The US deficit for the first four months of fiscal Year 2025 is $838 billion, up $306 billion. Adjusted, the increase is more like $157 billion to $225 billion.
The Congressional Budget Office Spending Projections for fiscal year 2025 are not looking good.
The federal budget deficit totaled $838 billion in the first four months of fiscal year 2025, the Congressional Budget Office estimates. That amount is $306 billion more than the deficit recorded during the same period last fiscal year. Revenues were $11 billion (or 1 percent) higher, and outlays were $317 billion (or 15 percent) higher.
The change in the deficit was influenced by the timing of outlays and revenues, which decreased the deficit during the first four months of fiscal year 2024 but increased it during the same period this fiscal year. Outlays in October 2023 were reduced by shifts in the timing of payments that were due on October 1, 2023, a Sunday. (The payments were made that September.) Outlays in the first four months of 2025 rose, on net, because payments due on February 1, 2025, a Saturday, were made in January. If not for those shifts, the deficit so far this fiscal year would have been $750 billion, or $146 billion more than the shortfall at this point last year. Part of the deficit increase in 2025 also arises from the postponement of some tax deadlines from 2023 to 2024 (described below), which boosted receipts in 2024.
Budget Ceiling Yet Again
The statutory debt limit was reinstated on January 2, 2025, and set at $36.1 trillion, matching the amount of total debt that was outstanding on the prior day. On January 21, 2025, the Department of the Treasury announced a “debt issuance suspension period” and began taking “extraordinary measures” to continue financing government operations without breaching the debt limit. In the future, CBO will publish its estimate of how long the government could continue to finance its operations under those measures.
Total Outlays Up by 15 Percent in Fiscal Year 2025
Outlays in the first four months of fiscal year 2025 were $2.4 trillion, CBO estimates, $317 billion more than during the same period last year. If not for the timing shifts discussed above, outlays so far in fiscal year 2025 would have been $157 billion (or 7 percent) greater than outlays during the same four months in fiscal year 2024. The discussion below reflects adjustments to exclude the effects of those timing shifts.
Notably, outlays are up despite a reduction of $68 billion in FDIC bank failures.
If we subtract the budget shifts and account for one-time FDIC losses, outlays are up by about $225 billion on a comparable basis.
Mandatory Spending
- Outlays for the largest mandatory spending programs increased by $62 billion (or 6 percent):
- Spending for Social Security benefits rose by $31 billion (or 7 percent) because of increases in the average benefit payment (stemming mostly from cost-of-living adjustments) and in the number of beneficiaries.
- Medicare outlays increased, on net, by $14 billion (or 5 percent) because of increased enrollment and higher payment rates for services.
- Medicaid outlays increased by $17 billion (or 9 percent), largely because of rising costs per enrollee.
- Outlays for net interest on the public debt increased by $37 billion (or 13 percent) primarily because the debt was larger than it was in the first four months of fiscal year 2024.
Other Large Spending
- Spending by the Department of Defense was $24 billion (or 8 percent) greater than in the same period in fiscal year 2024; the largest increases were for operation and maintenance and personnel.
- Spending by the Environmental Protection Agency (EPA) increased by $22 billion, CBO estimates, primarily because in November and December that agency spent $20 billion for a grant program established by the 2022 reconciliation act ($27 billion was provided in that law for the program). EPA selected 68 entities—including nonprofit organizations, state governments, and Indian tribes—to administer grants to finance clean technologies, provide capital for energy-efficiency projects in disadvantaged communities, and support solar power projects in low-income communities.
- Spending by the Department of Veterans Affairs increased by $18 billion (or 17 percent), because more people used veterans’ benefits and because of increased spending per person.
- Outlays of the Department of Homeland Security increased by $12 billion (or 43 percent), driven mostly by spending in response to Hurricanes Helene and Milton.
- Outlays for certain refundable tax credits increased by $11 billion (or 29 percent), primarily because of increased enrollment in health insurance purchased through the marketplaces established under the Affordable Care Act.
Does anyone seriously think Trump or DOGE will fix this?
If so, please note Trump proposes to expand tax breaks on State and Local Taxes (SALT), eliminate taxes on tips, eliminate taxes on overtime, and eliminate taxes on overtime.
Trump has also proposed increases on military spending.
And the more Trump relies on tariffs, the less likely the administration will break even. I rate it a 90 percent chance Trump increases the deficit significantly.
2018 vs Today
On December 25, 2018, I reported Investigating Trump’s Claim of Using Tariffs to Pay Down $21 Trillion in Debt
“Billions of Dollars are pouring into the coffers of the U.S.A.,” tweeted President Trump last month, “because of the Tariffs being charged to China.”
Is that more amusing than pathetic or vice versa?
After using tariffs to pay down debt, the US is running up against a deficit ceiling of $36.1 trillion, up from $21 trillion when he first proposed the idea.
And this is despite the fact that Biden kept intact all of Trump’s tariffs and added more.
Today, Trump wants to use tariffs to balance the budget.
On January 6, 2025 I asked How Much Revenue Can Trump Realistically Bring in From Tariffs?
The Tax foundation estimates a 2025-2034 dynamic revenue gain of about $233 billion per year if Trump does 20 percent tariffs across the board.
That’s a nifty $2.33 trillion over 10 years. Color me skeptical, but assume it’s true (ignoring the costs of doing so).
The Committee for a Responsible Federal Deficit estimates Trump’s proposed economic plan would increase additional borrowing by about 30 percent over the next decade, to a record 133 percent of Gross Domestic Product (GDP) by 2035 – nearly doubling the debt growth expected under current law.
Interest alone would cost an extra $1.3 trillion. I will cover more or this in detail, in a following post.