What Is a Budget Surplus?

A budget surplus occurs when income exceeds expenditures. The term often refers to a government's financial state, as individuals have "savings" rather than a "budget surplus." A surplus is an indication that a government's finances are being effectively managed.

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Budget Surplus

Understanding Budget Surplus

A budget surplus might be used to make a purchase, pay off debt or save for the future. A city government with a budget surplus may use the money to make improvements, such as revitalizing a decaying park or downtown area.

Key Takeaways

  • A budget surplus is when income exceeds expenditures.
  • The term "budget surplus" is used in reference to a government's financial state.
  • The U.S. government ran a budget surplus during the final years of Bill Clinton's presidency.

When expenditures exceed income, the outcome is a budget deficit. When deficits occur, money is borrowed and interest is paid, similar to an individual spending more than they earn and paying interest on a credit card balance. A balanced budget exists when expenditures equal income.

During the final years of Bill Clinton's presidency, the U.S. government eliminated a large budget deficit, resulting in a surplus. A surplus is a positive value and is the sum by which revenues are greater than spending during a set period, usually a fiscal year. For example, in 2000, receipts for the year totaled $2.025 trillion, while expenditures were $1.788 trillion. This resulted in a budget surplus of about $236 billion.

Overview

Economic and spending changes generate a surplus. A budget surplus is one indicator of a healthy economy. However, it is not necessary for a government to maintain a surplus. The U.S. has rarely run a budget surplus, and has experienced long periods of economic growth while running a budget deficit. 

A surplus implies the government has extra funds. These funds can be allocated toward public debt, which reduces interest rates and helps the economy. A budget surplus can be used to reduce taxes, start new programs or fund existing programs such as Social Security or Medicare. A budget surplus can occur when growth in revenue exceeds growth in expenditures, or following a reduction in costs or spending or both. An increase in taxes can also result in a surplus.

Sources

The U.S. Treasury releases government budget information on a monthly basis. Budget surplus or deficit data appears in the statements, which summarize whether the government is spending or collecting more money than expected. In addition, the data records future collections or changes to the budget.