Yellen champions big spending at confirmation hearing

Treasury Secretary nominee Janet Yellen urged senators Tuesday to “act big” on economic relief and warned that the pandemic-ravaged economy would suffer from deep, long-term damage without sufficient federal aid.

During her confirmation hearing before the Senate Finance Committee, Yellen said it was crucial to approve more support for struggling households and small businesses despite the steep financial cost of fighting the dual health and economic crises.

Yellen, a Democrat, championed a $1.9 trillion coronavirus response and economic aid bill proposed by President-elect Joe Biden as a necessary follow-up to more than $3 trillion in relief already approved by the federal government. She argued that while the price tag might be too high for fiscal hawks to stomach, the cost of inaction would be much greater for the U.S. economy.

“Neither the president-elect, nor I, propose this relief package without an appreciation for the country’s debt burden,” Yellen said. “But right now, with interest rates at historic lows, the smartest thing we can do is act big. In the long run, I believe the benefits will far outweigh the costs, especially if we care about helping people who have been struggling for a very long time.”

If confirmed, Yellen will play a critical role in the Biden administration’s response to the coronavirus recession — the deepest U.S. economic downturn since the Great Depression.

She had previously served as the chair of the Federal Reserve from 2014 to 2018, Fed vice chair from 2010 to 2014, a distinguished macroeconomic researcher and the chair of former President Clinton’s White House Council of Economic Advisers.

No Republicans have raised concerns about Yellen’s qualifications, and she is expected to be confirmed with solid bipartisan support. 

“Chair Yellen is exactly the right person to lead the Treasury Department. Nobody could be better qualified for this job,” said Sen. Ron Wyden (Ore.), the top Democrat on the Senate Finance Committee.

Wyden, who is set to become chairman of the committee when Biden and two Democratic senators-elect from Georgia are sworn in, said that he hopes Yellen’s nomination receives a Senate floor vote on Thursday. Finance Committee members have until the close of business on Wednesday to submit additional questions to Yellen following the hearing.

Even so, while Republicans showed little opposition to her nomination, they fiercely criticized the scale and scope of Yellen’s plans to support the economy.

“I look forward to working with you, but I have to admit that the contours of the stimulus bill as proposed by the administration are going to make that difficult,” said Sen. Pat Toomey (R-Pa.)

“The only organizing principle that I can discern is it seems to spend as much money as possible, seemingly for the sake of spending it.”

Several GOP senators raised the issue of the growing debt burden, which increased dramatically under President Trump’s watch as a result of lower taxes, higher spending and the emergency response to the pandemic.

“The one thing that concerns me that nobody seems to be talking about anymore is the massive amount of debt that we continue to wrack up as a nation,” said Sen. John Thune (R-S.D.). 

“For me, that’s a huge warning sign on the horizon, the fact that we have an ever-growing deficit, an ever-growing debt and no apparent interest in taking the steps necessary to address it.”

Biden’s proposals, he said, would amount to 25 percent of gross domestic product.

Yellen said that in the long term, the country would have to address its outstanding debt issues and get to a path of debt sustainability but reiterated that failing to set the economy on the right path could lead to worse results both for the economy and the debt.

“Research from other countries suggests that often, spending money to address a weak economy ends up creating a lower debt burden in the long run than failing to provide that support,” she said.

Allowing families to go hungry, face evictions and lose the basic support needed to find and keep work would only exacerbate the country’s economic problems, she said.

“We really need to address those forms of suffering and I think we should not compromise on it. And if we don’t do so, that suffering and the loss of spending it will cause will cause other people to lose jobs and permanent scarring that will harm the economy over the longer term,” she said.

The combination of low interest rates and the economic downturn, she said, boosted the case for deficit spending on the economy. Further borrowing to finance infrastructure would also be justifiable for projects with a clear economic return, she added.

Since Trump took office, the level of federal debt held by the public rose 50 percent, from $14.4 trillion to $21.6 trillion.

In addition to expressing concerns that Biden’s coronavirus relief proposals might add too much to the debt, Republicans also took issue with Biden’s campaign proposal to raise taxes, particularly his proposal to raise the corporate tax rate to 28 percent.

One of the Republicans’ main legislative accomplishments during President Trump’s time in office was their 2017 tax-cut law that lowered the corporate rate from 35 percent to 21 percent. GOP lawmakers don’t want the law to be rolled back, arguing that it improved business competitiveness. 

“I think it would be a big mistake to raise taxes on individuals and businesses as they struggle through an economic recovery and pandemic,” said outgoing Finance Committee Chairman Chuck Grassley (R-Iowa).

“The last thing we should be doing in my opinion is raising taxes. Not ever, in fact. But especially not during or after a pandemic,” said Sen. Steve Daines (R-Mont.).

Yellen said that Biden’s immediate focus is coronavirus relief, rather than raising taxes, but that tax increases could be part of a longer-term economic stimulus bill focused on elements such as infrastructure and manufacturing. 

“[Biden] has said that eventually, as part of a larger package that would include significant spending and investment proposals — but not now, while the pandemic is really depressing the economy — that he would want to repeal parts of the 2017 tax cuts that benefited the highest income Americans and large companies,” she said.

Yellen said that she thinks the corporate tax cuts improved the competitiveness of U.S. businesses and noted that Biden doesn’t want to revert back to the pre-2017 tax law rate of 35 percent. But she also said that she thinks that corporations and wealthy individuals should pay their “fair share.” 

Yellen also said that the U.S. should work with other countries in the Organization for Economic Cooperation and Development to try to stop a “race to the bottom” on corporate taxes.

Democrats said they look forward to working with Yellen on helping the economy recover from the pandemic and other priorities, and they also praised the historic nature of Yellen’s nomination. If confirmed, Yellen would become the first woman to be Treasury secretary.

“I can’t think of anyone with more competence, more experience, more integrity, to serve as secretary of the Treasury,” said Sen. Debbie Stabenow (D-Mich.). “It’s just extra special that you come in as the first woman to do so.”