A New (Fiscal) Year’s Resolution

# Why the federal fiscal year matters now October 1, 2026 marks the start of fiscal year 2027. The date is more than a calendar milestone: it brings forward the budget choices Congress and the president must confront. Fiscal year 2027 inherits commitments made in prior years and the interest costs that come with them.

# What changed in 1974 — and why it still matters

# Current fiscal picture entering FY2027 In FY2026 the gross federal debt passed $40 trillion, and inflation and higher interest rates have increased affordability pressures. In the final weeks of FY2026 the 10-year Treasury yield reached 5 percent, a level not seen since 2023. Those conditions raise the cost of servicing past borrowing.

# Why lawmakers often borrow rather than raise taxes Borrowing makes it politically easier to authorize new spending. Beneficiaries of a program see clear, concentrated gains and can organize support. The taxes needed to pay for that program are dispersed across many voters, so the cost is less visible and harder to rally against. Borrowing postpones the political pain of financing, and once households and businesses adjust to new benefits, reversing them becomes difficult. That creates a tendency for promises to outlast restraint.

# How big a problem are projected deficits?

# The case for a stronger fiscal constitution A fiscal constitution refers to the rules—constitutional provisions, statutes, and norms—that govern public finance. Its point is to create durable constraints so that budget choices account for both commitments and their financing. That would require lawmakers to reckon with the future interest costs and fiscal consequences when they authorize new programs.

Designing such rules involves tradeoffs: stricter constraints can limit short-term policy flexibility but can preserve fiscal space for emergencies and core priorities. The choice ultimately rests with voters and their representatives.

# Bottom line Fiscal year 2027 begins under heavier debt and rising interest costs. The institutional changes of 1974 improved budgeting processes but did not remove the political incentives to borrow. Absent stronger rules that tie spending decisions to financing, rising interest payments will continue to crowd out other government priorities.