In testimony before the House Financial Services Committee on Tuesday, Yellen was criticized by Republican lawmakers who opposed increasing taxes on businesses and wealthy households to pay for large-scale spending.
The Treasury Secretary defended the need to raise taxes, but promised that the Biden administration would do nothing to “hurt” small businesses or low- and middle-income Americans.
“We need to increase revenues in a fair way to support the spending that this economy needs to be competitive and productive,” Yellen said in response to questions from Ann Wagner, a Republican representative from Missouri.
Yellen added: “A package that consists of investments in people [and] investments in infrastructure will help create good jobs in the US economy and changes to the tax structure will help fund these programs.
Specifically, Joe Biden’s economic advisers are considering whether to push for a number of tax increases he proposed during the 2020 campaign against Donald Trump, including a corporate tax hike. from 21% to 28%, an increase in the highest tax. rate for the richest income bracket and higher capital gains tax rate for millionaires.
The measures would help offset the cost of about $ 3 billion of its investment plans. The package would come on top of the $ 1.9 billion in fiscal stimulus, fully funded by the growing budget deficit, that Biden enacted this month to shake up the recovery.
Yellen’s appearance before Congress, in a virtual format, was his first since his confirmation as Secretary of the Treasury. She appeared with Jay Powell, the chairman of the Federal Reserve, and both sought to dispel fears that overspending could backfire on the U.S. economy.
Yellen said that due to the stimulus, the economy “could return” to full employment next year, completing the recovery from the pandemic. Powell dismissed mounting concerns that an increase in spending this year could trigger an unhealthy rise in inflation that would be difficult to control.
“Our best guess is that the effect on inflation will not be particularly large or persistent,” he said.
Powell also reiterated that the Fed would not suddenly move towards stricter policy and was far from starting to remove monetary support to the economy by slowing its asset purchases, despite Fed officials’ projections of a 6.5% increase in gross domestic product this year.
“We’ve learned over the course of a few years now that we need to communicate carefully and move forward slowly and well ahead,” said Powell. “We’ll let people know what’s coming.”
Yellen also defended his decision to open the door for the IMF to issue a new round of $ 650 billion Special Drawing Rights to give its members access to liquidity as they grapple with distress. financial related to the pandemic.
A Republican lawmaker attacked the plan – which reversed Trump administration policy – to funnel money to strategic enemies like China, Iran and Venezuela. But Yellen said it was a key tool to prevent low-income countries from taking “deflationary contractionary measures that would make recovery more difficult.”