A budget
surplus occurs when the government saves more than it spends. During a budget surplus, the
government will increase taxes because they want more revenue. A budget surplus helps to reduce
the national debt.
The government borrows because it doesnt have enough money
to fund its expenses. This scenario is also known as a budget deficit. The borrowed funds are
charged an annual interest rate, which the government must repay after the grace period is over.
A budget surplus is good for the economy, especially if it is doing well. The government can use
that surplus to clear part of the national debt.
However, the use of a budget
surplus to clear national debt is not encouraged. At the moment, the national debt stands at
$22.5 trillion. To create a budget surplus, the government has to decrease spending and increase
taxes. $22.5 trillion is a lot of taxes.
This strategy can harm citizens.
Taxes reduce the amount of disposable income in the economy. That means that people will spend
less on consumer goods because they have less money. Factories will have to cut down on
production because their goods are not moving. As a result, the total output will go down, and
the economy will suffer.
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