Former Federal Reserve Chair Janet Yellen told Congress Tuesday that if confirmed as the next Treasury Secretary, she would prioritize a “big” fiscal package to bridge the U.S. economy to a post-pandemic world.
But Yellen, who needs a simple majority in the full Senate to earn confirmation, walked a fine line in promising COVID-19 relief while also paying mind to the national debt.
“Neither the President-elect, nor I, propose this relief package without an appreciation for the country’s debt burden,” Yellen told the Senate Finance Committee in her nomination hearing Tuesday. “But right now, with interest rates at historic lows, the smartest thing we can do is act big.”
Acting “big” would imply the $1.9 trillion relief package floated by the incoming Biden administration last week, which would include additional $1,400 stimulus checks and an extra $400 per week unemployment insurance benefit.
As Treasury Secretary, Yellen would also have her hands full with a number of other issues, ranging from handling China to steering the Biden administration’s tax policy.
Here’s what the former Fed chair told the Senate in her nomination hearing on Tuesday. Incoming Senate Finance Committee Chairman Ron Wyden (D-Ore.) said a full confirmation vote on the floor of the Senate could happen as early as Thursday.
“It’s very important that corporations and wealthy individuals pay their fair share,” Yellen said.
The Biden administration’s framework for tax policy includes a steeper tax on those making more than $400,000 a year with a hike on the corporate tax rate to 28% (compared to the 2017 Trump tax cuts that lowered the rate from 35% to 21%).
Yellen said she would like to work with other nations on a globally coordinated approach to corporate taxes, adding that she does not want to harm the competitiveness of American businesses.
But she emphasized that her top priority is a tax base that supports investment in “things that will create good jobs,” such as infrastructure, manufacturing, and research and development.
“We need to think about taxes in the context of the package that aims to do those things. And to the extent that financing is required for these very valuable investments, I believe it should come in a fair way.”
“The most important thing that we can do today to put us on a path of fiscal sustainability is to defeat the pandemic, to provide relief to American people, and then to make long-term investments that will help the economy grow.”
Yellen said the national debt is a "cause for concern,” but warned that failing to aggressively offer fiscal support would leave the post-pandemic economy with the scars of business bankruptcies and an inability to get people back to work.
The amount of federal debt held by the public totals more than $21 trillion, magnitudes above the $5.3 trillion debt carried by the country in the fourth quarter of 2008. Almost $4 trillion was added to the debt following the Trump administration’s efforts on the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
But the former Fed chair commented that because of near-zero short-term interest rates, the total interest burden as a share of GDP is lower now than it was before the financial crisis in 2008.
Yellen’s view on foreign relations and specifically dealing with China: “I believe we should try to address unfair trade practices. And the best way to do that is to work with our allies rather than unilaterally.”
As a former Fed chair, she had not worked much on the political intricacies of trade relationships. But Yellen told the Senate Finance Committee that she would not tolerate the theft of intellectual property or forced technology transfers, issues at the center of the U.S.-China trade war between President Donald Trump and Chinese President Xi Jinping.
Yellen said that “sanctions are a tool that can be very effective” but was vague about how she might use that tool.
On foreign exchange rates, Yellen also promised to be vigilant for “unacceptable” acts of currency manipulation.
Other noteworthy issues:
50-year bonds: “There is an advantage to funding the debt, especially when interest rates are very low, by issuing long-term debt.” Yellen adds she would be “very pleased” to look into the market viability of ultra-long bonds.
Climate change: “I think climate change is an existential threat,” she said, citing electric vehicle incentives as a policy option. Yellen said she plans on appointing someone “at a very senior level” within the Treasury to focus specifically on financial system risks and tax benefits related to climate change.
Cryptocurrencies: “Cryptocurrencies are of particular concern, many are used, at least in a transaction sense, for illicit financing. I think we really need to examine in which we can curtail their use and make sure that anti-money laundering doesn't occur through those channels."
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.