Have US Public Finances Really Improved, or Is It Just a Mirage? May 1, 2026

When compared to January 2025, the very beginning of President Trump's second term, the numbers look even better. Back then, the 12-month deficit was $2,125B. So between January 2025 and March 2026, the deficit shrank by nearly 23%, which is nothing to scoff at. That said, most of that $488B improvement in the deficit came from higher revenues (+$527B), while spending went up by $40B. It's also important to remember the rather unique circumstances affecting the public sector in 2025: a government shutdown of record-breaking length that held back federal spending last fall, the budget cuts by Elon Musk's DOGE and an administration determined to scale down departments like health and education.

Spending on major mandatory social programs has climbed by 7.4% since January 2025, while spending on debt servicing and defence have risen by 7.5% and 3.5% respectively. But non-military discretionary spending fell 17.0%, a US$304B decrease from the start of President Trump's second term. The new administration had a particularly strong impact on certain departments, including environmental protection (-51.4%), international aid (-58.5%) and education (-90.6%). The federal public service has obviously been affected by all this. Monthly data from the Bureau of Labor Statistics showed that in March, the federal government employed 2,059,400 civil servants (excluding the postal service). That's down by 346,300 (-14.4%) from January 2025.

The increase in the federal government's revenues came mainly from personal income taxes, which went up by 13.2%. In contrast, corporate income tax revenues went down by 14.1% since January 2025. The decline started in September 2025, when businesses began implementing the tax cuts passed last summer. Higher tariffs also boosted government revenues, especially after April 2025, sending an additional US$243B to federal coffers compared to January 2025.

The Impact of Key Republican Policies

Our assessment of public finances since January 2025 shows that tariffs have helped improve the federal government's financial position. Revenues from President Trump's protectionist policies peaked in October 2025, when monthly inflows reached $33.1B. They have since declined, in part because some tariffs were walked back (especially on food starting in November) and trade patterns shifted. In addition, the Supreme Court upended the whole situation when it struck down the reciprocal, fentanyl and border security tariffs. In March, tariff revenues amounted to only $24.0B, the lowest since May 2025. And the government will have to refund the tariffs that were ruled illegal. A document External link. submitted to the United States Court of International Trade claimed that as of March 4, 2026, nearly 330,000 importers had paid around $166B in duties before the tariffs were overturned by the Supreme Court. This money will eventually have to be paid back, and a process for claiming these refunds was recently put into place. This means that some of the improvement in the federal budget was illusory and will be reversed.

The other flagship policy affecting US public finances was the One Big Beautiful Bill Act (), which was signed into law on July 4, 2025. We commented External link. on the shortly before it was given final approval by Congress. Its impact could already be seen in fiscal 2025, as corporate income tax revenues plummeted. The Congressional Budget Office () estimated that the reduced corporate tax inflows by $100B in 2025, which will be followed by annual declines of $152B in both fiscal 2026 and fiscal 2027. The estimated impact of personal income tax cuts was relatively modest in 2025 ($32B), but will increase substantially in 2026 ($326B) and subsequent years.

The Latest CBO Projections

In February, the published its most recent federal budget outlook. Based on the legislation in effect at that time, including the , the 's forecast showed the deficit worsening slightly over the next several years. It would grow from $1,775B at the end of fiscal 2025 to $1,853B in September 2026 and then $1,887B in 2027 (graph 2). As a percentage of , that's actually fairly stable, amounting to 5.8% in 2025, 5.8% in 2026 and 5.7% in 2027. Debt held by the public would rise from 99.4% of in 2025 to 100.6% in 2026, and climb all the way to 120.2% in 2036.