U.S. fiscal deficit surges by $1 trillion in five months as tariffs become key revenue source

[The Financial News]


The U.S. fiscal deficit has jumped by more than $1 trillion over the past five months. Although this is about 12% lower than in the same period a year earlier, it once again confirms that the federal government’s finances are on an unsustainable path.
The government is struggling to borrow just to cover interest payments.
The war with Iran is expected to sharply widen the deficit from this month onward, placing a huge burden on federal finances and the U.S. Treasury market.

According to the U.S. Department of the Treasury, the cumulative federal deficit for the current fiscal year reached $1.004 trillion through February. The 2026 fiscal year began last October.
However, compared with a year earlier, the deficit is down about 12%. This is because tax revenues, boosted by tariffs, have grown faster than spending.
The U.S. Department of the Treasury indicated that tariffs are now serving as a crucial pillar supporting federal finances.
Over the past five months, tariff revenues totaled $151 billion, a surge of $113.3 billion, or 294%, from a year earlier.
An unusual pattern has also emerged in which tariffs have overtaken corporate taxes.
Corporate tax revenues over the same five-month period came to $131 billion, down $27 billion, or 17%, from a year earlier.
While tariff income has nearly quadrupled, corporate tax revenues—the main pillar of federal finances—have posted a double-digit decline.
According to Consumer News and Business Channel (CNBC), Jason Furman, a Harvard University professor who previously chaired the Council of Economic Advisers (CEA), warned that Donald Trump’s "America First" economic agenda is upending the U.S. fiscal framework. He cautioned that the fact tariffs, rather than corporate taxes, have become the backbone of federal revenue is a dangerous sign.

The latest Monthly Treasury Statement (MTS) from the U.S. Department of the Treasury also shows that snowballing interest payments are rapidly approaching unmanageable levels.
With national debt nearing $39 trillion, a cycle in which the government must borrow to repay existing debt has become entrenched.
In February alone, the federal government paid $79 billion in interest.
Among federal spending categories, only Social Security, income support programs such as food assistance (food stamps), and health care costs exceeded that amount.
Defense spending was already overtaken by interest costs in the 2024 fiscal year. Defense outlays totaled $874 billion, below interest payments of $882 billion.
Last month as well, defense spending amounted to $72 billion, falling short of interest payments.
Phillip Swagel, director of the Congressional Budget Office (CBO), said public finances are currently on an unsustainable path and urged a major shift in economic policy.
Swagel warned that although tariff revenues are helping plug holes in the budget, they provoke retaliation from trading partners and will ultimately undermine America’s long-term growth potential, further weakening the tax base.

The U.S. fiscal deficit is now likely to balloon rapidly from this month. The reason is the enormous sums being poured into the war with Iran.
Mark F. Cancian, a senior adviser at the Center for Strategic and International Studies (CSIS), warned in a report released on the 6th that the pace of war spending in the conflict with Iran is far faster than in the early stages of the Iraq War or the War in Afghanistan. He cautioned that if the war lasts more than six months, direct military expenditures alone will exceed $260 billion, spelling disaster for the federal budget.
Expectations that the government will issue more Treasuries to finance massive war costs are already weighing on the market. Demand for U.S. government bonds is weakening, and yields, which move inversely to prices, are climbing.
On the day, the benchmark 10-year U.S. Treasury yield rose 0.074 percentage points from the previous session to 4.21%.

dympna@fnnews.com Song Kyung-jae Reporter