5-Month Deficit Down 12%, But Tariff Revenue Risks Await
The US government budget deficit in February was virtually unchanged from a year earlier at US$308 billion, as revenue and spending growth remained relatively balanced. The US Treasury Department reported February revenues reached US$313 billion (up US$17 billion, or 6% year-on-year), while spending was US$621 billion (up US$17 billion, or 3% year-on-year). Both were considered records for February.
The increase in revenues was driven in part by a US$15 billion surge in individual income tax withholding, partly related to the 2025 year-end bonus payments. However, this was partially offset by a US$7 billion increase in corporate tax refunds and a US$6 billion increase in individual tax refunds, which were attributed to the tax cut legislation passed by Republicans last year.
On the import duties front, net customs duties cooled slightly to US$26.6 billion from US$27.7 billion in January and above US$30 billion in the final months of last year. Treasury officials emphasized that this data does not yet reflect the reduction in tariffs following the US Supreme Court ruling invalidating some duties under the IEEPA, as tariffs are typically paid with a lag of about one month. Customs and Border Protection (CBP) halted collection of these tariffs on February 24, and it remains unclear how refunds will be recorded, amid preparations for a simplified refund process and the implementation of a temporary 10% duty for 150 days.
On the spending side, the increase was driven in part by an increase in public debt interest, which rose $8 billion, or 9%, to $93 billion, and military spending, which rose $6 billion, or 9%, to $67 billion. The main transmissions are: rising interest costs reduce fiscal flexibility, while changes in the tariff regime and the refund process have the potential to shift the revenue profile in the coming months.
For the first five months of fiscal 2026, the Treasury recorded a deficit of $1.004 trillion, down $142 billion, or 12% year-on-year. Revenues rose by US$205 billion, or 11%, to US$2.098 trillion, while spending rose by US$63 billion, or 2%, to US$3.012 trillion.
Source: Newsmaker.id
