After falling by 4% in the first full fiscal year of Donald Trump’s second term, the federal budget deficit surged 12% to an eyewatering $1.99 trillion in FY 2026. As Art Laffer, the creator of the eponymous Laffer Curve, insisted, the sweeping tax cuts of 2025’s One Big Beautiful Bill did not decrease federal revenue. In fact, total federal receipts rose by 3%, with individual income tax and payroll tax collections up 6%. The problem was, as it always has been, Uncle Sam’s spending.

The federal government spent $7.4 trillion this fiscal year, up 6% from last year. Discretionary spending increases were modest: Despite the start of the Iran war, Pentagon spending rose only 5%, and there were actually dramatic spending cuts across the semiconductor manufacturing subsidies, the Environmental Protection Agency, and SNAP food stamps. But mandatory spending increases broke the budget.