Washington DC - The budget deficit grew to almost $2 trillion over the past year, government data showed Friday, reaching its highest level since 2021 despite President Donald Trump's promises to cut public spending.

The expansion comes amid growing worries over the massive $40.3 trillion US debt load and rising inflation, as the cost of borrowing climbs.

Refunds of Trump's tariffs after they were overturned have further fueled the budget gap.

The federal deficit, which occurs when government spending exceeds its tax revenues, rose to $1.99 trillion in fiscal year 2026, the Treasury Department said.

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This marked a 12% increase from the prior year, when the shortfall came in at $1.78 trillion.

A key driver of expenditures was the rising interest paid on public debt, which jumped $144 billion to a record $1.36 trillion.

Interest costs on around $32 trillion in publicly held US debt have been ballooning in recent years, and climbing bond yields have sparked further concerns.

Treasury bond yields, which influence interest rates for mortgages and auto loans, have jumped this year, with steeper borrowing costs adding to pressures that voters face ahead of November's midterm elections.

Meanwhile, an expected influx of revenue from Trump's sweeping tariffs has failed to fully materialize during his second term.

The Supreme Court struck down his global duties in February, triggering a wave of refunds.

Treasury data released Friday reflected $145 billion in customs refunds over the year, primarily due to tariffs, erasing significant gains from Trump's duties.

Overall, government revenues climbed by 3% to $5.40 trillion in the latest fiscal year, which ended September 30. But spending was much higher, rising by 6% to $7.40 trillion.

The deficit will likely be similar for the next year, said Nancy Vanden Houten of Oxford Economics.

But she warned, "The risk may be for a larger budget gap if the war with Iran persists well into the fiscal year."

Among other sectors, spending on defense military programs increased by $48 billion, or 6%, over the year to $917 billion.

Taken together, a Treasury official estimates the US deficit-to-GDP ratio is around 6.2%, up from 5.8 %last year.

This stands in contrast to Treasury Secretary Scott Bessent's previously stated goal of bringing the deficit down to three percent of GDP, alongside other targets like spurring economic growth of 3%.