A bronze statue of former Treasury Secretary Albert Gallatin stands in front of the north wing of the U.S. Treasury Department headquarters in Washington, DC, on April 24, 2025.
J. David Ake | Getty Images News | Getty Images
The U.S. budget deficit in 2025 has narrowed slightly, the Treasury Department said Thursday, as record tariff collections offset unprecedented government debt payments.
In a year marked by a painful trade war and high financing costs, the federal government managed to come away with a $1.78 trillion shortfall, about $41 billion (2.2%) less than in fiscal year 2024.
This remains the highest level in history, but the deficit would have been much worse had it not been for the sharp rise in tariffs and September’s $198 billion surplus, which also set a record for the month.
President Donald Trump’s tariffs contributed significantly to $202 billion in tariff collections that year, a 142% increase from 2024. Customs payments in September totaled $30 billion, an increase of 295% year-on-year.
Treasury officials on Thursday estimated that the budget deficit as a percentage of gross domestic product (GDP) would reach 5.9% as the budget deficit narrows. This indicator has not fallen below 6% since 2022 and typically hovers around 3%, except during periods of economic stress.
Treasury Secretary Scott Bessent said in an interview last week that the U.S. is “on track” to reduce its debt and deficit burden, citing Congressional Budget Office estimates that the deficit is below 6% of gross domestic product.
The impact of the budget deficit was felt in interest payments on the $38 trillion national debt.
Interest on the debt totaled more than $1.2 trillion, also a record, nearly $100 billion more than 2024 spending.
Excluding the interest the Treasury earns on investments, total net interest payments total $970 billion, $57 billion more than defense spending and second only to Social Security, Medicare, and health spending in the national budget.
Earlier this year, President Trump imposed controversial tariffs on U.S. imports despite protests that they would spike inflation and hurt consumers, lowering demand and hurting economic growth.
While there are signs that prices of tariff-sensitive items are rising, the move has been mostly gradual. Fed officials have said they expect the rise in prices to be temporary and will likely lower the benchmark rate further. The current federal funds rate is 4.00-4.25%.
The government’s fiscal year ended in September, and the United States collected $5.2 trillion in revenue and spent just over $7 trillion over the past 12 months.
