Treasury Secretary Janet Yellen testified Thursday at a congressional hearing that presaged a partisan battle over tax policy in the coming election, with sweeping reductions set to expire at the end of next year.
Yellen reiterated, under questioning at the Senate Finance Committee, that President Joe Biden supports extending income-tax reductions for those earning less than $400,000 a year.
"The president has made clear he would oppose raising back the taxes for working class people and families making under $400,000," Yellen said.
Ranking Republican Mike Crapo of Idaho highlighted that the Biden administration's 2025 budget proposal hadn't addressed the expiring elements of the 2017 tax package, which was enacted under former President Donald Trump.
Crapo blasted the Biden budget for proposing $5 trillion of new and increased taxes, and referred to its spending proposals as "staggering."
The committee's Democratic chair, Ron Wyden of Oregon, countered that Trump's platform in the presidential election features "more tax breaks for multinational corporations and big handouts for those at the very, very top."
Trump's policies would generate bigger fiscal deficits and "pile up more debt," Wyden said. Yellen said the Biden administration's budget would reduce the deficit by $3 trillion over a decade.
Wisconsin Republican Ron Johnson slammed that claim, arguing it used the wrong baseline of comparison. He said when Biden took office, the estimated deficits were trillions of dollars smaller than the current baseline against which the White House is saying it is narrowing the gap.
Yellen, meantime, agreed with Democratic Senator Michael Bennet of Colorado that tax cuts enacted by Trump and fellow Republican George W. Bush had undermined federal revenues and inflated US deficits. She said the Congressional Budget Office in 2017 — before Trump's tax package — had projected revenues at about 18% of gross domestic product, but they were only 16.5% last year.
Interest rates
Bennet separately flagged concerns about rising interest rates, after a period in which the Federal Reserve kept its benchmark at zero "for longer than they probably should have." An "overly aggressive" monetary policy exacerbated wealth inequality, he said.
Yellen noted the president's budget had boosted projections for interest rates, but said the debt-servicing ratio will be "stabilized" going forward, using her preferred metric — inflation-adjusted interest payments relative to GDP. The economic assumptions in the budget are "if anything" less optimistic than current data suggests, she added.
