Treasury Secretary Janet Yellen said the Biden administration is looking at raising taxes on wealthy Americans and corporations—and may consider an outright wealth tax—to pay for future programs, as attention turns to funding measures for the next big-ticket legislative pushes such as an infrastructure plan.
Yellen made the remarks in a March 14 interview on ABC’s “This Week with George Stephanopoulos,” during which she made the case for continued short-term deficit spending to help remedy the economic woes of the pandemic while flagging the need for long-term fiscal discipline.
“In the longer run, we need to get deficits under control to make sure that our fiscal situation is sustainable,” Yellen said, after arguing that the low-interest-rate environment justifies debt-fueled stimulus to address what she said was the “most significant risk” to the economy, namely a workforce that is “scarred by a long period of unemployment.”
The U.S. economy is still down nearly 10 million jobs compared to the pre-pandemic period, while last week’s jobless claims report (pdf) showed that another 712,000 Americans filed new weekly unemployment claims.
Yellen was asked how the Biden administration plans to pay for all the relief and other programs, with ABC’s Stephanopoulos asking specifically about the so-called ultra-millionaire tax recently proposed by Sen. Elizabeth Warren (D-Mass.). The idea is much the same as the one Warren floated during her failed 2020 presidential bid, namely to impose a 2 percent annual tax on the net worth of households and trusts between $50 million and $1 billion, and then an additional 1 percent surtax on net worth above $1 billion.
“He hasn’t proposed a wealth tax,” Yellen replied. “But he has proposed that corporations and wealthy individuals should pay more in order to meet the needs of the economy, the spending we need to do, and over time I expect that we will be putting forth proposals to get deficits under control.”
“But no wealth tax?” Stephanopoulos asked.
“Well, that’s something that we haven’t decided yet, and can look at,” Yellen said. “President Biden during the campaign proposed a higher tax rate on corporations, on individuals and on payments, capital gains and dividend payments that are received, and those are alternatives that address—that are similar in their impact to a wealth tax.”
While Biden has yet to announce any specific tax proposals, he has never endorsed a tax on net worth. White House press secretary Jen Psaki and Rep. John Garamendi (D-Calif.) recently confirmed that Biden is considering tax increases, new fees, and a corporate tax rollback to pay for an infrastructure plan that’s in the pipeline.
While the infrastructure plan has yet to be revealed, analysts have predicted something in the range of $2 trillion to $4 trillion.
Corporate tax increase modeling by the Tax Foundation, a think tank, showed that raising the corporate tax rate to 28 percent would reduce long-run economic output by about 0.8 percent, eliminate 159,000 full-time-equivalent jobs, and reduce wages by 0.7 percent.
“This is the last thing we want to do as the U.S. recovers from the pandemic,” Garrett Watson, senior policy analyst at the Tax Foundation, told The Epoch Times.
He said that phasing in a corporate rate increase, as opposed to an immediate boost, “would in some ways be a worse idea, with firms delaying investment decisions as deductions would be more valuable against a higher corporate tax rate.”
“It would also make those investments less attractive in the long-run,” he said.
In her interview on ABC, Yellen was also asked about inflation concerns, which have been raised due to a conflux of factors—the subsiding pandemic, fiscal stimulus, and loose monetary policies driving a recovery that could cause a spike in prices.
“Is there a risk of inflation? I think there’s a small risk,” she said. “And I think it’s manageable. Prices fell a lot last spring, when the pandemic surged. I expect some of those prices to move up again, as the economy recovers in the spring and summer. But that’s a temporary movement in prices.”
Yellen dismissed worries about sustained inflation.
“I absolutely don’t expect that. We have had very well-anchored inflation expectations and a Federal Reserve that’s learned about how to manage inflation,” she said, adding, “We have tools to address it,” presumably referring to the Fed’s go-to policy measure of raising interest rates.
The consensus view is that the Personal Consumption Expenditures (PCE) inflation rate—which is the measure that the Federal Reserve uses in its desired target of a 2 percent “average” rate for the economy—will rise to 1.9 percent in 2021 and 2.0 percent in 2023. In December 2020, PCE stood at 1.3 percent in annualized terms, according to the St. Louis Fed.
But several prominent economists have argued that the wave of stimulus that Biden’s American Rescue Plan would unleash will bring with it price pressures that could deliver a disruptive blow to inflation expectations.
During his presidential campaign, Biden said he would raise taxes on high-income households and corporations, including repealing major provisions of the 2017 Tax Cuts and Jobs Act (TCJA), President Donald Trump’s massive tax reform package.
Emel Akan contributed to this report.