Trump administration still running budget deficits despite surge in tariff revenue

Tariff revenue is closing the budget deficit, but federal spending continues to increase, erasing some of those gains and driving Uncle Sam deeper into debt.

The federal government ran a $94.62 billion deficit in January, according to the monthly Treasury statement. That was down 26 percent compared to January 2025.

The year-on-year drop was built on the back of strong government receipts. Uncle Sam collected $559.94 billion last month, up $47 billion (9 percent) from a year ago.

Through the first four months of fiscal 2026, the federal government has collected $1.79 trillion, up 17 percent compared to the same period in fiscal 2025.

Tariff receipts are pumping up federal revenues. Customs duties totaled $27.7 billion in January, roughly the same as December. This was modestly below the $30 billion monthly pace ‌late last year. To put this into perspective, tariff receipts in January 2025 (before President Trump announced his tariff policy) totaled just $7.3 billion.

Looking at the trend, it appears the federal government has likely maxed out tariff receipts. Ostensibly, tariffs will ease as new deals are reached. 

Houston! We have a spending problem

White House officials and pundits have made a big deal about tariff revenue. Some people have even claimed the federal government could eliminate the income tax and rely solely on customs receipts. A quick glance at the numbers reveals this is a fantasy.

In fact, the big surge in tariff revenue can’t even erase the monthly budget shortfalls.

Why not?

Because the federal government has a spending problem.

The Trump administration blew through another $654.55 billion last month. That was a 2 percent year-on-year increase. January outlays pushed spending through the first four months of fiscal 2026 to $2.48 trillion, also a 2 percent increase.

That might not sound like a significant increase. But weren't we told there would be spending cuts?

There were some cuts.

The increased spending comes despite cuts to the EPA and the Department of Education budget that are now showing up in the data. Lower disaster spending also helped moderate spending levels through the first two months of fiscal ’26.

Looking at the big picture, the spending trajectory is up. Even with all the hype about DOGE and some lip service to cutting spending during the early days of the Trump administration, the U.S. government spent just over $7 trillion last year. That’s an average of $583.3 billion per month or $19.2 billion per day.

Despite some non-specific talk about “spending cuts,” there seems to be little to no commitment to dealing with the runaway spending substantially.

The Big Beautiful Bill trimmed some spending but increased it in other areas. Furthermore, those “cuts” were from projected spending increases. Actual expenditures will still go up, just not as fast as originally planned. The bottom line is that even with the Big Beautiful Bill, spending will increase on an absolute basis. We’re seeing it now.

And all that waste uncovered by DOGE? Virtually none of it was removed from the budget.

This is par for the course. It’s a lot easier to talk about spending cuts than it is to actually cut spending.

You might recall that President Biden promised that the [pretend] spending cuts would save “hundreds of billions” with the debt ceiling deal (aka the [misnamed] Fiscal Responsibility Act).

That never happened.

Supporters of the Big Beautiful Bill expect economic growth stimulated by tax cuts to boost revenue and narrow the deficit. However, history casts significant doubt on this claim. 

The ugly truth is the government isn't committed to cutting spending in any meaningful way, and it always finds new reasons to spend even more, whether for "crises" at home or wars overseas.

The interest problem

On October 21, the national debt surged to over $38 trillion. Less than three months later, the debt stands at $38.7 trillion.

Uncle Sam must pay interest on all that debt. Interest expense has grown into the second-largest spending category in the federal budget behind only Social Security.

In January, the Treasury forked out $71.8 billion on interest expense alone. That pushed interest expense to $426.47 billion through the first four months of fiscal 2026. That was up 8.7 percent compared to the same period in fiscal ’25.

Interest on the national debt cost $1.2 trillion in fiscal 2025. That was up 7.3 percent over 2024.

Net interest (interest expense – interest receipts) was $76 billion in January.

Through the first four months of the fiscal year, the federal government spent more on interest on the debt than it did on national defense ($341 billion) or Medicare ($403 billion). The only higher spending category is Social Security ($540 billion).

Much of the debt currently on the books was financed at very low rates before the Federal Reserve started its hiking cycle. Every month, some of that super-low-yielding paper matures and must be replaced by bonds yielding much higher rates. And even after the Federal Reserve cut rates, Treasury yields have pushed upward as demand for U.S. debt sags.

When people say the spending is unsustainable, it feels like an understatement. However, very few people in the political class seem the least bit interested in tackling the problem. The bad news is that at some point, the problem is going to tackle them.