Record tariff revenues cuts US deficit to $1.78 trillion
The US budget deficit saw a modest decline for the 2025 fiscal year, driven by record-high tariff revenue. However, borrowing levels continue to be historically elevated, even amidst a period of economic expansion and financial stability. The deficit for the fiscal year was $1.78 trillion, a decrease from $1.82 trillion in 2024, reflecting a 2 percent reduction. The disparity largely reflected a Congressional Budget Office estimate released last week. President Donald Trump’s significant tariff increases contributed to a total of $195 billion in tariff revenue for the fiscal year that concluded on September 30. Treasury Secretary Scott Bessent has stated, “the US could take in as much as $500 billion annually in tariff revenue.” The legal foundation for a significant portion of those taxes is currently being examined, as a case is awaiting consideration at the Supreme Court.
Trump’s latest tax legislation, signed in July, is poised to impact the federal budget. Thursday’s release indicated a decline in corporate tax receipts for September, partially due to provisions included in the so-called One Big Beautiful Bill Act. Corporate tax receipts experienced a significant decline of approximately 41 per cent, falling to $65 billion. Bessent has expressed his desire to see the deficit ratio reduced to “something with a three in front of it” by the conclusion of Trump’s second term in office. A 3 per cent ratio is regarded as an international benchmark for fiscal responsibility — representing the target that eurozone countries are expected to follow. “Strong private sector led growth alongside constrained federal spending means the deficit to GDP will take care of itself,” Bessent said in a post. “FY 2025’s deficit to GDP is now projected to be under 6 per cent. And with continued fiscal restraint, we can reach 3 per cent by 2028.”
Total outlays for the fiscal year rose to $7 trillion from $6.7 trillion the previous year, reflecting an increase of 4 percent. Numerous economists observe that the recent tax legislation is likely to diminish revenue growth in the next ten years, exacerbating the already significant trend of federal borrowing. The Tax Policy Center projected that federal debt will rise by $4.2 trillion, representing 9 percent of GDP, by the year 2034. Increasing expenditures on interest related to the national debt and Social Security continue to be significant factors contributing to the substantial deficits the US has experienced in recent years. In 2025, expenditures for the Social Security Administration reached $1.6 trillion, reflecting an 8 percent increase from the prior fiscal year’s total of $1.5 trillion. Expenditures on Health and Human Services surged by 10 percent, driven by Medicare and Medicaid.
Gross outlays for interest on the public debt reached a record $1.22 trillion for the fiscal year, reflecting a 7 percent increase from 2024. A Treasury official stated that the deficit was kept in check due to a policy change impacting federal student loan plans. The Education Department experienced a reduction of $233 billion in its expenditures for the 2025 fiscal year.
