US budget deficit narrows to $697 billion on surge in tariff revenue

Income generated from tariffs contributed to a 17% reduction in the US budget deficit during the first four months of the fiscal year, underscoring what is at stake as the Supreme Court considers whether President Donald Trump had the authority to impose most of his duties.

The deficit for the period from October through January totalled $697 billion, down from $840 billion in the same span a year earlier — a 17% decrease. After adjusting for calendar-related differences, the deficit for fiscal 2026 to date has fallen by 21%, as per Bloomberg. 

Government revenues are increasing at a faster pace than expenditures. Overall receipts rose 12%, while outlays increased by just 2%. Customs duties generated $124 billion between October and January, marking an approximate 304% surge compared with the same period in 2025.

On February 11, the Congressional Budget Office (CBO) projected that tariff revenues would lower federal deficits by $3 trillion over a ten-year period — provided that the duties in place as of November 20 remain unchanged throughout that timeframe.

However, those projected gains were insufficient to counterbalance other deficit-expanding components of Trump’s economic agenda. The CBO raised its cumulative 10-year deficit forecast by $1.4 trillion, factoring in tax cuts enacted under last July’s signature Republican legislation, along with additional updated assumptions.

Since last year, Trump’s tariffs have faced both legal challenges and legislative debate. The Supreme Court is currently weighing a case that could invalidate many of the measures, centred on whether Trump had the authority to implement them under his emergency economic powers. The administration has indicated that, if it loses the case, it would pursue alternative — though potentially more complex — mechanisms to reinstate certain duties.

Meanwhile, the latest budget data also revealed a decline in gross corporate tax receipts following reductions in company levies included in last year’s tax legislation. Corporate tax revenues totaled $125 billion over the past four months, down from $146 billion during the same period a year earlier.

By Tamilla Hasanova