While most Americans were picking out Halloween costumes in October 2025, the federal government was delivering a treat of its own: a smaller deficit than expected. The U.S. federal deficit dropped to $219 billion in October, marking the start of fiscal year 2026 with encouraging news for taxpayers.
While Americans celebrated Halloween, Washington delivered its own treat: a $219 billion deficit, down from last year’s frightening figures.
This October deficit represents a significant improvement from previous years. Compared to October 2024’s $250 billion deficit, this year shows a 12.4% decrease. Looking back further, October 2023 had an even larger deficit of $270 billion. The trend is clear: Washington’s red ink is shrinking steadily. Building an emergency fund remains critical for individuals to protect themselves amid such fiscal fluctuations.
The improvement comes from two main sources: more money coming in and less money going out. On the revenue side, individual income and payroll taxes brought in $40 billion more than last October. Customs duties also jumped by $22 billion thanks to higher tariffs. However, corporate income taxes fell by $46 billion, creating some offset. Overall, total government receipts still increased by $16 billion.
The spending side tells an even more dramatic story. Government outlays dropped by a whopping $101 billion compared to October 2024. The biggest change came from the Department of Education, which spent $126 billion less due to federal student loan program changes from the One Big Beautiful Bill Act.
Meanwhile, some areas saw increases: Foreign Military Sales rose $11 billion, Social Security payments grew $9 billion, and Medicare spending increased $8 billion.
These October numbers fit into a broader pattern of fiscal improvement. The entire fiscal year 2025 ended with a projected deficit of $1.8 trillion, representing 5.9% of GDP compared to 6.3% the previous year. September 2025 actually produced a surplus of $164 billion, showing the government can occasionally take in more than it spends.
While these numbers suggest Washington’s fiscal strategy is working, questions remain about long-term sustainability. The combination of revenue increases through tariffs and spending controls appears effective for now. The CBO estimates that tariffs could reduce deficits by $3.3 trillion over 10 years if current policies remain in place.
However, with mandatory spending on programs like Social Security and Medicare continuing to grow, maintaining this positive trend will require ongoing attention and possibly more policy adjustments. At the end of fiscal year 2025, the national debt reached $30.2 trillion, highlighting the accumulated impact of years of deficit spending.
