The U.S. Treasury Department reported that the federal budget deficit climbed to a record $145 billion for December. This represents a 67 percent increase ($58 billion) compared to the same month last year, driven primarily by historic levels of government spending and specific calendar shifts in payment schedules.
Spending outpaces revenue
While the headline deficit figure grew sharply, the Treasury noted that “calendar effects” played a significant role. Approximately $32 billion in benefit payments originally scheduled for January 2026 were pulled forward into December because the New Year fell on a weekend. When adjusting for these timing shifts in both 2024 and 2025, the Treasury suggests the “underlying” December deficit would have been $112 billion—an 11 percent improvement over the previous year.
Key economic drivers in December
The month’s unique financial landscape was shaped by several major drivers, most notably a surge in military spending which reached $98 billion, marking a 25 percent year-over-year increase. Treasury officials noted this spike was partially due to the processing of payments that had been delayed by the government shutdown in October. Meanwhile, income from customs receipts totaled $27.9 billion, reflecting a significant jump from the $6.8 billion recorded in December 2024, though figures suggest revenue may be plateauing from the $30 billion-plus levels seen in previous months. This revenue stream remains under scrutiny as recent 10 percent duty reductions on imports from China and South Korea take effect and the Supreme Court prepares to rule on the administration’s use of emergency sanctions laws, a decision that could further impact future customs collections.
Read more: U.S. trade deficit plummets 39 percent to below $30 billion as Trump tariffs curb imports
Fiscal year-to-date performance
Despite the record-breaking December results, the overall performance for the first three months of fiscal year 2026, which began on October 1, 2025, indicates a narrowing gap. Total receipts during this period reached $1.225 trillion, marking a 13 percent increase and a record high. Meanwhile, total outlays amounted to $1.827 trillion, also a record high, reflecting a 2 percent rise from the previous year. As a result, the total deficit stood at $602 billion, which represents a 15 percent decrease, or $109 billion less than the prior year. Outlays typically represent cash disbursements but also include cash-equivalent transactions, like issuing debentures to settle insurance claims. In some instances, they are recorded on an accrual basis, such as interest on public debt. Overall, outlays serve as the measure of government spending.
The rising cost of debt
The report also highlighted a continuing upward trend in the cost of servicing the national debt, with interest payments growing by $46 billion (15 percent) to reach $355 billion for the three-month period. A Treasury official confirmed this increase is almost entirely due to the growing volume of total U.S. debt rather than a spike in rates; the weighted average interest rate in December was 3.32 percent, only a marginal increase from 3.28 percent a year ago. Beyond debt servicing, the primary contributors to the record outlay growth included increased spending on Social Security and healthcare programs.
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