Fiscal Policy of US

Fiscal policy is the deliberate alteration of government spending or taxation to help achieve desirable macro-economic objectives by changing the level and composition of aggregate demand. It refers to the use of the government budget to influence economic activity.

  Government spending

The main areas of US government spending in 2010, which totalled $217.89billion, were religion,education,foundations,human service organization,public society benefit organization and health  . US want to use public spending to stimulate economic activity but to no avail

           

 

Taxation              

  

Central and local government must raise revenue in order to meet its spending commitments. Revenue is raised from a number of sources including taxation and borrowing. Direct taxes, such as income tax and corporation tax, and indirect taxes such as Value Added Tax (VAT), are the main sources of revenue to the US Treasury. Borrowing has also become an increasingly important source of funding for many governments. If a government does not have enough revenue to fund its spending plans, it may borrow from the central banks or the public by selling short term securities, called bills, and long term securities, called bonds.

Changing Tax Rates

Taxes can be raised or lowered to control or expand household spending, and aggregate demand. Income tax can be adjusted in a number of ways, such as by changing:

  

• The tax free allowance

• The basic tax rate 

• The number of tax bands