U.S. Treasury Secretary Yellen: The deficit ratio has dropped to the 5% range, hoping it will drop to the 3% range in a few years.

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U.S. Treasury Secretary Scott Bessent said that the decline in a key U.S. fiscal ratio indicates that President Trump’s economic policies are working and have not triggered a recession. Bessent made the remarks Thursday at a community banking conference hosted by the Federal Reserve:

The deficit-to-GDP ratio now starts with a 5. This is lower than the level in 2024, which was the highest deficit ratio in U.S. history during a non-war, non-recession period.

Bessent made these comments a day after the Congressional Budget Office (CBO) released estimated data on federal government spending and revenue for September, as well as the budget report for the full 2025 fiscal year. Bessent mentioned that due to the current government shutdown, the Treasury’s official data release has been delayed and must wait for Congress to pass the new appropriations bill for the 2026 fiscal year.

On Wednesday, the CBO estimated that the U.S. budget deficit for fiscal year 2025 will be almost the same as 2024, at $1.8 trillion. However, based on its estimate of gross domestic product (GDP), this brings the deficit-to-GDP ratio down to 5.9%. Treasury Department data shows that the ratio in 2024 was 6.4%.

Bessent has repeatedly stated that his involvement in public policy discussions stems from concerns over the unsustainable trajectory of government debt. He mentioned on Thursday a conversation with Trump about two years ago: "He looked at me and the first thing he said was, Scott, how do we reduce debt and deficits without causing a recession?”

Trump’s tariff hikes have brought in record-high tariff revenue, helping to contain the deficit. But CBO data indicate that government spending continues to rise, while corporate tax cuts implemented by the government have weakened fiscal revenues. The CBO also noted that in 2025, U.S. interest payments on public debt will exceed $1 trillion per year for the first time.

Bessent stated that he hopes to lower the deficit-to-GDP ratio to somewhere in the 3s by the end of Trump’s second term. "We are on the right track. I think we’ve already seen signs of that today.”

Bessent also said the Treasury expects to issue more tax refunds next year, as a result of tax law changes in Trump’s “One Big Beautiful Bill.” The changes include: making tips income in certain industries tax exempt, lowering the tax rate on Social Security payments, and making interest payments on purchases of American cars deductible.

Bessent also stated, “We expect to see large-scale tax refunds early next year, and I think these will benefit low-income groups—that is, the bottom 50% of people who most need relief. At the same time, their withholding tables will also be adjusted, which means next year’s actual take-home pay will be higher.”

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