The Congressional Budget Office estimated Wednesday that the federal budget deficit for fiscal 2025 was $1.8 trillion as interest payments crossed $1 trillion for the first time.
That $1.8 trillion number is $8 billion less than what was recorded in fiscal 2024. Tax revenue increased by just over $300 billion, but spending also increased by about the same amount, according to the CBO.
The federal deficit is high by historical standards and indicates a long-run mismatch between spending and revenues that threatens the federal government’s fiscal health. At $1.8 trillion, the deficit is roughly 6% of GDP — a ratio that, before 2023, was never seen during peacetime, other than during the 2008 financial crisis and the onset of the pandemic.
But interest payments also soared, a concerning trend that has only gotten worse in recent years. Net interest on the public debt was $1.03 trillion, up from $949 billion in fiscal 2024.
Interest payments on the federal debt have soared because interest rates have risen dramatically in recent years as inflation has picked up. Yields on 10-year Treasury securities have risen from below 2% as recently as 2022 to above 4%.
One of the biggest changes for fiscal 2025, which ended in September, is the rise in tariff revenue, driven by President Donald Trump’s aggressive “Liberation Day” trade agenda. Customs duties rose from $77 billion in fiscal 2024 to $195 billion in 2025, a whopping 153% increase.
Spending on Social Security rose by about 8% because of cost-of-living increases raising the average benefit payment and a larger number of people receiving benefits.
Both Medicaid and Medicare spending also rose about 8% because of rising enrollment and higher rates and costs.
The CBO report also details spending by various federal agencies. Trump swept into office promising to prune back the federal bureaucracy and shrink the size of the federal government through endeavors such as the Department of Government Efficiency.
Spending at the Department of Education decreased by $234 billion, representing an 87% cut in annual spending. A big chunk of that was from modifications to the federal student loan program that were authorized as part of the One Big Beautiful Bill Act.
The Federal Deposit Insurance Corporation also marked big declines. Spending decreased 63% year-over-year, in large part because spending was much higher last year due to the high costs of resolving bank failures in 2023.
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The government’s debt and deficits have been a major point of concern for some economists, who argue that the current trajectory is not sustainable and is being made much more challenging by the higher interest payments on the debt.
“While the deficit didn’t rise from last year, it didn’t fall either, and we continue to borrow far too much,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “Our national debt is about the size of the entire U.S. economy and will exceed its highest ever record as a share of the economy — set just after World War II — in short order.”
