NCPA - National Center for Policy Analysis

Bartlett: Budget Surplus Could Increase National Saving

March 2, 1998

It now appears more likely than ever that the federal government will run a budget surplus this year, the first since 1969.

Although many Republicans would like to use the surplus to cut taxes, they are stymied by the budget law, which requires that all tax cuts be offset with tax increases or cuts in entitlement programs such as Medicare. Tax cuts may not be paid for by cutting discretionary spending, such as defense or agriculture programs.

Thus it seems likely that the only thing that can be done with the budget surplus is to pay down some of the national debt.

In theory, when the federal government runs a surplus it adds to national saving. When the federal government runs a deficit, this in effect constitutes negative saving.

  • In 1992 the federal government reduced gross national saving by $215 billion.
  • In other words, if the budget had been balanced that year national saving would have been $215 billion or 24 percent higher.
  • By 1996, the deficit fell to just $39 billion; compared to 1992, therefore, national saving was presumably $176 billion higher because of the decline in the deficit.

Saving, of course, finances investment in plant and equipment, which creates jobs and raises productivity. Thus higher saving ultimately translates into a higher standard of living. For this reason, many economists believe that running a budget surplus may be the best way the federal government can contribute to economic growth at this time.

Source: Bruce Bartlett (senior fellow, National Center for Policy Analysis), March 2, 1998.


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