And just yesterday, the U.S. government announced a jaw-dropping $1.78 trillion budget deficit for fiscal year 2025. This is the fourth-largest deficit in history, punctuating a deeply alarming economic scene. This is all the more surprising given that the government has had a historic boom in tariff revenues, with customs duties soaring. Even with these gains, surging interest costs and a record-shattering spending spree still pose a significant threat to the nation’s fiscal condition.
In September, the U.S. government raked in an incredible $30 billion in tariffs. To put this into context, this is an astonishing 295 percent increase over the same month last year. In addition, total annual customs duties totalled an all-time-high $202 billion this fiscal year, which is a whopping 142 percent increase from the previous year. This tax revenue increase is staggering. It’s a stark counterpoint to the tsunami of spending—and especially interest costs—that are crashing down on the federal budget.
Tariff Revenue Surge
The record tariff collection numbers are certainly evidence of a strong and aggressive trade enforcement strategy recently rolled out by the present administration. The increase in customs duties suggests a strategic pivot towards generating revenue through trade regulations rather than relying solely on traditional tax sources.
This almost doubling of revenue is not the only cause for concern according to critics – the government’s spending addiction is the real problem. For fiscal 2025, the federal government is already committing to spend more than ever before—on record. The case for reform is no less pressing given that spending is still projected to grow faster than revenue, a trend that threatens long-term fiscal sustainability.
“Confidence in U.S. creditworthiness may be undermined by a rapidly deteriorating fiscal situation, an increasing concern with federal debt set to grow substantially in the coming years.” – Bipartisan Policy Center
The U.S. federal government’s budget deficit-to-GDP ratio has even improved a little to 5.9 percent. That is the first time it has dipped under 6 percent since 2022. This decline is great news on the surface. It fails to seriously address deep and dangerous deficit, and long-term debt trajectory.
Rising Interest Expenses
In fact, interest expenses are at record highs – the U.S. government is projected to pay $1.13 trillion in fiscal year 2024 alone. Shortly after, costs for servicing the national debt rocketed by nearly $300 billion. In that fiscal year, they got to $1.2 trillion—so a 7.3 percent increase over 2023.
For FY 2025, net interest (interest expenses less interest receipts) is projected at an unsustainable $970 billion. To be clear, this situation creates unprecedented strain on federal finances. Interest obligations have already exceeded discretionary spending on other critical home-front priorities, including national defense and Medicare. The Pentagon was appropriated only about $917 billion, even as Medicare costs soared to $997 billion over that period.
Rising interest payments are a particularly concerning indication. Policymakers will need to walk a fine line between addressing short-term fiscal pressures and ensuring long-term fiscal sustainability. With interest expenses exceeding $1 trillion for the first time ever yesterday, there should be even more urgency for real fiscal reform.
Fiscal Outlook and Challenges
For fiscal year 2025, the federal government brought in $5.2 trillion in revenue, a 6.4 percent increase over 2024. Even with this boost, the program continues to face a growing deficit. Together with the announced deficit of $1.78 trillion, this highlights the ongoing spending issue that has been present in administrations of both partisan stripes.
And the Bipartisan Policy Center’s statement about this news is indicative of the larger fear about overall fiscal stewardship and creditworthiness amid growing federal indebtedness. Interest on the national debt is forecast to continue rising exponentially. Therefore, as states begin distributing these unexpected sums, lawmakers and economic experts will surely increase their demands for reform to these formulas.
In fact, debt has increased in every presidential administration since Calvin Coolidge. This trend raises profound questions about the prospects of devising bipartisan solutions to make our tax and spending policies more fiscally responsible. As economic pressures grow, stakeholders need to come to the table and have honest discussions. They have to do so by raising revenue and/or keeping expenses in line.