U.S. Fiscal Outlook Improves, Debt Risks Persist

We’re just over three-quarters of the way through the U.S. government’s 2026 fiscal year. At this point, it will probably not come as a surprise to learn Uncle Sam is still spending way too much. But what may be a surprise is that the federal government’s fiscal situation has improved.

To see what I mean, the chart below shows the U.S. government’s cumulative spending month by month for each fiscal year from 2023 through the current fiscal year-to-date. It shows that the rate of spending growth has slowed, while the rate of revenue growth has sped up.

Starting with spending, there has been very little difference between the amount of spending in FY 2025 and FY 2026. That’s very different from what happened from FY 2023 to FY 2024 to FY 2025. Spending surged in each of these years, reflecting a lack of fiscal discipline in Washington, DC.

Meanwhile, the increased discipline over spending growth in FY 2026 is paired with a substantial increase in the U.S. government’s revenues, which grew faster between FY 2025 and FY 2026 than it did from fiscal year to year in FY 2023 to FY 2024 to FY 2025.

What’s Driving the Numbers?

The editorial board of Issues and Insights describes the positive changes contributing to this outcome:

Income and payroll taxes are running 6% ahead of last year, suggesting that – despite the doomsaying by Democrats and the media – the economy is creating more and better-paying jobs.

Trump’s tariffs are also bringing in much more revenue. They’re up $55 billion so far this fiscal year, compared with the same months in fiscal year 2025. That’s a 51% jump. (And a tripling from two years ago.)

We’re also seeing welcome spending reductions in departments such as Agriculture, Energy, Housing and Urban Development, Interior, State, and Labor.

But they also note that despite these changes, the U.S. government is on track to run a $2 trillion deficit in FY 2026. Here’s where they see the biggest problems with Uncle Sam’s excessive spending practices:

The really bad news is that Medicaid grants to states are up by a whopping $48.5 billion compared with last year. That’s a nearly 10% increase for a program beset with fraud that Republicans supposedly targeted for deep spending cuts, which readers of I&I have known all along was a lie. (See “One Chart To Kill The Medicaid Lies For Good.”)

Oddly, spending on “healthcare fraud and abuse control” is down.

Social Security payments are $63 billion higher. Medicare is up $47 billion. “Income security” is up $10 billion.

And interest on the debt? That’s running $78 billion ahead of last year.

Even Department of Education spending is up by $18 billion – all of it attributable to added costs of college subsidies.

In other words, “entitlement” spending is still out of control. And without reforms, they will swamp the budget and wreck the economy.

The bulk of the U.S. government’s spending goes to entitlement programs that increase automatically from year to year. Without an intervention to permanently change how fast it increases, autopilot spending will resume growing faster than tax collections. The federal government’s fiscal health is better in 2026 so far than it was a year ago, but it is still far from being on a sustainable path to good health.