Tariff Revenue Fails to Fill the Gap: US Fiscal Deficit Expands by $109 Billion in First 10 Months of FY2025

The nonpartisan Congressional Budget Office (CBO) released its July monthly budget update on August 8, showing that the cumulative federal budget deficit for the first 10 months of FY2025 (year-to-date) reached $1.6 trillion, a $109 billion expansion compared to the same period in FY2024. The CBO's latest data indicates that while government revenue has grown, the rate of expenditure growth continues to outpace tax revenue growth, leading to a widening deficit.

The report notes that federal tax revenue increased by $263 billion during this period, representing an annual growth rate of approximately 6%. Notably, customs duties have become a significant contributor to recent revenue growth: due to higher tariffs on imported goods, the CBO estimates that customs duties have increased by about $70 billion year-over-year, marking a 112% growth rate. Combined individual income and payroll taxes rose by $214 billion compared to the same period last year, up about 6%. In contrast, corporate income taxes decreased by approximately $27 billion from FY2024 levels, a decline of about 7%.

Interest Costs on National Debt Add Pressure to Deficit
On the expenditure side, federal spending in the first 10 months of FY2025 rose by $372 billion compared to the same period last year, representing a 7% annual increase. The CBO states that most of this spending growth stems from expanded mandatory spending. Social Security benefit payments increased by about $102 billion year-over-year, an 8% growth rate, primarily driven by higher annual cost-of-living adjustments (COLA) and an aging population increasing enrollment.

Medicare spending rose by approximately $58 billion from last year, which the CBO attributes to increased enrollment and higher service payment rates. Medicaid expenditures grew by about $47 billion, mainly due to rising per-enrollee costs.

Additionally, interest costs on the national debt are adding pressure to the deficit. The CBO report indicates that interest payments to date have increased by about $60 billion compared to the same period last year, an 8% rise, reflecting higher borrowing costs due to the growing national debt balance.

For monthly specifics, the CBO estimates that the July 2025 deficit reached $289 billion, approximately $45 billion higher than July 2024, as expenditure growth outpaced revenue increases that month. The report also mentions that June 2025 saw a $27 billion surplus, with this figure being $1 billion higher than preliminary estimates made a month earlier.