President Donald Trump was handed his first budget deficit of his second administration. While the Treasury Department did not release fiscal numbers due to the government shutdown, the Congressional Budget Office (CBO) published the September budget review. The report determined that the federal government registered back-to-back $1.8 trillion shortfalls for fiscal year 2025.
Despite two consecutive annual shortfalls reaching $1.8 trillion, the budget deficit had a smaller share of the nation’s gross domestic product, or GDP. This is something that Treasury Secretary Scott Bessent and other senior administration officials have been banking on: growing America’s way out of its fiscal challenges.
Last year, the deficit-to-GDP ratio reached 6.3%, the highest it has ever been in a non-recessionary, non-war, and non-global pandemic period. This year, the ratio declined to below 6% for the first time since 2022. Bessent wants this number down to around 3% by the end of Trump’s term.
The other good part of the CBO’s Monthly Budget Review is that Washington recorded a sizable surplus in September. Last month, the surplus reached $164 billion as tax receipts rose 2% and federal outlays plummeted 13% from a year ago. By comparison, Uncle Sam’s surplus was just $80 billion last year.
The US government spent $7 trillion last year, representing a 4% increase from the previous year. This is higher than the economies of Japan ($4.9 trillion), Germany ($4.5 trillion), India ($4.2 trillion), and the United Kingdom ($3.6 trillion).
The $301 billion jump was driven by an 8% spike in safety net outlays. Specifically, government spending on Social Security benefits increased by $121 billion due to cost-of-living adjustments (COLA) and an increase in the number of recipients. Additionally, Medicare and Medicaid outlays advanced by $72 billion and $52 billion, respectively.
While Pentagon spending jumped by a modest 5%, Homeland Security spending ballooned by 28%. Moreover, because the Biden administration accelerated billions in funding for various green energy projects before handing the keys to President Trump, spending at the Environmental Protection Agency (EPA) soared by 167%.
Here comes the ugly, hideous, atrocious, and dreadful part.
Net interest payments on the public debt soared by $80 billion, or 8%. As a result, debt-servicing charges officially surpassed $1 trillion for the first time ever. One word: ouch.
While interest rates may be lower in the coming years, the annual $1 trillion – give or take – will remain the same. Why? The national debt topped $37 trillion in August. This month, the pile of IOUs will surpass the $38 trillion mark. It took the United States about 200 years to manufacture a $1 trillion debt pile. Today, it takes Washington a couple of months.
“While the deficit didn’t rise from last year, it didn’t fall either, and we continue to borrow far too much,” Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said in a statement. “Our national debt is about the size of the entire U.S. economy and will exceed its highest ever record as a share of the economy – set just after World War II – in short order. We are on track to borrow nearly $2 trillion per year for the next decade. How can anyone think this is sustainable?”
When you are drowning in debt, why bother handing out tariff-funded stimulus checks?
So, does this mean the Department of Government Efficiency (DOGE) failed? Perhaps 330 million Americans should give it another year before its efforts are realized, as reforms and cuts often take time to work their way through the budgetary process. That said, the public should not get its hopes up that DOGE will have identified $500 billion in savings. Considering that two-thirds of the budget is dedicated to mandatory spending, eliminating all taxpayer funding for drag shows in Latin America, transgender mice research, and shoes for Ethiopians will not make a significant difference to a $7 trillion budget.