The U.S. budget deficit dropped to $95 billion in January. That’s a $34 billion decrease from the same month last year. The Treasury said this happened because income rose faster than spending, mostly helped by higher customs duties.
When they adjusted the numbers for stuff like holidays and weekends, the deficit would’ve been just $30 billion, down from $82 billion last January. That’s a 63% drop.
Receipts hit $560 billion in January, rising $47 billion, or 9%. Spending was $655 billion, which was $13 billion more than last year, a 2% rise. Both of those numbers were the highest ever recorded for any January, but the deficit still didn’t set a new record.
For the fiscal year so far, which started October 1, the deficit is $697 billion, down $143 billion, or 17%, from last year. Revenue totaled $1.785 trillion, while spending was $2.482 trillion, up just 2%.
Customs duties surge while debt payments shrink
One big factor that helped close the gap was the jump in customs duties. President Donald Trump’s tariffs are behind most of it. Customs receipts totaled $27.7 billion in January.
That’s almost four times more than $7.3 billion collected in January 2025, before Trump restarted the tariffs. For the first four months of the fiscal year, customs duties reached $117.7 billion, up from $28.2 billion in the same period last year.
Something else that helped lower the deficit was a rare drop in interest payments on government debt. In January, interest costs fell $12 billion, landing at $72 billion. That’s because some inflation-related bond payments were delayed after last year’s government shutdown messed with the release of inflation data.
Even with the drop, total interest for the fiscal year is $426 billion, which is still the highest ever for the first four months. That’s $34 billion more than last year.
A Treasury spokesperson said the lower interest costs and higher tariff revenue worked together to bring down the January deficit, but warned that big spending bills coming down the line could undo that progress quickly.
Budget office projects rising deficit through 2036
Things might look better now, but the long-term outlook is still bad. The Congressional Budget Office (CBO) said the deficit will balloon over the next decade. They updated their forecast and now expect the deficit to grow by $1.4 trillion by 2035.
That’s 6% more than what they predicted last year. This change came after Trump signed the One Big Beautiful Bill Act, which extended his earlier tax cuts and included major immigration enforcement plans.
Phillip Swagel, who runs the CBO, said, “Our budget projections continue to indicate that the fiscal trajectory is not sustainable.” He also warned that by 2036, the yearly deficit could hit $3.1 trillion, up from $1.9 trillion now.
Jonathan Burks at the Bipartisan Policy Center said:- “America’s fiscal health is increasingly dire. Our debt is now 100% of GDP, and rather than pumping the brakes, we are accelerating.”
The CBO expects Trump’s tax law to add $4.7 trillion to the deficit by 2035. His immigration policies will cost another $500 billion. But they say his tariffs will recover around $3 trillion, helping reduce the damage slightly.
Investors pull back as Treasury auctions slow
The pressure’s already building in the bond market. The U.S. government’s debt load is now five times larger than it was back in 2008. That’s starting to scare off investors. This week, the Treasury held an auction for $42 billion worth of 10-year notes, and the turnout was weak.
When demand is soft, the Treasury has to offer better deals to attract buyers. So yields went up again. Mortgage rates are tied to these same bonds, so they went up too. That’s not what Trump’s administration wants. They’ve said they want lower long-term yields to make home buying easier and keep the deficit under control.
Banks known as primary dealers were forced to scoop up most of what was left after the auction. That hasn’t happened since August 2025, according to BMO Capital Markets. Regular buyers didn’t want in.
Trump’s people are hoping to avoid another rise in borrowing costs. But as more debt piles up, getting investors to keep buying at cheap rates is getting harder. The growing deficit, rising yields, and cold auction demand are turning into a warning sign.
