US July Deficit Reaches 432 Billion Dollars as Tariff Refunds Outstrip Collections

By The Edge Research Team

The United States federal budget deficit reached four hundred and thirty two billion dollars in July, against two hundred and ninety one billion in July 2025, according to the Monthly Treasury Statement published on Wednesday. Two things sit behind that comparison, and neither is a simple deterioration in the public finances. The first is the calendar. The second, and the more consequential, is that customs duties turned negative for the month because tariff refunds exceeded collections.

Because 1 August 2026 fell on a Saturday, federal payments normally made at the start of August were brought forward into July, lifting the month’s spending and its deficit. In a report published on 10 August, two days before the Treasury’s final figures and based on the June statement and daily Treasury data, the Congressional Budget Office estimated the July deficit at four hundred and thirty one billion dollars and calculated that without those shifted payments it would have been forty one billion dollars larger than July 2025 rather than one hundred and forty billion larger. On that basis about seventy one percent of the reported year on year increase is payment timing, and the underlying increase is about fourteen percent rather than the forty eight point five percent the unadjusted cash figures show.

The customs line is the one without a timing explanation. The Treasury records customs duties for July as negative eight point five billion dollars, meaning the category took money out of the Treasury rather than putting it in. The Budget Office sets out why: refunds of customs duties of thirty six billion dollars exceeded gross collections of twenty six billion, a net outflow it rounds to nine billion and thirty seven billion dollars below the twenty eight billion collected in July last year. The refunds follow a Supreme Court ruling on 20 February that the administration could not impose tariffs under the International Emergency Economic Powers Act. About one hundred billion dollars has been refunded for tariffs collected under that authority.

Ten months into the fiscal year, which began in October, receipts total four thousand four hundred and eighty five billion dollars and outlays six thousand two hundred and eighty four billion, leaving a reported deficit of one thousand seven hundred and ninety nine billion. Against the same ten months a year earlier, receipts are up three point two percent, outlays five point two percent and the deficit ten point five percent, on our calculation from the Treasury’s monthly series. The Budget Office, adjusting for payment timing, puts the ten month deficit at about one thousand seven hundred billion dollars and the increase at seventy one billion rather than one hundred and sixty nine billion, so roughly fifty eight percent of the reported widening over ten months is also timing.

Across those ten months the government spent one dollar and forty cents for every dollar it collected, leaving a deficit equal to forty cents on each dollar of receipts, and the deficit represents twenty eight point six percent of everything it spent. On the reported cash figures the ten month deficit has already passed the entire twelve month deficit of the last fiscal year, one thousand seven hundred and seventy five billion dollars, by twenty three billion with two months still to run, though the same timing effect sits inside that milestone.

The revenue side is moving in opposite directions at once. Individual income taxes are one hundred and sixty four billion dollars higher than a year earlier for the fiscal year to date, a rise of seven point five percent, and employment and general retirement receipts are forty eight billion higher. Against that, corporation income taxes have fallen ninety four billion dollars, a decline of twenty four point three percent, which the Budget Office attributes in part to the 2025 reconciliation act allowing corporations larger deductions for certain investments.

Customs duties remain thirteen point eight percent higher across the fiscal year as a whole, at one hundred and fifty four billion dollars against one hundred and thirty six billion, so a single month of net outflow sits inside a year of higher collections. The Budget Office expects that to reverse over the full year, projecting tariff and customs collections about two hundred and fifty billion dollars, or sixty percent, below what it had projected in February.

On spending, the Budget Office’s timing adjusted figures are the ones that describe the underlying trend. Adjusted outlays rose two hundred and nine billion dollars, or four percent, against a reported increase of three hundred and eight billion. Within that, net interest added one hundred and seventeen billion dollars, an increase of fourteen percent, Social Security seventy billion, Medicare sixty six billion and Medicaid forty five billion. Those four alone add nearly three hundred billion dollars against a net increase of two hundred and nine billion, the difference offset by declines elsewhere, including seventy nine billion dollars less at the Department of Education on the Treasury’s reported figures.

Why it matters: The forty eight percent figure is the one that will travel and the least informative in the release. Seventy one percent of that increase is a weekend, and over ten months fifty eight percent of the reported widening is the same effect. What is left after the timing is stripped out points somewhere other than the headline. On the spending side the underlying growth is four percent, and the largest single contributor is not a programme at all but net interest, up one hundred and seventeen billion dollars, which is the cost of the debt already issued rather than a new policy choice. On the revenue side the striking movement is customs. Tariffs were expected to be a substantial new revenue stream and are instead running about sixty percent below projection for the year, with a hundred billion dollars refunded since May following the February Supreme Court ruling, and a single month in which the government paid out more than it collected. That is why the Budget Office’s full year deficit forecast moved two hundred billion dollars, to two thousand one hundred billion, while it still expects outlays close to its February baseline. The revision is a revenue story, and specifically a tariff story, which is close to the opposite of what the monthly headline suggests.

Looking ahead: Two months remain before the fiscal year ends on 30 September, and part of July’s spending should mechanically reverse in August because payments ordinarily recorded then were made a month early, which makes the August statement, due on 11 September, more informative than usual. September recorded a surplus of one hundred and ninety eight billion dollars last fiscal year and whether that repeats will shape the final total. Against the Budget Office’s two thousand one hundred billion dollar projection, roughly three hundred billion of further net deficit would be needed across the final two months on the reported basis, though the timing shift makes a straight extrapolation unreliable. The line to watch is customs duties, which will show whether July’s net outflow was the peak of the refund programme or the middle of it.

Sources: United States Department of the Treasury, Monthly Treasury Statement for July 2026, published 12 August 2026; Congressional Budget Office, Monthly Budget Review: July 2026, 10 August 2026.

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