U.S. Treasury Secretary Janet Yellen: The deficit has decreased to the 5 range, hoping to drop to the 3 range in a few years
Bessent recently stated that the U.S. deficit as a percentage of GDP is now in the 5% range, which is lower than the level in 2024; he hopes to reduce the deficit-to-GDP ratio to the 3% range before the end of Trump's second term. Bessent expects that the U.S. Treasury will issue more tax refunds next year
U.S. Treasury Secretary Scott Bessent stated that the decline in a key fiscal ratio in the United States indicates that President Trump's economic policies are working and have not triggered an economic recession. Bessent made these remarks at a community banking conference hosted by the Federal Reserve on Thursday:
The deficit as a percentage of GDP is now in the 5s. This ratio 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's comments came a day after the U.S. Congressional Budget Office (CBO) released estimates for federal government spending and revenue for September, as well as the budget report for the entire fiscal year 2025. Bessent mentioned that due to the current government shutdown, the official data release from the Treasury Department has been delayed, pending Congress's passage of the new appropriations bill for the newly initiated fiscal year 2026.
On Wednesday, the CBO estimated that the budget deficit for fiscal year 2025 would be nearly the same as in 2024, at $1.8 trillion. However, based on its estimate of Gross Domestic Product (GDP), this brings the deficit as a percentage of GDP down to 5.9%. The U.S. Treasury Department data shows that this ratio was 6.4% in 2024.
Bessent has repeatedly stated that his involvement in public policy discussions stems from concerns about the unsustainable trajectory of government debt. He recalled a conversation he had 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 triggering a recession?’”
Trump's tariff increases have generated record tariff revenues, helping to curb the deficit. However, CBO data indicates that government spending is still rising, while corporate tax cuts implemented by the government have weakened fiscal revenue. The CBO also noted that in 2025, U.S. public debt interest payments will exceed $1 trillion for the first time.
Bessent expressed his hope to reduce the deficit as a percentage of GDP to the 3s before the end of Trump's second term. “We are on the right track. I think we are already seeing signs of that today.”
Bessent also indicated that the U.S. Treasury is expected to issue more tax refunds next year, as a result of tax law changes in Trump's “One Big Beautiful Bill.” The changes include: tax exemption for tip income in certain industries, a decrease in the tax rate for Social Security payments, and the deductibility of interest expenses for purchasing American cars.
Bessent further stated, “We expect to see large-scale tax refunds early next year, and I believe these will benefit low-income groups—the bottom 50% of the population who need relief the most. At the same time, their withholding tax tables will be adjusted, which means that their actual take-home pay will be higher next year.”
