US Government runs another big deficit in June as interest expense climbs

Tariff refunds and a jump in spending driven by higher interest expense drove yet another big budget deficit in June.

Last month, the Trump administration spent $120.3 billion more than it took in. That was a 545 percent increase over the June 2025 deficit (a $27 billion surplus).

The June budget shortfall drove the fiscal 2026 deficit to $1.37 trillion with three months left to go. That is almost the same deficit reported at this point in fiscal 2025.

The headlines blamed the June deficit on a sharp decrease in tariff revenue. The federal government collected $23.6 billion in tariffs but paid out $49.2 billion in refunds. Net tariff income was -$25.6 billion. Last month, the government repaid $21.9 billion in tariffs after the Supreme Court ruled Trump's unilateral tariffs unconstitutional.

With the drop in tariff revenue, total federal receipts fell 6 percent year-on-year to $496 billion in June.

However, even with the recent drop-off, federal revenue is still up 4 percent through the first 9 months of fiscal 2026, coming in at $4.15 trillion.

The real problem is on the spending side of the ledger. 

The Trump administration blew through $616.07 billion last month. That was a 23 percent increase from June 2025 spending. However, the last day of June fell on a weekend last year, meaning some of June’s spending was pushed back into May. When adjusting for calendar effects, spending was up about 3.3 percent compared to last year.

 So far in fiscal 2026, Uncle Sam has spent $5.52 trillion. That’s a 3 percent increase compared to the same period last year.

A 3 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.

Despite some non-specific talk about “spending cuts,” there seems to be little to no commitment to dealing with the runaway spending substantially. In fact, the powers-that-be constantly find new reasons to spend money, whether it is a crisis at home or a war overseas.

The cost of the debt

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 June, the Treasury forked out $185.2 billion on interest payments alone. That was up nearly 40 percent from the prior month and set a second straight monthly record.

June interest payments pushed total interest expense to $1.05 trillion through the first nine months of fiscal 2026. That was up 14.23 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 $104 billion in June.

Through the first nine months of the fiscal year, the federal government spent more on interest on the debt than it did on national defense ($713 billion) or Medicare ($780 billion). The only higher spending category is Social Security ($1.2 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.

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.