U.S. budget deficit shrinks by 17% in the first four months of fiscal year 2026, tariff revenue surges

Tariff revenues helped the United States reduce its budget deficit by 17% in the first four months of this fiscal year, highlighting the stakes for the U.S. government as the Supreme Court reviews whether President Trump has the authority to impose most tariffs.

In the four months through January, the budget deficit fell 17% from $840 billion in the same period last year to $697 billion. Excluding calendar differences, the deficit since the start of fiscal year 2026 has dropped 21%. Revenue grew faster than spending. During that period, fiscal revenue increased by 12%, while spending rose only 2%. Between October and January, tariff revenue totaled $124 billion, up about 304% from the same period in 2025.

Earlier Wednesday, the Congressional Budget Office (CBO) estimated that if tariffs effective as of November 20 remain unchanged for the next decade, tariff revenue will reduce the federal deficit by $3 trillion over ten years.

However, this is still not enough to offset other deficit-boosting factors in Trump’s economic plan. After factoring in tax cuts from the hallmark Republican legislation passed last July and other new assumptions, the CBO raised its ten-year cumulative deficit forecast by $1.4 trillion.

Since last year, Trump’s tariff measures have faced legal and legislative controversy. The U.S. Supreme Court is hearing a case that may overturn many of these measures based on whether Trump has the authority to impose these tariffs under his emergency economic powers. The Trump administration has stated that if it loses, it will adopt other, possibly more cumbersome, methods to re-impose some tariffs.

Meanwhile, the latest budget data shows that after last year’s tax legislation lowered corporate tax burdens, total corporate tax revenue has declined. Corporate tax revenue in the past four months was $125 billion, down from $146 billion in the same period last year.

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