WHAT SHALL WE DO WITH THE SURPLUS:

The federal government's deficit in fiscal year 2014 was $195 billion smaller than last year -- clocking in at a shortfall of $486 billion, according to an estimate from the Congressional Budget Office. The deficit was $20 billion smaller than the CBO had estimated as recently as August.

The rapid plunge in the deficit has reaped few political dividends for either party just weeks before the November midterm elections. The deficit remains large in absolute levels, and the headline number of $486 billion still draws ample attention from Republicans. At the same time, many Democrats are unhappy with cutting budgets in a weak economy and reducing borrowing when interest rates are low.

But measuring the raw deficit only tells part of the story. The U.S. population and economy are much larger today than they were in the 1980s. In fact, adjusted for the size of the economy, today's deficit is now smaller than the average deficit going back to the 1980s. The 2014 deficit came in at 2.8% according to the CBO estimate, compared to the 3.2% average since 1980. By that measure, President Barack Obama's deficit this year is one that would have been acceptable to President Ronald Reagan. During Mr. Reagan's presidency, the deficit averaged 4% of GDP.

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