US Deficit Dips to $1.78 Trillion as Tariff Revenue Soars
Tariff Windfall Masks Weak Corporate Tax Collections
Key Takeaways:
- The U.S. budget deficit fell 2% to $1.78 trillion for fiscal 2025, as record tariff revenue offset declining corporate tax receipts.
- Tariffs generated $195 billion amid President Donald Trump’s trade policies, while corporate tax revenue dropped 41% after the July tax law.
- Economists warned the new tax measures could add $4.2 trillion to federal debt by 2034 as spending on Social Security, health programs and interest continues to rise.
[Stay on top of transportation news: .]
The U.S. budget deficit declined slightly for the 2025 fiscal year as tariff revenue hit a record high, though the pace of borrowing remains historically elevated at a time of economic expansion and financial stability.
The deficit for the fiscal year was $1.78 trillion, down from $1.82 trillion in 2024, a drop of 2%, according to figures released by the Treasury Department Oct. 16. The gap largely echoed a Congressional Budget Officeestimatepublished last week.
President Donald Trump’s dramatic tariff hikes helped spur a net $195 billion in tariff revenue for the fiscal year, which ended Sept. 30. Treasury Secretary Scott Bessent has said the U.S. could take in as much as $500 billion annually in tariff revenue. The legal basis for a large swath of those levies remains under scrutiny, however, with a case pending at the Supreme Court.
Trump’s latest tax legislation, signed in July, is also set to affect the federal budget. The Oct. 16 release showed a slide in corporate tax receipts for the month of September, in part reflecting measures included in that so-called One Big Beautiful Bill Act. Gross corporate tax receipts plunged some 41%, to $65 billion.
As a share of gross domestic product, the deficit for 2025 is estimated at 5.9%, a Treasury official said, down from 6.3% last year. That’s based on an internal Treasury estimate, the official said, as official GDP data for the July-through-September quarter are still pending.
(Bloomberg)
Spending Drivers
Bessent has said he wants to see the deficit ratio come down to “something with a three in front of it” by the end of Trump’s second term in office. A 3% ratio is something of an international standard for fiscal probity — serving as the level euro region nations are supposed to adhere to.
Many economists see the latest tax law eroding revenue growth over the coming decade, worsening the already-steep trajectory for federal borrowing. The Tax Policy Centerthat it will increase federal debt by $4.2 trillion, or 9% of GDP, by 2034.
Rising spending on interest on the national debt and on Social Security remain key drivers of the outsize deficits the U.S. has been running in recent years.
Outlays for the Social Security Administration were $1.6 trillion in 2025, an increase of 8% over the previous fiscal year’s total of $1.5 trillion. Spending on Health and Human Services climbed 10%, propelled by Medicare and Medicaid.
Gross outlays for interest on the public debt weighed in at a record $1.22 trillion for the fiscal year, up 7% from 2024.
The deficit was held down by a policy change affecting federal student loan plans, according to the Treasury official. The Education Department saw a $233 billion shrinkage in its outlays for the 2025 fiscal year.
Want more news? Listen to today's daily briefing belowor go here for more info:
