Treasury Secretary Janet Yellen said higher taxes will likely be required in the long run to finance future spending increases.
Yellen appeared Wednesday before the Senate Banking Committee with the Biden administration considering up to $3 trillion in additional spending on infrastructure, “green” energy and education.
That plan would follow the $1.9 trillion economic relief package approved earlier this month.
Yellen said her views on borrowing have changed since 2017, when she expressed concerns about a federal debt that was equal to about 75 percent of the U.S. economy’s output at the time. That ratio has since increased to slightly above 100 percent.
Responding to a question from Republican Sen. Richard Shelby of Alabama, Yellen said the persistence of low interest rates has changed her views on federal debt. Lower rates have made it easier for the federal government to cover the interest costs on the debt, she said.
“I think that’s a more meaningful metric of the burden of the debt on society and on the federal finances,” she said.
Yellen said that she supports borrowing to finance the $1.9 trillion aid package because it is temporary spending in response to a crisis.
“But longer run, we do have to raise revenue to support permanent spending,” she said.
The Biden administration is considering raising the corporate tax rate to 28 percent, up from the current 21 percent, after the Trump administration cut it from 35 percent. Tax increases on wealthy Americans are also being considered.
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Yellen and Federal Reserve Chair Jerome Powell testified on Wednesday as part of congressional oversight of last year’s $2 trillion coronavirus aid package.
Under questioning from Democratic Sen. Chris Van Hollen of Maryland, Yellen said Congress should allot more money to the IRS so the tax collection agency could reduce tax evasion. The amount of uncollected taxes is referred to as the “tax gap.”
“The tax gap is huge,” Yellen said, “and I think we would have a fairer tax system and collect more tax revenue without the need to raise [tax] rates if we resourced the IRS properly.”
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