US Finances: FY 2025
Through the 2025 US fiscal year —
What were the final financial results?
Bottom line up front: New Administration and no change in the annual budget deficit, which means that US Federal debt continued to rise during FY 2025. Based on data released by the Congressional Budget Office (CBO), the US federal budget deficit (i.e., revenue below spending) ended the year at $1.8 trillion for FY 2025, about the same level as FY 2024.
Let’s break down the results in further summary detail.
Revenue
Total revenue increased by approximately +6% compared to last year, up from a +3% trend through the middle of the fiscal year (i.e., through March). However, this figure is slightly misleading. About $70 billion in early FY 2024 revenue was deferred from FY 2023 due to delayed estimated tax payments. This artificially inflates FY 2024 numbers in comparison to FY 2025.
Regardless, revenue did quite well in FY 2025, and the results may reflect positive economic conditions:
• Withholding taxes from paychecks: +6%.
• Customs duties: +153%.
Increases in customs duties (e.g., tariffs) are linked not only to economic strength but also to tariff hikes implemented by the Trump Administration. It is important to note, however, that while tariff revenue is up substantially on a percentage basis, the total increase amount of +$118 billion is only about one-third of revenue increases (+$308 billion) over the FY 2024 level.
In addition, corporate tax receipts were -15% below last year which offset gains from tariff revenue. Again, however, total corporate revenue would have appeared higher this year against last year if deferred tax payments from FY 2023 into FY 2024 were factored out.
Spending
Federal spending was up +4% compared to last year, although spend timing shifts between years account for part of this increase. After adjusting for such shifts, spending growth dropped to about +3%, a rate that fell from the spending trend level of +7% through March.
Key Spending Increases (adjusting for timing shifts):
Medicare, Medicaid, Veterans’ Benefits, and Social Security: +10.1% (+$331 billion), driven by demographic shifts, inflation adjustments, and expanded veterans’ benefits.
Interest on U.S. Public Debt: +8% (+$80 billion).
Environmental Protection Agency (EPA): +167% (+$23 billion), primarily due to new clean energy grants awarded in Q1.
Defense (primarily operations & maintenance, military personnel): +5% (+$38 billion).
Homeland Security: +28% (+$25 billion), primarily for FEMA hurricane disaster response.
Affordable Care Act (ACA) Tax Credits: +13% (+$26 billion), due to higher health care enrollment.
Key Spending Decreases:
Education Department: -87% (-$234 billion), primarily due to significant reductions in student loan program spending due in part to program changes enacted by the Republican-led Congress and the Trump Administration.
Federal Deposit Insurance Corporation: -171% (-$63 billion), primarily due to inflated spending in FY 2024 on bank failures.
Small Business Administration: -97% (-$32 billion), primarily due to inflated spending in FY 2024 on disaster loans.
Budget Deficit
The federal budget deficit for FY 2025 $1.8 trillion, just about $8 billion less than the level of FY 2024. However, deficit improvement looks better after accounting spend timing shifts (i.e., regular spending that moved between the two fiscal years at different times). After accounting for such shifts, CBO estimates that the deficit decreased by -$80 billion, or -4% from FY 2024.
Near-term Outlook
With the enactment of the One Big Beautiful Bill Act (BBB) in 2025, a law making substantial changes to Federal spending and revenue, the trajectory of spending and revenue has been set for the next decade (absent subsequent changes).
Bottom line outlook: sustained budget deficits and a growing public debt by at least +$5 trillion ($36 trillion to $41 trillion). The BBB certainly changes Federal resource and program policy in many respects, but what doesn’t change is the trajectory of deficits and debt. These were both going up before the BBB, and the trajectory continues after the BBB.
Whether or not the US economy will remain strong in the near term, or be weakened because of this, is a major question for the United States going forward.
Stand by.
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Please feel free to track US fiscal status of key indicators on my dashboard here.