A budget surplus may create a temporary artificial prosperity. The short term effect is usually inflationary as the government sees surplus meaning the economy is more productive, thus can shoulder a higher tax burden when in actuality taxes should be lowered. The tax burden, allegedly imposed to cool the economy, tends to raise prices, thus increasing tax revenue, contributing to the continuance of the surplus until such time as prices cause consumers to spend less. While a surplus represents an over taxation of the society, it does provide the government with some short term ability to finance projects of social and political influence through grants and loans. While Keynesian
Followers consider this spending to be good, the Smith follower sees this tendency to spend, rather than reduce debt, as overall negative. However, the usual effect is that the surplus is used to invoke new programs, which inevitably grow, the populace becomes dependent upon The program, the program expands to include more ‘eligible’ parties and requires increased financial support. This leads to the government dipping into the same pool to fund what was Started, or take out loans as necessary to fund operations. The long term effect of a surplus tends to be a deficit and recession as government takes on more debt to fund what began under a surplus the surplus generally is not used in the proper manner to reduce debt and taxes.
References
http://www.ehow.com/info_8018654_macroeconomics-issues.html
The Essay on Cutting Tax Government Money Taxes
Chad Stig all Econ 100 11/26/96 Economic Policy The new economic policy of the united states should include cutting taxes, reducing governmental waste, and balance the budget by having a smaller more efficient federal government. It should include equal opportunity for financial security but not through a government sponsored redistribution of wealth program. Cutting taxes across the board ...
http://www.ehow.com/info_8104380_principles-macroeconomics-made-easy.html
http://answers.yahoo.com/question/index?qid=1006051215716
