The Congressional Budget Office (CBO) on Wednesday released data showing the federal government ran a $1.8 trillion budget deficit in fiscal year 2025 amid mounting interest costs on the nearly $38 trillion national debt.
The CBO estimated that the shortfall was slightly smaller than the prior year’s deficit, with the preliminary FY2025 deficit totaling $1.809 trillion versus the $1.817 trillion deficit recorded in FY2024.
One of the most significant drivers of the deficit was the rise in net interest costs incurred from servicing the national debt, which surpassed $1 trillion for the first time in U.S. history in FY2025. Debt service costs increased $80 billion, or 8%, from last year due to the larger underlying debt burden.
Overall federal spending rose $301 billion, or 4%, in FY2025 compared with the prior year. Social Security was a key driver of that increase, rising $121 billion or 8% from the prior year. CBO explained that mostly came from higher average benefit payments following last year’s cost-of-living adjustment, as well as the increasing number of beneficiaries amid the aging of the U.S. population.
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Medicare spending jumped by $72 billion, or 8%, from last year due to enrollment from an increasing retiring populace, as well as higher payment rates for beneficiaries’ healthcare services. Medicaid costs rose $52 billion compared with FY2024 due to rising costs per enrollee.
Spending at federal agencies trended higher, with spending at the Department of Veterans Affairs up $41 billion, or 12%, due to increased spending per person and increased usage of VA healthcare facilities by veterans.
Department of War spending was $38 billion, or 5%, higher than in the prior year due to increases for operation, maintenance and procurement.
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Spending by the Department of Agriculture was up $28 billion, or 14%, largely due to funding provided in December 2024 for expenses related to crop losses that occurred in the 2023 and 2024 crop years, as well as to help mitigate the impact of increased prices for farming inputs and lower commodity prices.
Total tax collections increased $308 billion, or 6%, in FY2025 compared with the prior year, which CBO noted was moderated due to changes in payment deadlines for taxpayers in declared disaster areas in the prior two years.
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Individual income and payroll tax receipts increased by $260 billion from last year. CBO noted that withholdings rose by $185 billion amid rising wages and salaries, while nonwithheld income tax payments were up $95 billion. Tax refunds for individuals increased $26 billion.
Corporate income tax revenue decreased by $77 billion, or 15%, in FY2025 relative to the prior year. That decline was in part due to the enactment of the One Big Beautiful Bill Act, which allowed corporations to take larger deductions for certain investments occurring in 2025 which reduced estimated payments.
Tax revenues from customs duties, which include tariffs on imported goods, rose by $118 billion relative to last year – a 153% increase amid the Trump administration’s push to raise tariffs on most imported goods this year.
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