US budget deficit dips in fiscal 2025 on boost from tariffs, education spending cuts
Sign up now: Get ST's newsletters delivered to your inbox
The US Treasury Department reported a narrower budget deficit in 2025 thanks to record customs receipts.
PHOTO: AFP
Follow topic:
WASHINGTON - The US budget deficit shrank by US$41 billion (S$53 billion) to US$1.775 trillion (S$2.3 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 programmes and interest on the debt, the Treasury Department reported on Oct 16.
The results for the year ended Sept 30, which include nearly nine months of Mr Trump’s second term in the White House, compared to a US$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 programmes brought spending down.
The smaller deficit was aided by a record US$195 billion in net customs receipts for the fiscal year, an increase of US$118 billion from the prior year as new Trump tariffs rolled in.
Customs receipts in September reached a new record high of US$29.7 billion, but the pace of increase slowed from August, when US$29.5 billion was collected.
Customs receipts were US$7.3 billion in September 2024.
But this powerful new revenue source was partly offset by a US$79 billion reduction in gross corporate tax collections for fiscal 2025, to US$486 billion.
About US$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 US$5.235 trillion, up US$317 billion, or 6 per cent, from the US$4.918 trillion in fiscal 2024, largely driven by increases in withheld and non-withheld individual tax collections.
Fiscal 2025 outlays also were a record at US$7.01 trillion, up US$275 billion, or 4 per cent, from the year prior.
A US Treasury official said the department calculated an estimated deficit-to-GDP ratio of 5.9 per cent for fiscal 2025, compared to an actual fiscal 2024 ratio of 6.3 per cent.
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 Oct 15 that he wants to bring the ratio down to the 3 per cent range by boosting economic growth and cutting or constraining spending.
Budget analysts said the number released on Oct 16 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 Professor 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 US$198 billion, up US$118 billion, or 147 per cent, 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 in September were up US$17 billion, or 3 per cent, to US$544 billion, while outlays were down US$101 billion, or 23 per cent, to US$346 billion.
The latest monthly surplus was boosted by a US$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 US$123 billion lower than in September 2024.
For the full 2025 fiscal year, the Department of Education suffered the biggest cut in outlays, down US$233 billion, or 87 per cent from the prior year to just US$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 programmes and interest on the US federal debt.
The interest expenditure reached a record US$1.216 trillion for the full fiscal year, up US$83 billion, or 7 per cent, from fiscal 2024, making it the second-largest expenditure item after Social Security.
Expenses for that programme reached US$1.647 trillion, up US$127 billion, or 8 per cent, 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 Ms Maya MacGuineas, president of the Committee for a Responsible Federal Budget. REUTERS
