administration Has Added Some Back – KFF Health News
• Katie Zacharia Out as Press Secretary After Five Days – Politico

Views and Analysis

• The White House Won't Even Try to Explain Trump's Fictional Inflation Numbers – Daniel Dale, CNN
• Trump Hasn't Lowered Drug Prices for These Voters – Rebecca Robbins, New York Times
• Voters Say It Is Their Top Concern. Why Aren't Politicians Acting on It? – Matthew Yglesias, New York Times
• Trump Has Failed to Listen to Voters on Inflation – Michael Strain, Financial Times
• A Perfect Economic Storm – Robert Kuttner, American Prospect
• When Will the Fed Move on Rates? – Andrew Ross Sorkin, New York Times
• Trump's Defense Dreams Are on Life Support – Leo Shane III, Mark Satter and Connor O'Brien, Politico
• North Carolina and Georgia Senate Races Look Lost for the GOP. Why Trump Is Going Anyway – Alex Gangitano, Megan Messerly and Erin Doherty, Politico
• Trump Wants the Midterms to Be All About Himself. Judging by the Ads, Democrats Are Happy to Oblige – Jill Colvin and Aaron Kessler, Associated Press
• Who Could Lead the House GOP Next Congress – Mariana Alfaro, Washington Post
• The Hidden Divide That Makes Life So Much Less Affordable for Some Americans – Julie Z. Weil, Washington Post
• Washington State's 'Millionaire' Tax Trick – Wall Street Journal Editorial Board
• The Pentagon Buyout King – Zachary Groz, American Prospect