US budget deficit hit a record high in December, tariff receipts fall

The United States federal budget deficit for December 2025 and the first quarter of fiscal 2026 provides a complex picture of the nation’s fiscal health. While the top-line numbers suggest a significant spike in December spending, a deeper look at the Congressional Budget Office (CBO) and Treasury Department data reveals that calendar-driven accounting adjustments played a major role in these figures.

The US budget deficit hit a record in December

For the first three months of FY 2026 (October through December 2025), the federal government ran a cumulative deficit of $602 billion.

While this remains a high level of borrowing, it is actually $109 billion (15%) lower than the deficit recorded during the same period in FY 2025. This improvement was largely driven by a record surge in federal receipts, which outpaced the growth in government spending.

In isolation, December 2025 saw a record budget deficit of $145 billion, a sharp 67% increase from the $87 billion gap reported in December 2024. However, the primary reason for the December deficit spike was not a sudden policy change, but rather calendar shifts in benefit payments. Because January 1, 2026, fell on a holiday/weekend, approximately $32 billion in payments for Social Security, Medicare, and veterans’ benefits that would normally have occurred in January were “pulled forward” into December. Conversely, in the previous year (December 2024), certain timing shifts had actually reduced that month’s reported outlays by $51 billion.

Key Drivers of Revenue and Spending

When these timing shifts are removed to show the underlying fiscal trend, the adjusted December 2025 deficit would have been $112 billion. This represents an 11% decrease compared to the adjusted deficit from the previous year.

The first quarter of FY 2026 was defined by several major shifts in how money entered and exited the federal coffers.

1. The Tariff Surge (Revenue)

A standout feature of the Q1 data is the massive increase in customs duties. Driven by the administration’s tariff policies, net customs receipts for the first three months totaled $90 billion, compared to just $21 billion in the same period a year earlier, a more than fourfold increase. However, tariff receipts seem to have plateaued, and after hitting $31.5 billion in October, they fell to $30.76 billion in November and then $27.9 billion in December.

2. Tax Collection Trends

• Individual Income & Payroll Taxes: Rose by $141 billion (13%) due to higher wages and the collection of taxes previously delayed by natural disasters.
• Corporate Taxes: These actually fell by $28 billion (26%), as new reconciliation acts allowed for larger investment deductions, offsetting general growth.

3. Rising Interest and Entitlements (Spending)

Despite some savings from a government shutdown earlier in the quarter, structural spending continued to climb:

• Net Interest on Debt: Reached $355 billion for the quarter, a 15% increase. Interest is now the second-largest federal expense, driven by higher interest rates and a growing national debt.
• Social Security & Medicare: Spending rose by roughly 9% due to an aging population and cost-of-living adjustments (COLA).
• Defense Spending: Rose by $20 billion (25%) in December alone, partly due to the resumption of payments delayed by the October government shutdown.

The US national debt is approaching $39 trillion

Meanwhile, the US national debt is now approaching $39 billion. Notably, the US budget deficit fell $41 billion to $1.775 trillion in the fiscal year 2025 that ended in September. The lower deficit was led by $195 billion in tariff receipts, thanks to the broad-based tariffs that President Donald Trump has imposed. Also, the education spending cuts helped lower the deficit despite lower corporate tax receipts.

The US budget deficit hit a record high of $3.13 trillion in the fiscal year 2021. The surge was understandable as the economy needed support during the pandemic. The deficit came down to $2.77 trillion in the fiscal year 2022. It fell further to $1.38 trillion in the next fiscal year, and while it was much below the previous year, it was significantly higher than in pre-pandemic times, when the deficit was contained below $1 trillion. However, in the fiscal year 2024, the budget deficit increased to $1.8 trillion.

Several leading economists and fund managers have been warning about the soaring fiscal deficit and ballooning US national debt. At Berkshire Hathaway’s annual meeting earlier this year, chairman Warren Buffett warned that US debt has reached unsustainable levels.

The US budget deficit is still at elevated levels

Many fear that the fiscal path that the world’s biggest economy has been pursuing since the COVID-19 pandemic is unsustainable, and the country needs to bring down its burgeoning fiscal deficit that has surpassed its national GDP.

Notably, President Trump has touted the tariffs as a way to reduce the country’s budget deficit, which has soared in recent years on higher government spending. He also talked about sending out $2,000 tariff dividend checks to Americans. However, while the President has repeatedly promoted the idea on social media, even suggesting as recently as Christmas 2025 that 2026 would be the “largest tax refund season of all time,” these cheques are yet to be sent out.

Trump talked about sending $2,000 tariff dividend checks

Economists and budget experts have pointed out a major gap between the tariff revenue and the cost of the checks. A $2,000 payment for all low- and middle-income Americans (roughly 150 million adults) would cost approximately $300 billion. If children are included, that cost jumps to nearly $600 billion. However, in the 2025 fiscal year, tariffs brought in about $195 billion, far short of what is needed to fund a $2,000 per person payout.

There are also conflicting discussions on how the administration intends to use the tariff money, as it has talked about using the tariff money to pay down the $38 trillion national debt and offset the “One Big Beautiful Bill Act” (OBBBA) tax cuts, meaning the same dollar is being promised to multiple different goals.

Moreover, the President cannot unilaterally send out checks. Any direct stimulus or “dividend” requires an act of Congress. While some Republicans (like Senator Josh Hawley) have proposed smaller rebate bills, no legislation for a $2,000 check has passed.

Tariffs might not be a sustainable way to curb the budget deficit

Finally, the legality of the tariffs themselves is currently before the U.S. Supreme Court (in cases like Learning Resources v. Trump). If the Court rules that the President overstepped his authority in imposing these tariffs, the government might actually have to refund the money to importers rather than sending it to citizens.

All said, economists are still divided on the benefits of tariffs, as many argue that they would mostly be borne by American consumers rather than foreign companies