The U.S. federal budget deficit declined to $1.67 trillion in 2025, marking its lowest level in three years. The improvement was driven largely by a sharp increase in customs and tariff collections, according to Treasury Department data released on January 13.
For December alone, the government recorded a $145 billion shortfall, while the first three months of the 2026 fiscal year (which began on October 1) produced a combined deficit of $602 billion. Although tariff income surged earlier in the year, December customs collections slipped to $28 billion, the weakest monthly total since July.
A major factor behind the stronger revenue performance was the increase in import tariffs imposed on major U.S. trading partners. For the full 2025 calendar year, tariff revenue reached $264 billion, up by about $185 billion from the previous year.
However, this boost from trade duties was partly offset by lower tax collections. Corporate tax revenue dropped sharply in December to $65 billion, representing a 28% decline compared to the same month last year. The situation may tighten further as the tax refund season begins, which typically increases government outflows.
While tariffs have strengthened federal income, their future remains uncertain. The U.S. Supreme Court is preparing to review the legality of several of the trade levies, which could affect how much revenue the government collects going forward.
At the same time, the One Big Beautiful Bill Act—a major tax and spending package—has raised concerns among budget analysts. According to a Congressional Budget Office (CBO) estimate from July, the law could add $3.4 trillion to federal deficits over the next decade, through 2034.
Treasury Secretary Scott Bessent praised the declining deficit, saying it reflects the strength of current economic policies. For the 2025 fiscal year, the deficit-to-GDP ratio fell to an estimated 5.9%, down from 6.3% in the previous year.
However, some economists say the numbers may paint a more positive picture than reality. A change in how student loan costs are calculated has affected the data. When adjusted for this accounting shift, analysts at JPMorgan Chase estimate the true deficit was actually above $1.9 trillion, keeping it over 6% of GDP.
The U.S. government made meaningful progress in reducing its deficit in 2025, largely thanks to record-breaking tariff income. But falling tax receipts, upcoming refunds, legal challenges to tariffs, and long-term fiscal policies could limit how sustainable that improvement is in the years ahead.
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