Budget Surplus
Plain definition
The amount by which government tax revenue exceeds spending in a given year.
In economics
A surplus is the mirror of a deficit: it shrinks the national debt and can cool an overheating economy (contractionary fiscal policy). Surpluses are rare and usually occur during strong expansions when revenues surge; economists debate whether to use them for debt reduction, tax cuts, or new spending.
Example
In the late 1990s, strong growth pushed federal revenues above spending, producing surpluses from 1998 to 2001. The surpluses reduced outstanding debt and lowered government borrowing costs, though the debate over how to use them ended when the 2001 recession returned the budget to deficit.
A budget surplus is confused with a balanced budget and with debt elimination. A surplus means revenue exceeded spending that year; a balanced budget means they were equal. Even with a surplus, the national debt remains, it merely shrinks by the surplus amount.