After running a surplus in April thanks to an influx of income tax revenue, the U.S. government returned to the status quo and ran a big deficit in May.
The Trump administration spent $292.65 billion more than it took in as revenues dipped due to tariff refunds.
The May deficit was down about 7 percent compared to last year, but this was an illusion created by calendar effects. Last year, May benefit payments were pushed into June, lowering the month's outlays. Factoring in those calendar effects, the May 2026 deficit was 32 percent higher than last year.
With four months left in fiscal 2026, the annual deficit grew to $1.25 trillion. That’s down about 9 percent from the same period last year due to a revenue influx.
Tariff Receipts Go Negative
The influx of money into the Treasury was in large part due to tariff receipts, which have provided a nice boost to revenue over the last year; however, it looks like that gravy train may be nearing the end of the tracks. Customs receipts were negative by -42 million due to tariff refunds.
The government collected $21.93 billion in customs duties in May. That was down from a peak of $31.3 billion in October. Customs receipts have been falling modestly since that October high.
Meanwhile, Uncle Sam forked out $21.97 billion in tariff refunds after the duties were declared illegal by the Supreme Court, dropping total customs revenue into the red.
Total May receipts came in at $335.51 billion, down about 10 percent year-on-year.
Through the first eight months of fiscal 2026, government receipts totaled $3.66 trillion, up about 5 percent from last year.
Spending Hand-Over-Fist
The real problem continues to be on the spending side of the ledger.
The Trump administration blew through another $628.16 billion last month. That drove total spending for fiscal 2026 to a staggering $4.9 trillion. That was up about 1 percent from last year and set a year-to-date spending record.
A 1 percent increase in spending might not sound significant. But weren't we told there would be spending cuts?
In fact, there were some cuts in the Big Beautiful Bill (along with spending increases).
The increased spending comes despite cuts to the EPA and the Department of Education budget, along with staffing reductions that are now showing up in the data. Lower disaster spending also helped moderate spending levels through the first two months of fiscal ’26.
However, looking at the big picture, the spending trajectory is up. Even with all the hype about DOGE and some lip service to cutting spending during the early days of the Trump administration, the U.S. government spent just over $7 trillion last year. That’s an average of $583.3 billion per month or $19.2 billion per day.
And now there's a war.
It’s unclear just how much war spending has shown up in the Treasury data so far. Defense spending is up; however, that doesn’t tell the whole story. Last month, a Treasury official told Reuters that while the increase in defense spending reflected some war spending, the costs of the Iran conflict were spread across several categories, including personnel and maintenance costs, research and development operations, and procurement.
A Pentagon official recently estimated the federal government had spent $29 billion on the war as of mid-May.
Despite some non-specific talk about “spending cuts,” there seems to be little to no commitment to dealing with the runaway spending substantially.
The Big Beautiful Bill trimmed some spending but increased it in other areas. Furthermore, those “cuts” were from projected spending increases. Actual expenditures will still go up, just not as fast as originally planned. The bottom line is that even with the Big Beautiful Bill, spending will increase on an absolute basis. We’re seeing it now.
And all that waste uncovered by DOGE? Virtually none of it was removed from the budget.
This is par for the course. It’s a lot easier to talk about spending cuts than it is to actually cut spending.
You might recall that President Biden promised that the [pretend] spending cuts would save “hundreds of billions” with the debt ceiling deal (aka the [misnamed] Fiscal Responsibility Act).
That never happened.
Supporters of the Big Beautiful Bill expect economic growth stimulated by tax cuts to boost revenue and narrow the deficit. However, history casts significant doubt on this claim.
The ugly truth is the government isn't committed to cutting spending in any meaningful way, and it always finds new reasons to spend even more, whether for "crises" at home or wars overseas.
Interest Expense Chewing Up the Budget
The cost of servicing the debt continues to climb in this higher interest rate environment as the government keeps piling on new debt.
Interest expense has grown into the second-largest spending category in the federal budget behind only Social Security.
In May, the Treasury forked out $132.62 billion on interest payments alone. That was up 18.8 percent from the prior month and set a new monthly record.
May interest payments pushed total interest expense to $866.82 billion through the first eight months of fiscal 2026. That was up 11.7 percent compared to the same period in fiscal ’25.
Interest on the national debt cost $1.2 trillion in fiscal 2025. That was up 7.3 percent over 2024.
Net interest (interest expense – interest receipts) was $107 billion in May.
Through the first eight months of the fiscal year, the federal government spent more on interest on the debt than it did on national defense ($631 billion) or Medicare ($677 billion). The only higher spending category is Social Security ($1.1 trillion).
Much of the debt currently on the books was financed at very low rates before the Federal Reserve started its hiking cycle. Every month, some of that super-low-yielding paper matures and must be replaced by bonds yielding much higher rates.
The average interest rate on U.S. debt increased to 3.35 percent in May, up modestly from 3.29 percent in May of 2025.
When people say the spending is unsustainable, it feels like an understatement. In fact, it’s fair to call the federal government insolvent.
However, very few people in the political class seem the least bit interested in tackling the problem. The bad news is that at some point, the problem is going to tackle them.
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