tl;dr
The U.S. budget deficit slightly narrowed to $1.78 trillion in 2025, driven by record tariff collections and a September surplus, but interest payments on the national debt hit $1.2 trillion, surpassing defense spending and highlighting ongoing fiscal challenges.
**U.S. Budget Deficit Edges Lower in 2025 Amid Record Tariff Collections and Debt Payments**
The U.S. budget deficit for fiscal year 2025 narrowed slightly to $1.78 trillion, a $41 billion or 2.2% decrease from the previous year, according to the Treasury Department. While still historically high, the reduction was attributed to a surge in tariff collections and a record September surplus, despite challenges posed by a prolonged trade war and soaring debt financing costs.
The federal government’s shortfall, though lower, remained a significant burden, with interest payments on the $38 trillion national debt hitting a record $1.2 trillion—nearly $100 billion more than in 2024. Excluding interest earned on investments, net interest payments reached $970 billion, surpassing defense spending and ranking just behind Social Security, Medicare, and healthcare costs in the federal budget.
A major factor in the deficit’s slight decline was a 142% spike in customs duties, which totaled $202 billion for the year. This surge was largely driven by President Donald Trump’s controversial tariffs on imports, which saw September tariff payments alone jump 295% year-over-year to $30 billion. The Treasury credited these measures with offsetting some of the fiscal strain, even as critics argued they risked inflation and economic slowdowns.
Treasury Secretary Scott Bessent highlighted the progress in an interview, noting that the deficit-to-GDP ratio fell to 5.9%—the lowest since 2022 and a step toward long-term fiscal stability. However, the figure remains above the 3% historical average, underscoring the ongoing challenges of managing the nation’s debt.
The trade war and rising interest rates also contributed to higher borrowing costs, exacerbating the deficit. While some price increases linked to tariffs have been observed in consumer goods, Federal Reserve officials have indicated they may further lower benchmark interest rates, anticipating that inflationary pressures will be temporary. The fed funds rate currently stands at 4.00% to 4.25%.
For the fiscal year ending in September, the government collected $5.2 trillion in revenue but spent over $7 trillion, reflecting the persistent gap between income and expenditures. As debates over fiscal policy continue, the interplay between trade policies, debt management, and economic conditions will remain critical in shaping the nation’s financial trajectory.