The U.S. economy will need an ambitious fiscal policy to avoid destructive forces, such as racial inequality and climate change, forces that have left prosperity out of the reach of many Americans, Treasury Secretary Janet Yellen told lawmakers on Wednesday.
Yellen, who testified before the Senate Finance Committee in a pre-written speech, defended the Biden administration’s $ 6 trillion budget proposal for fiscal year 2022. She called for advancing policies such as paid family vacations, infrastructure renewal, reducing emissions and making housing and education more affordable. The private sector is not making enough investments in this area to deal with long-term structural economic challenges, such as declining labor force participation and wage inequality, Yellen said.
“We need to make these investments at some point, and now, fiscally, it’s the most strategic time to make them,” she said.
Yellen also said the administration is closely monitoring inflation, but reiterated that it saw current price pressures as transient, as the plague on the other hand subsided and the economy continued to open up.
The White House budget took into account a 2.1% increase in consumer prices in 2021, but those forecasts were made in mid-February, Yellen said, before economic activity picked up. “We are going to re-examine in the middle session and issue an updated forecast, and certainly for the current year, inflation will be at a higher rate than that,” she said.
Consumer prices rose 5% in May from a year earlier, the Ministry of Labor reported last week, the biggest jump in inflation in 13 years.
Republicans have pressured Yellen over whether the Biden administration’s large spending proposals would cause unwanted price increases and add to the federal debt.
While federal debt has climbed during the plague, the Biden administration expects interest payments on it to remain well below historic levels for the next decade. Yellen further noted that the administration has proposed paying for its long-term economic policies through tax increases on large corporations and wealthy Americans. “There are some big concessions that need to be made in fiscal policy but this – a fairer tax law for an economy that is structurally stronger – is not one of them,” she said.
Yellen: We will work to remove taxes on digital services in other countries
President Biden has made $ 4.5 trillion in total spending on infrastructure and social programs over the next decade. Yellen’s testimony before the Senate committee came as Democratic leaders began this week debating child care, climate crisis and education bills in an attempt to appease the party’s liberal wing over the narrower scope of the two-party infrastructure bill currently under discussion.
As part of the global tax discussions, Yellen said the U.S. will continue to work for the benefit of other countries removing all taxes on digital services that affect large U.S. technology companies overseas. She said the U.S. had noted that stopping the collection of these taxes was important and that the threat of economic sanctions against countries that refused to abolish such taxes remained intact.
Several Republicans, including Sen. Mike Krapo (Republican from Idaho) and Sen. Pat Tommy (Republican from Pennsylvania), have criticized the administration’s move to try to get other states to adopt an agreed minimum level of corporate tax. “It’s not a race to the bottom that we have to avoid,” Tommy said, “it’s a race we have to win.”
Yellen also said the government would take any action necessary to protect taxpayers’ information after publishing information about the taxes of wealthy Americans, which was leaked to the pro-public media. “We’re only a week after it happened and I really want to emphasize: we do not know what happened,” Yellen said. “We have no facts at the moment.”
Several government agencies and general supervisors are examining the leak; U.S. IRS employees are not allowed to disclose information about taxpayers. Yellen said professionals do not yet know if the leak came from the IRS.