U.S. budget deficit lower in 2025; tariffs, debt payments both at records
A statue of former Treasury Secretary Albert Gallatin stands in front of the north wing of the U.S. Treasury Department headquarters building on April 24, 2025 in Washington DC, USA
J. David Ake | Getty Images News | Getty Images
The U.S. budget deficit is set to decline for 2025, the Treasury Department announced Thursday, as record-breaking tariff collections helped offset unprecedented figures for mounting national debt payments.
In a year marked by a bruising trade war and high financing costs, the federal government managed to escape with a $1.78 trillion deficit, about $41 billion, or 2.2%, less than in fiscal 2024.
While that’s still historically high, the red ink could have been even worse if not for a massive increase in tariffs, as well as a record-breaking $198 billion September surplus for the month.
President Donald Trump’s tariffs have contributed significantly to $202 billion in tariff collections by 2024, representing a 142% increase over 2024. In September, tariff payments amounted to 30 billion dollars, an increase of 295% compared to the same period of the previous year.
Treasury officials predicted Thursday that the reduction in the budget deficit would increase the deficit-to-gross domestic product ratio to 5.9%. The measure has not fallen below 6 percent since 2022 and generally hovers around 3 percent except in times of economic stress.
In an interview last week, Treasury Secretary Scott Bessent said “we are on track” to reduce the debt and deficit burden, noting that the Congressional Budget Office estimates the budget deficit as a percentage of GDP will be below 6%.
The impact of the current account deficit was felt in the interest paid on the $38 trillion national debt.
The total interest on the debt exceeded $1.2 trillion; That’s a record figure and nearly $100 billion higher than 2024 spending.
Excluding the interest earned by the Treasury on its investments, net interest payments totaled $970 billion, pushing defense spending to over $57 billion and falling behind only Social Security, Medicare, and Healthcare expenses in the national budget.
Trump imposed controversial tariffs on US imports earlier this year despite protests that they would increase inflation and hurt consumers, leading to reduced demand and a hit to economic growth.
While there have been signs of price increases on tariff-sensitive products, the moves have mostly been gradual. Fed officials say they will likely cut benchmark interest rates further because they expect any price increases to be temporary. The current federal funds rate ranges from 4.00% to 4.25%.
The government’s fiscal year ended in September; While the United States collected $5.2 trillion in revenue in the previous 12 months, it spent just over $7 trillion.
