US budget deficit dips in fiscal 2025 on boost from tariffs, education spending cuts

WASHINGTON – The US budget deficit shrank by $41 billion to $1.775 trillion in the 2025 fiscal year as an increase in revenue from President Donald Trump’s tariffs and cuts to education spending helped offset higher outlays on healthcare and retirement programs and interest on the debt, the Treasury Department said on Thursday.

The results for the year ended September 30, which include nearly nine months of Trump’s second term in the White House, compared to a $1.817 trillion deficit in fiscal 2024. It was the first time the annual deficit had fallen since 2022, when the unwinding of COVID-19 relief programs brought spending down.

The smaller deficit was aided by a record $195 billion in net customs receipts for the fiscal year, an increase of $118 billion from the prior year as new Trump tariffs rolled in.

Customs receipts in September reached a new record high of $29.7 billion, but the pace of increase slowed from August, when $29.5 billion was collected. Customs receipts were $7.3 billion in September 2024.

But this powerful new revenue source was partly offset by a $79 billion reduction in gross corporate tax collections for fiscal 2025, to $486 billion. About $45 billion of that reduction occurred in September, reflecting implementation of full capital equipment expensing and research deductions made retroactive to January 1 in the spending and tax-cut bill passed by the Republican-controlled Congress in July.

Total receipts for fiscal 2025 were a record $5.235 trillion, up $317 billion, or 6%, from fiscal 2024, largely driven by increases in withheld and non-withheld individual tax collections.

Fiscal 2025 outlays also were a record at $7.01 trillion, up $275 billion, or 4%, from the prior year.

A US Treasury official said the department calculated an estimated deficit-to-GDP ratio of 5.9% for fiscal 2025, compared to an actual fiscal 2024 ratio of 6.3%. The official declined to say what GDP estimate was used to calculate the ratio. Data on third-quarter GDP, which would be close out the 2025 fiscal year, has been delayed by the partial US government shutdown.

US Treasury Secretary Scott Bessent said on Wednesday that he wants to bring the ratio down to the 3% range by boosting economic growth and cutting or constraining spending.

Budget analysts said the number released on Thursday showed little progress toward that goal.

“Most of the fiscal policy changes are simply replacing tax revenue and spending with other sources without lowering the deficit,” said Kent Smetters, director of the University of Pennsylvania’s Penn Wharton Budget Model analysis group. “So, we are still very much on an unsustainable path.”

TREASURY REPORTS SURPLUS FOR SEPTEMBER
For the 2025 fiscal year’s final month of September, the Treasury reported a record surplus of $198 billion, up $118 billion, or 147%, from the same month in the prior year. September is often a month of surplus due to quarterly tax filing deadlines for companies and individuals.

Receipts last month were up $17 billion, or 3%, to $544 billion, while outlays were down $101 billion, or 23%, to $346 billion.

The latest monthly surplus was boosted by a $131 billion cut to the Department of Education budget that was mandated in the recent spending and tax bill. For September, the education outlays were $123 billion lower than in September 2024.

For the full 2025 fiscal year, the Department of Education suffered the biggest cut in outlays, down $233 billion, or 87% from the prior year to just $35 billion.

That cut and the higher customs receipts masked continued increases in outlays for the Social Security retirement plan, the Medicare and Medicaid healthcare programs and interest on the US federal debt.

The interest expenditure reached a record $1.216 trillion for the full fiscal year, up $83 billion, or 7%, from fiscal 2024, making it the second-largest expenditure item after Social Security. Expenses for that program reached $1.647 trillion, up $127 billion, or 8%, from the prior fiscal year.

“There’s good news that the tariffs are generating higher revenue, but all major categories of spending are higher with mandatory spending and interest significantly so. The fundamentals remain deeply troubling,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. — Reuters