Discretionary fiscal policy is perhaps easier to understand: for example, it's when government passes new laws to raise spending or cut taxes in a recession. But automatic countercylical fiscal policy--also called "automatic stabilizers"--happens without any new legislation being passed. When the economy heads south so that incomes and profits fall, less in taxes is collected automatically, with no need for new legislation. When the economy booms so that incomes rise, there is automatically less need for government programs like Medicaid or welfare payment, again with no need for new legislation.
How big are the automatic stabilizers? Frank Russek and Kim Kowalewski offer some estimates, along with lots of detail about how these calculations are made, in "How CBO Estimates Automatic Stabilizers," published in November 2015 as Congressional Budget Office Working Paper 2015-07. They write:
Most types of revenues—mainly personal, corporate, and social insurance taxes—are sensitive to the business cycle and account for most of the value of the automatic stabilizers. A relatively small part of total outlays—those for the programs that are intended to support people’s income and have a cyclical component—contribute to the value of the automatic stabilizers; those benefits include ones from unemployment insurance, Medicaid, and SNAP (the Supplemental Nutrition Assistance Program). The automatic stabilizers do not include discretionary spending because that spending (which requires legislation) is not automatic or interest payments because those outlays are not designed to provide income support.CBO’s estimates of the automatic stabilizers are based on the estimated cyclical elements of those revenues and outlays. The magnitude of the automatic stabilizers is zero when the economy is operating at its potential and grows as the economy operates further away from its potential.To get a sense of the size of automatic stabilizers in the US economy, here's are a few figures. The first shows how automatic stabilizers on the revenue side affect federal budget deficits. The second shows how automatic stabilizers on the spending side affect budget deficits.
If you combine the automatic stabilizers on the revenue and spending sides, and put it on a graph with actual deficits, here's what it looks like.. The light blue line shows how the budget deficit actually changed, including both automatic stabilizers and discretionary changes. The dark blue line shows how the deficit would have changed with the automatic stabilizers subtracted out. Clearly, discretionary policies have a bigger effect on overall deficits than do automatic stabilizers. But in helping to counterbalance economic swings, the automatic stabilizers remain useful.
The existence of automatic stabilizers is one reason why it would be foolish to require that the federal budget be balanced in every year. Think about it: a recession arrives, and so tax revenues automatically fall and spending in recession-related categories automatically rises. A true believer that the budget should be balanced each year would have to argue that in the fact of that recession, taxes should be hiked and spending cut to offset the changes of the automatic stabilizers.