On March 12, the Treasury Department announced that the federal deficit has grown to $1.15 trillion over the first five months (October through February) of Fiscal Year (FY) 2025. This is 17 percent higher than the deficit level at this time last year. According to the Treasury release, the deficit in February alone grew to $307 billion.
Two of the largest categories of deficit increases were spending for Medicare, where in the first five months of FY 2025 costs have risen by $124 billion to $516 billion. Another big contributor to the deficit number is interest on the federal debt. The interest the U.S. pays on its debt rose by $45 billion to $478 billion. Also contributing to the red ink was Social Security. Social Security outlays rose by $49 billion to $663 billion, according to Treasury.
The deficit report has roiled Congress, especially the fiscal conservatives, and may complicate efforts to enact the President’s tax cuts agenda. Deficit hawks are calling for even steeper spending cuts, and perhaps fewer tax cuts, as a result of the river of red ink.
Prospects: Any proposal’s revenue impact will get intense scrutiny as Congress deals with the FY 2026 budget, appropriations, and tax legislation. The deficit situation raises considerable risk of revenue-raising offsets.
NAIFA Staff Contacts: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org; or Mike Hedge – Senior Director – Government Relations, at mhedge@naifa.org.