Yellen leaves door open to hiking taxes on wealthy Americans

She pledges to work with lawmakers as Biden tries to pass spending on infrastructure, expand social safety net

US Treasury Secretary-designate Janet Yellen at an event in Atlanta, Georgia, in 2019. Dr Yellen, who awaits Senate approval for her post, submitted written responses to Senate Finance Committee members' follow-up questions on topics spanning climate
US Treasury Secretary-designate Janet Yellen at an event in Atlanta, Georgia, in 2019. Dr Yellen, who awaits Senate approval for her post, submitted written responses to Senate Finance Committee members' follow-up questions on topics spanning climate change to sanctions policy on Thursday. PHOTO: REUTERS

WASHINGTON • United States Treasury Secretary-designate Janet Yellen said she would work with lawmakers to fast-track a series of tax increases on corporations and wealthy Americans as President Joe Biden's administration tries to pass spending on infrastructure and expand the social safety net.

Dr Yellen, who awaits Senate approval for the post, on Thursday submitted written responses to Senate Finance Committee members' follow-up questions on topics spanning climate change to sanctions policy.

The 114-page document was obtained by Bloomberg News.

The Senate Finance panel was scheduled to advance Dr Yellen's nomination yesterday, although a full Senate confirmation vote might not happen until next week.

The following are some highlights from her comments:

Tax policy Dr Yellen promised to "work with members of Congress" on whether households earning less than US$400,000 (S$530,000) a year will be protected from any reversal of former president Donald Trump's 2017 tax cuts - something that Mr Biden had pledged on the campaign trail.

She also dodged the question of whether a repeal of the cap on state and local tax deductions, as proposed by Mr Biden, would deliver a big tax cut to wealthy Americans while doing next to nothing for those in the bottom half of the income distribution.

Dr Yellen was more direct in responding to criticism of Mr Biden's plan to reduce the threshold for the federal estate tax, saying "about the wealthiest six out of every thousand estates would face any tax" under the plan.

She rebuffed criticism from Republicans that raising the corporate rate to 28 per cent from 21 per cent as Mr Biden proposed would make the US less competitive.

The money could be used to invest in infrastructure and other programmes that boost American businesses, Dr Yellen said.

She suggested that the wealthy could be audited at higher rates under her tenure. More robust Internal Revenue Service enforcement is one way to sidestep Congress in bringing in more revenue.

Treasury-Fed ties Dr Yellen suggested that she will not mount a fresh fight to revive several Federal Reserve lending facilities that were phased out by her predecessor.

"The Federal Reserve will continue to provide support to the economy through its ongoing programmes and the use of its available tools, but as mandated by Congress, the 13(3) facilities funded by the Cares Act will not be available," she wrote, referring to a section of the law governing the Fed.

At the same time, Dr Yellen said, "right now, taking too little action poses the greatest risk".

She also pledged not to pressure the Fed on the scope of its asset purchases, a point of concern among some politicians and economists given the scale and impact of Fed bond buying. "I understand deeply why it is so important to maintain the tradition of the independence of the Fed in monetary policy," said the former Fed chief.

Exchange rates Dr Yellen reiterated her pledge from Tuesday that the US will not seek a weaker currency, and did not refer to the "strong dollar" policy the Treasury once pursued.

Asked about concerns surrounding the dollar's role as the key global reserve currency, she said this status is supported by the US having the largest economy and the deepest and most liquid capital markets.

"We are committed to maintaining a sound economy and confidence in our financial system."

Dr Yellen said the administration will work, across agencies, "to put effective pressure on countries that are intervening in the foreign exchange market to gain a trade advantage".

She singled out bilateral deficits as an indicator of unfair trade practices, which she said she will "vigorously oppose", although she said the gaps should be assessed in the context of the US' broader trade relationship with each country rather than a "single catch-all metric".

China policy Dr Yellen reiterated that there will be no immediate lifting of tariffs on China and that the Biden administration will be monitoring Beijing's adherence to pledges made in the Trump administration's "phase one" bilateral trade deal.

She also repeated that the Biden administration will use the "full array of tools" to counter China's "abusive economic practices". The strategy will include working with allies to take on Beijing's "unfair" actions.

She said it is important that aid from the International Monetary Fund, World Bank and elsewhere to help countries around the world combat Covid-19 does not end up going to repay Chinese loans.

More broadly, Dr Yellen said the US needs to compete with China's "economic statecraft" around the world and build partnerships distinguished from President Xi Jinping's signature Belt and Road Initiative.

Climate change "We cannot solve the climate crisis without effective carbon pricing," Dr Yellen wrote. "The President supports an enforcement mechanism that requires polluters to bear the full cost of the carbon pollution they are emitting." She also said tax policy should be used to provide incentives for individuals and businesses to adopt "climate-friendly policies".

Dr Yellen warned that "stranded assets" could result from the development of new forms of clean energy.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on January 23, 2021, with the headline 'Yellen leaves door open to hiking taxes on wealthy Americans'. Subscribe