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Determining and Implementing Fiscal Policy

In: Business and Management

Submitted By darkcity
Words 780
Pages 4
Determining and Implementing Fiscal Policy
Fiscal policy is defined as, “decisions by the President and Congress, usually relating to taxation and government spending, with the goals of full employment, price stability, and economic growth” (“Fiscal policy“, 2010). Keynesian economic theory states that governments should influence macroeconomic productivity by adjusting tax levels and public spending to curb inflation, increase employment and maintain a healthy value of money. During these trying economic times, dubbed “The Great Recession,” there are differing opinions on how to mitigate the effects.
The Debt Commission chairs (appointed by President Obama) have unveiled a sweeping proposal to jump-start an in-depth public discussion of the scale and scope of the federal government. Bowles and Simpson are aware that it would be impossible for the commission to agree on a package and then acquire the votes in Congress to pass it. Therefore, they have suggested fiscal policy that will invite a reexamination of the role and purpose of Social Security, Medicaid and Medicare. Instead of talking about services and clients, Bowles and Simpson want to tackle what the scopes of these programs mean to the scope and size of government, along with the deficits and escalating tax rates that accompany them.
Aside from proposing hefty tax increases, they have proposed an “explicit and permanent limit on the total size of government through caps on spending and revenues (at 21 percent of GDP)” (Butler, 2010, p. 2). Without action, this number could reach 30% within a generation. Ben Bernanke has also suggested this as a solution during his speech to the Rhode Island Public Expenditure Council on October 4, 2010.
“Although fiscal rules have not been panaceas in the United States or the euro area as a whole, a number of other economies, in Europe and elsewhere, seemed...

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