WASHINGTON – The US budget deficit shrank by $41 billion to $1.775 trillion within the 2025 fiscal 12 months as a rise 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 outcomes for the 12 months ended September 30, which include nearly nine months of Trump’s second term within the White House, in comparison with a $1.817 trillion deficit in fiscal 2024. It was the primary 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 12 months, a rise of $118 billion from the prior 12 months as latest Trump tariffs rolled in.
Customs receipts in September reached a brand new record high of $29.7 billion, however 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 latest 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 within 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 12 months.
A US Treasury official said the department calculated an estimated deficit-to-GDP ratio of 5.9% for fiscal 2025, in comparison with 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 could be close out the 2025 fiscal 12 months, has been delayed by the partial US government shutdown.
US Treasury Secretary Scott Bessent said on Wednesday that he desires to bring the ratio right down to the three% range by boosting economic growth and cutting or constraining spending.
Budget analysts said the number released on Thursday showed little progress toward that goal.
“A lot 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 evaluation group. “So, we’re still very much on an unsustainable path.”
TREASURY REPORTS SURPLUS FOR SEPTEMBER
For the 2025 fiscal 12 months’s final month of September, the Treasury reported a record surplus of $198 billion, up $118 billion, or 147%, from the identical month within the prior 12 months. September is commonly a month of surplus as a result of quarterly tax filing deadlines for firms 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 most recent monthly surplus was boosted by a $131 billion cut to the Department of Education budget that was mandated within the recent spending and tax bill. For September, the education outlays were $123 billion lower than in September 2024.
For the complete 2025 fiscal 12 months, the Department of Education suffered the largest cut in outlays, down $233 billion, or 87% from the prior 12 months to simply $35 billion.
That cut and the upper 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 complete fiscal 12 months, 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 12 months.
“There’s excellent news that the tariffs are generating higher revenue, but all major categories of spending are higher with mandatory spending and interest significantly so. The basics remain deeply troubling,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. — Reuters