Dennis Hendrickson
Money & Income · October 16, 2026

US Deficit Hits $2 Trillion as Interest Payments Top $1.4 Trillion

Washington closed fiscal 2026 with a $2 trillion deficit and record interest costs, and that bill gets passed down to everyone else eventually.

The federal government just closed out fiscal 2026 with a budget deficit of roughly $2 trillion, about $218 billion worse than fiscal 2025, according to the Congressional Budget Office. Interest payments on the debt hit a record $1.4 trillion for the year, up double digits from the year before.

Here's my take: a government paying more in interest than it can collect in new revenue growth is not an abstract problem for economists. It shows up in borrowing costs for everyone, including the small business owner trying to get a loan and the family trying to buy a house.

Why Interest on the Debt Is Not Just Washington's Problem

When the federal government has to borrow $2 trillion a year and pay $1.4 trillion in interest on top of that, it competes with everyone else for the same pool of lendable money. That competition tends to keep interest rates higher than they'd otherwise be.

Higher rates mean higher costs on business loans, equipment financing and mortgages. If you're running a business or thinking about starting one, the cost of capital is not background noise. It's one of the biggest line items you'll deal with.

What This Means for Jobs and Paychecks

A government running trillion-dollar deficits every year eventually has to make choices: raise taxes, cut spending, or keep borrowing and let interest costs eat more of the budget. Any of those paths affects hiring. Higher borrowing costs make it more expensive for companies to expand and add workers. Tighter federal spending in any area touches contractors, suppliers and employees tied to that spending.

None of this shows up overnight. It shows up slowly, in hiring freezes, slower raises, and employers telling you business is too uncertain to commit to headcount. If you've felt like job security has gotten shakier the last few years, this is part of why.

What a Rising Interest Bill Looks Like From the Insurance Side

I see a version of this dynamic every renewal season in my insurance agency. When borrowing costs rise across the economy, carriers' own cost of capital and reinsurance costs rise too, and that eventually works its way into premiums. It's not instant and it's not the only factor, but a higher-rate environment driven partly by heavy government borrowing is one more pressure point on what businesses and homeowners pay to stay covered.

The lesson for a business owner: don't assume your costs are flat just because last year's renewal was manageable. Rate environments tied to this kind of borrowing can shift the ground under you a year or two later.

What to Watch If You're Running or Starting a Business

If you're starting a business or already running one, pay attention to two things coming out of this: borrowing costs and government spending patterns in whatever sector you touch. If you rely on SBA-backed loans or any financing, check what rates are doing before you lock in terms. If a chunk of your revenue flows from government contracts or government-adjacent spending, treat that revenue as less certain than it was a few years ago.

On the personal side, if your income depends on a single employer, build whatever cushion you can. The macro trend here is government debt and interest costs growing faster than revenue, and that tends to translate into a slower, more cautious job market over time, not a sudden crash but a steady squeeze.

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