Definition: Fiscal policy refers to the government's handling of the budget. Usually fiscal policy is about spending as much as possible, thereby stimulating the economy and increasing votes, without raising taxes. This has led to an ongoing budget deficit and a huge debt. Like any budget, fiscal policy guides two components: income and spending.
In recent years, the Federal Government has increased income by relying on higher debt levels rather than higher taxes. Find out exactly how the budget is funded in U.S. Budget Income and Taxes Primer.
By far, the largest portion of budget spending is mandatory, which means that existing laws dictate how much will be spent. Most of this is for Social Security, Medicare and Medicaid entitlement programs. The remaining portion of spending is discretionary, and over half of this portion goes towards Defense. Find out more in U.S. Budget and Spending Primer.
Last but certainly not least, find out what the latest President's budget proposal in U.S. Federal Budget FY 2008 - Overview and Impact on the U.S. Economy
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Fiscal policy has created the huge U.S. debt level.
