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What is a 'Budget Surplus'

A budget surplus is a period when income or receipts exceed outlays or expenditures. A budget surplus often refers to the financial states of governments; individuals prefer to use the term 'savings' instead of the term 'budget surplus.' A surplus is an indication that the government is being effectively managed.

BREAKING DOWN 'Budget Surplus'

A budget surplus might be spent to make a purchase, pay off debt or save for the future. A city government that has a surplus may use the money to render improvements to a local decaying park, for example.

When expenditures exceed income, the outcome is a budget deficit, which is funded by borrowing funds and paying interest on the borrowed money, similar to an individual spending more than he earns and carrying a balance on a credit card. A balanced budget exists once expenditures equal income.

As of 2016, the U.S. government has undergone nine budget surpluses. The Clinton administration eliminated a large budget deficit, resulting in a surplus. A surplus is a positive value and is the sum by which government revenues are greater than government spending during a set period, usually a fiscal year. For example, June 2016 was the most recent U.S. government budget surplus. The receipts for the year totaled $330 billion, while expenditures for the year were $323 billion. This resulted in a budget surplus of approximately $6 billion.

Overview

Economic and spending changes generate a surplus. A budget surplus is an indicator of a healthy economy. However, it is not necessary for a government to maintain a surplus. For instance, not having a budget surplus does not mean the economy is not being run efficiently.

A surplus implies the government has extra funds; these funds can be allocated to pay debts, which reduces the interest payable and helps the economy in the future. For example, a budget surplus can reduce taxes, start new programs and fund existing public programs, such as social security or Medicare.

In addition, a surplus can reduce the public debt, fund the military, infrastructure, energy, and public works, pay salaries, implement policy, or be saved to spend in the future once a deficit occurs. A budget surplus occurs after a reduction in costs and spending or both. An increase in taxes can also result in a surplus. A surplus decreases consumer demand, lowers consumer prices and slows down the economy.

Sources

When determining the best ways to utilize a budget surplus, it is essential to rank the potential uses, project the possible outcomes, project implementation costs and make decisions, which improves the overall financial health of the economy.

The U.S. Treasury releases information about the budget to the public. Budget surplus data appears in monthly statements, which summarizes whether the government is spending or collecting more money than expected. Data that appears in the monthly statements denotes transactions that have occurred during the month. In addition, the data records future collections or changes to the budget.

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