How have federal revenue and spending trends since 2025 affected annual budget deficits?
Executive summary
Since 2025, federal revenues rose materially while outlays also climbed, producing a 2025 deficit that was marginally smaller than 2024’s but still historically large; CBO reports the FY2025 deficit at about $1.8 trillion even as revenues increased roughly 6 percent ($317 billion) year over year [1]. Early FY2026 data show stronger revenue growth in some months and only modest outlay increases, trimming near-term monthly deficits, but independent analysts warn that recent legislation and persistent interest costs will widen deficits and debt over the coming decade [2] [3] [4].
1. Revenues rose in 2025 and into early 2026, but growth alone didn’t erase deficits
Total receipts in FY2025 climbed about 6 percent relative to 2024—an increase of roughly $317 billion driven mainly by higher individual income and customs duties collections, even as corporate receipts fell—yet spending rose too, leaving the FY2025 shortfall at about $1.8 trillion [1] [5]. Monthly Treasury and watchdog snapshots for early FY2026 indicate even stronger revenue gains in some periods—Treasury-tracked comparisons show revenues up 13–18 percent in late 2025 versus 2024 months after timing adjustments—helping narrow cumulative deficits in those months [2] [6].
2. Spending growth has been uneven: modest near-term increases, but large structural pressures persist
Outlays rose only modestly in several late-2025 comparisons—reported increases of about 1–2 percent year over year in some monthly tallies—but total federal spending remained near record levels, with FY2025 outlays at roughly $7.0 trillion, consuming almost all the revenue gains and preserving a very large deficit [2] [7]. Advocacy groups and some commentators emphasize that interest costs and mandatory program growth (Social Security, Medicare, Medicaid, and rising net interest) are already major drivers of spending and will exert sustained upward pressure [8] [9].
3. Interest costs are a rising bite and already comparable to big discretionary categories
Analyses flag net interest spending as a rapidly growing line item: in Q1 of FY2026 interest payments were reported near $270 billion, a sum that has outpaced or rivaled major categories such as national defense in that quarter, underscoring a structural headwind to narrowing deficits [9]. CBO and long-run projections embed similar concerns, projecting that net interest outlays will climb materially as debt grows, constraining fiscal flexibility [10] [4].
4. Policy changes since 2025 shift the long-term trajectory toward larger deficits and debt
Multiple policy trackers and researchers conclude that the One Big Beautiful Bill Act (OBBBA) and related legislative choices enacted in 2025 reduce long-run revenues and add substantially to projected deficits: independent estimates from fiscal groups place large additions to deficits in 2026–2027 and trillions added over the decade, and NBER-style scenarios suggest far higher debt-to-GDP ratios when the law’s effects are included [3] [4] [11]. The Committee for a Responsible Federal Budget and CRFB-adjusted baselines show deficits and debt rising relative to earlier CBO baselines absent offsetting policy changes [3] [12].
5. Near-term data offer some improvement, but structural projections show worsening unless policy changes
Monthly and quarterly snapshots for late 2025/early 2026 show revenue upticks that lowered cumulative deficits relative to a year earlier after timing adjustments, with some months’ deficits down 9–20 percent versus prior-year comparators [2]. Yet CBO’s outlook and independent fiscal groups warn that those near-term gains are overwhelmed in projections by legislation that lowers revenue baselines and by rising interest and entitlement spending, producing multi‑trillion dollar deficits over the coming decade and debt ratios well above historical norms unless offsetting policy action is taken [1] [10] [3] [4].
6. Bottom line: better revenues helped in the short run, but structural forces and recent laws point to larger future deficits
The immediate post‑2025 picture is mixed—stronger revenue receipts and only modest outlay growth narrowed several recent monthly deficit comparisons and kept the FY2025 deficit slightly below 2024’s—but authoritative and independent projections converge on a warning: legislation that reduces long‑run revenues and the inexorable rise of interest and entitlement spending will push annual deficits and debt substantially higher over the next decade absent new offsets or policy changes [2] [1] [3] [4].