During Questioning from Senator Portman, Treasury Secretary Nominee Yellen Agrees on Need for Greater Long-Term Fiscal Discipline, Pledges to Be Voice of Fiscal Sanity
WASHINGTON, DC – At today’s Senate Finance Committee hearing, U.S. Senator Rob Portman (R-OH) pressed Dr. Janet Yellen, nominee to serve as Secretary of the Treasury, about the long-term economic impact of the nation’s surging deficit and how we can begin to get back on a path towards greater fiscal stewardship. This comes days after President-Elect Biden laid out a plan to spend another $1.9 trillion – after Congress just enacted a $900 billion coronavirus relief package. Biden’s new plan would be funded entirely by deficit spending. Yellen committed to Portman that she would be a voice for fiscal sanity and stated, “I completely agree with you, Senator Portman, that the Treasury Secretary has to be a voice for fiscal sanity, and I pledge to do that. Our finances need to be on a sustainable, long-run course. And that’s very important for us to focus on. I pledge to do that.”
In addition, Portman highlighted the wide-ranging economic benefits brought about by the 2017 Tax Cuts And Jobs Act. Portman discussed how the 2017 tax reform law leveled the playing field for American businesses, helping to create jobs, spur investment and incentivize companies to move their operations and jobs back to the United States. Portman cautioned Dr. Yellen against raising the corporate tax rate, citing the negative impact a rate increase would have on our global competitiveness and broader economic health here at home.
Excerpts of the hearing can be found below and a video can be found here.
Portman: “Thank you, Mr. Chairman, and to Dr. Yellen, thank you very much for your time you gave me recently to talk about many of the issues that I know have come before the Committee today. I’m going to revisit one that I’m sure has been talked about, which is the fiscal discipline question. A Treasury Secretary can be very powerful within an administration, providing a voice for fiscal sanity, and I would urge you to do that. Our conversation was about the relatively low interest rate environment and the fact that you think that investments are needed and that going into further deficits and adding to our debt is appropriate. I would hope, again, that although we do have relatively low rates today, knowing that that could change, we shouldn’t get too comfortable with that.
“And second, that we have historic levels of deficits now and as a percent of our GDP not seen since World War II, which is frightening. One quick story. When I was OMB director under the Bush Administration, this was a long time ago, fourteen years ago, I wanted to propose a balanced budget over five years. And there was the ability to do that only fourteen years ago. Think about that. A balanced budget, not over ten years, but over five years in the budget. There was quite a debate in the Administration at the time. And frankly, I think I was on the losing end of it until somebody weighed in. And that was Hank Paulson, who was then Secretary of the Treasury. And I will always be grateful for him for that and I think it was the right thing to do. At least it showed that we could get to a balanced budget by making some tough decisions. And the Treasury Secretary obviously was someone who people were listening to from an economic point of view.
“So with that, I don’t know that I’ve posed a question, but I would love to hear your response to what you see as your responsibility to be a voice of fiscal sanity within the Administration.”
Dr. Janet Yellen, Nominee to be Secretary of the Treasury: “I completely agree with you, Senator Portman, that the Treasury Secretary has to be a voice for fiscal sanity, and I pledge to do that. Our finances need to be on a sustainable, long-run course. And that’s very important for us to focus on. I pledge to do that. Right now, short term, I feel that we can afford what it takes to get the economy back on its feet, to get us through the pandemic and to relieve the burdens that it’s placing on households and small businesses. And research from other countries suggests that often, spending money to address a weak economy ends up creating lower debt burden in the long run than failing to provide that support. So that will be my focus in the short run, is getting the economy back on its feet. But longer run, there are challenges in achieving fiscal sustainability. We have to make sure ultimately the deficits that we run, if we do that, are consistent with fiscal sustainability. The world has changed. I believe the future is likely to bring low interest rates for a long time. But of course, it is a risk that interest rates can rise and we need to consider that risk as well in crafting a sustainable and responsible policy.”
Portman: “Thank you. I will look forward to working with you on coming up with ways to deal with that long-term structural deficit, because we all know about it. We all know it’s there. It’s the mandatory spending side of the ledger. And I’ve talked to you about this in our conversation privately, but I do look forward to working with you on that. The Tax Cuts and Jobs Act was passed in 2017 and the resulting economic improvements were dramatic. We had, as of February, as I recall, sixteen straight months of wage gains of three percent or more before COVID hit. Unbelievable. We had poverty rates at record level since the poverty rate began to be measured back in the 1950s. We’d never had a rate as low as we had going into the pandemic. And obviously unemployment was low, historically low for many groups, including Blacks, Hispanics and others. So this is, you know, this is a good thing. We had an opportunity economy that many of us talk about, but it actually was happening. And I think a lot of it was because of the investment that businesses were making, small and large alike, because of the tax reform that really made it more advantageous to invest in America -- $482 billion in equipment, buildings, and most importantly to me, employees, by U.S. businesses during this time period after the 2017 bill and before the pandemic hit.
“Let me ask you, if I could, about one part of that, and that is the corporate rate. My understanding is that President-Elect Biden has talked about raising the corporate rate and also raising the amount of taxes that one would pay for global income, both of which I think are going to result in less investment in the United States. And the whole reason we lowered the rate was to be sure we were more or less competitive with the rest of the developed world. Our rate is still, frankly, when you include the state income tax, higher than the average, but it’s about at the average, whereas before we had the highest rate among all the developed countries. And, you know, what people were doing is investing overseas, not in America. And we were losing jobs. We were losing businesses, companies were inverting, losing investment. And much of that has started to come back. It’s been a good thing.
“The bill introduced a concept of not just lower rates, but also this global intangible low tax income, GILTI regime, which is very complicated. But basically it’s anti-base erosion, meaning that it effectively acts like a minimum tax on foreign earnings of U.S. companies. Prior to that, companies could just defer their taxes forever. Because our rates were so high, people deferred and deferred and deferred. Now they have to pay it. And it’s, you know, it is kind of a minimum tax. The high U.S. tax rate we had before made the deferral necessary. But it also caused this lock out of foreign earnings as a barrier to U.S. investment, again, created incentives for acquisitions of U.S. companies by foreign companies. They could get a better deal. So we both lowered the rate and eliminated deferral. As a result, we’ve created a more level playing field. I just am worried about these proposals to both increase the corporate tax and to double, double the rate, as I understand it, on GILTI on this minimum tax from 10.5 to 21 percent. It would put us again in a non-competitive situation relative to our OECD trading partners. And, you know, the OECD right now is considering a global minimum tax rate of 12.5 percent, so they’re going the opposite way because they get it. This creates more jobs in their countries. So I hope that you will push back against that, understanding that, you know, you may not approve all of the tax cuts and tax reforms that were in there. But certainly on the business side, this created an incentive to invest in America.
“Well, I would love to hear your response in the record for that. Again, I appreciated our conversation on that and other issues. And I look forward to hearing from you.”