The United States budget is the federal government’s revenue (the money it takes in) and expenditures (the money it spends) for the fiscal year. The federal budget lists the government’s intended revenue and spending for the upcoming year.
The fiscal year is typically counted from October 1 to September 30 for government purposes. According to Investopedia.com, a fiscal year can be defined as:
“A one year period that companies and governments use for financial reporting and budgeting. A fiscal year is most commonly used for accounting purposes to prepare financial statements. Although a fiscal year can start on January 1st and end on December 31st, not all fiscal years correspond with the calendar year. For example, universities often begin and end their fiscal years, according to the school year.”
The federal budget is separated into two parts: mandatory and discretionary. Mandatory spending consists of welfare programs, such as Medicare, Medicaid, and Social Security. Discretionary spending includes public services and extras, like affordable housing, education, public transportation, foreign aid, and space exploration.
A budget surplus is when the government spends less money than it takes in.
The last time the US federal government enjoyed a surplus was in the year 2000. Washington recorded a surplus of $236.2 billion, which also happened to be the nation’s largest surplus since 1901.
So, what are the pros and cons of a budget surplus?
The first advantage of having extra money is that the country is not adding to the national debt (money that the government has borrowed). It also saves taxpayers from having to pay more interest on the debt. The government can use the spare funds to pay down the national debt.
The second benefit of a surplus is that you have greater flexibility in times of financial crises. During an economic downturn, the federal government can tap into reserves or borrow money without a significant strain on the public purse.
In theory, another benefit for having a surplus is that it signals to investors and foreign governments that you are a responsible nation running a sound economy.
When the government runs repeated surpluses and does not overspend, politicians can vote to give taxpayers more of their money back in the form of tax cuts.
Although running the country’s budget at a surplus may seem like a good idea, it also has its downsides.
A surplus might indicate that the government is not investing in the nation. That extra money could be spent on projects and services like public infrastructure or national defense.
If the government is not spending as much as it takes in, it could lead to several consequences, such as lost income, inflation, and an economic downturn.
For public employees, surpluses signal that government agencies, bureaus, and departments are running things well, on time, and efficiently with the resources they have. Unlike the private sector, when the public sector does not use its entire budget, agencies and departments lose their funding, which is why they tend to spend every nickel near the FY deadline.
Stay tuned for Part Two of “What is the Federal Budget?” to learn about deficits and what they mean to you.