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U.S. budget deficit widens as tariff refunds surge
Treasury data shows $1.37 trillion gap as Supreme Court ruling drives payments
Key Takeaways:
- Treasury data July 13 showed the U.S. budget deficit widened 2% to $1.37 trillion for fiscal 2026’s first nine months, with a $120 billion June gap.
- The reversal followed a Supreme Court decision striking down Trump-era tariffs, triggering $49.2 billion in June refunds and cutting customs revenue, analysts said.
- Refund-driven deficit pressures are expected to be temporary as new tariff actions and investigations could rebuild revenue, while spending continues rising on entitlements and debt interest.
A large wave of refund payments for tariff increases declared illegal by the Supreme Court caused the first widening in the U.S. federal budget deficit since the start of this fiscal year.
The gap for the first nine months of fiscal 2026 came to $1.37 trillion, Treasury Department data showed July 13. That marks a 2% widening in the gap compared with 2025. For the month of June, the total deficit was $120 billion.
In previous months, the shortfall had been narrowing, thanks especially to rising revenue — higher tax receipts amid solid job and economic growth, and more customs revenue thanks to President Donald Trump’s tariff hikes. But the Supreme Court struck down the bulk of his levies in February, and refunds have been surging in recent weeks.
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Treasury data show a net decline of $25.6 billion in customs duties for June, after a net loss of $42 million in May. Refunds amounted to $49.2 billion for June after nearly $22 billion for May — totaling more than half of the estimated $166 billion the government is estimated to be on the hook for paying back.
“The refund program has become large enough to be macroeconomically, fiscally and market-significant this year,” Evercore ISI analysts including Matthew Aks wrote in a note July 10. Even so, the payouts “represent a temporary increase in the deficit,” the team wrote, given that the Trump administration is in the process of erecting a new tariff wall.
Among the efforts underway, the U.S. Trade Representative’s Office is investigating some 60 countries for violations of forced-labor bans, which could then be used as a basis for boosting tariffs. Evercore ISI sees tariff revenue eventually coming in at over $300 billion annually.
In the meantime, a widening budget gap risks serving a reminder to bond investors of the outsize scale of U.S. borrowing. July 13 figures showed total spending up 3% for the fiscal year so far — propelled by bigger outlays on Social Security, Medicare, Medicaid and interest payments on the debt.
