Budget Surplus Law & Legal Definition

When a governmental entity has revenues from taxes, fees, and other impositions which exceed its budgeted outlays, it is said to have a budget surplus. When a business under-spends its budget but all else remains the same, i.e., sales are at projected levels, it is said to have "improved profits" rather than experienced a surplus. Both the phrases "budget surplus" and "budget deficit" are usually applied to public entities.

Surpluses are almost always the consequence of two interacting forces: on the one hand efforts to contain costs or spending have been successful; and, on the other hand, revenues (over which government rarely has any genuine control except by raising or cutting taxes) have exceeded expectations.

THE U.S. FEDERAL BUDGET

In the 40-year period from FY 1965 to FY 2005, the Federal Government experienced a budget surplus in only five fiscal years. The government had a modest surplus of $3.2 billion in FY 1969. In fiscal years 1998 through 2001, the government had surpluses of $69.2, $125.5, $236.2, and $128.2 billion respectively. In all other years of the 1965–2005 period, the government experienced deficits, reaching a record deficit of $412 billion in 2004 (and a projected deficit of $331 billion in FY 2005).

The government's exceptional performance between FY 1998–2001 was due to a combination of deliberate cuts in expenditures, particularly in the defense sector, and a booming economy due to the expansion of the Internet. The terrorist attack of 9/11 and an already softening economy changed the economic landscape. A recession began in FY 2002.

THE U.S. HOUSEHOLD BUDGET

Although households rarely operate on a formal budget, the Bureau of Economic Analysis (BEA), an agency of the U.S. Department of Commerce, calculates the "surplus" or "deficit" experienced by U.S. individuals and households as part of its National Income and Product Accounts. National Income and Product Account (NIPA) data are used to build Gross Domestic Product estimates. BEA collects data on total and disposable income and total outlays. Disposable income less outlays produces savings. The savings rate (savings divided by disposable income) is positive to indicate a surplus and negative when households, collectively, experience a deficit.

In fiscal years 1992 through 2004, according to data available from BEA, U.S. households had a positive savings rate but with a steadily declining trend. The savings rate was 7.5 percent of disposable income in FY 1992 but had declined to a 1.6 percent rate by FY 2004. Negative savings rates began to appear in FY 2005 in the "personal income" category; data for personal income tend always to be higher than the household data, suggesting that household saving rate has also turned negative; but in early 2006 no data had as yet been published for households for 2005 by BEA.