Biden Administration Seeks to Retain Some Trump Tax Cuts: Yellen

U.S. Treasury Secretary Janet Yellen speaks at an Asia Society Policy Institute event at the Mayflower Hotel in Washington on Nov. 2, 2023. Drew Angerer/Getty Images

The Biden administration is seeking to retain parts of former President Donald Trump’s tax cuts for those earning less than $400,000, Treasury Secretary Janet Yellen told reporters.

Ms. Yellen confirmed to reporters before her appearance at the Economic Club of Chicago that President Joe Biden would extend parts of his predecessor’s 2017 Tax Cut and Jobs Act (TCJA) legislation, which is set to expire in 2025.

“The president is clearly focused on tax fairness,” she said. “He’s going to be focused on making sure that tax cuts disappear for those corporations, and we’re not negotiating new tax breaks for wealthy individuals.”

In prepared remarks on Jan. 25, Ms. Yellen claimed that those tax cuts bolstered the budget deficit by $2 trillion without spurring investment.

“It prioritized tax cuts for corporations, disproportionately benefited top earners, and did not fix the broken international tax system that encourages companies to shift jobs and profits overseas,” the former head of the Federal Reserve said.

Over the past year, there has been mixed messaging from the White House on the tax policy issue.

In March 2023, the administration proposed in its budget to keep Trump-era tax cuts for households earning less than $400,000 per year beyond 2025.

At the same time, U.S. officials have argued that President Trump’s tax cuts were primarily responsible for the ballooning budget gap and soaring national debt.

In her final news briefing of 2023, White House press secretary Karine Jean-Pierre blamed Republican tax cuts of the past 20 years for about 90 percent of the debt growth.

Ms. Yellen told reporters in Virginia earlier this month that extending the previous administration’s tax cuts would lead to “serious concerns” surrounding the federal deficit.

“All of the things in TCJA set to expire without finding new revenue sources to cover everything that’s left in would be a serious concern given the projections for the deficit,” she said.

Economists have debated over factors contributing to the national debt.

The Committee for a Responsible Federal Budget (CRFB) says a combination of rocketing federal spending and tax cuts led to the national debt topping $34 trillion.

“Some have claimed this fiscal deterioration was entirely caused by tax cuts or was completely due to spending growth. In reality, both spending increases and revenue reductions can explain the growth in deficits and debt,” the CRFB wrote in a Jan. 10 paper. “The growth in deficits and debt can be explained both by the automatic growth in mandatory spending and by the enactment of tax cuts and spending increases.

“Absent any of these phenomena, debt would be on a far more sustainable path.”

The National Debt Clock in Washington on Nov. 13, 2023. Madalina Vasiliu/The Epoch Times

In a separate analysis, the organization estimated that President Trump added about $8.4 trillion, with interest, to the national debt. The report listed pandemic-era measures, the Bipartisan Budget Act of 2019, and the Tax Cuts and Jobs Act as the main drivers of the debt increase.

By contrast, the national debt has risen by about $6.4 trillion in President Biden’s first three years.

The Debt Is ‘Manageable’

When asked if the level of debt and annual deficits are sustainable, Ms. Yellen responded that the nation’s fiscal state is “manageable.”

Rather than assessing the debt-to-gross domestic product (GDP) ratio, she preferred to look at interest costs associated with the climbing debt volumes.

“We went through a period in which interest rates were exceptionally low. In spite of the fact that the ratio of debt to GDP went up, the cost of servicing that debt was exceptionally low,” Ms. Yellen said in a brief Q&A session.

“Sometimes, if you say a number of absolute levels of public debt, that is a scary number. But we also have a huge economy, and I think focusing on interest costs associated with that debt, in real terms, is a better way to look at it. And, so far, that’s been quite manageable.”

She had previously expressed concern about the debt-to-GDP ratio in 2017.

At a November 2017 Joint Economic Committee hearing, Ms. Yellen warned that the $20 trillion national debt and debt-to-GDP “should keep people awake at night.”

“I am very worried about the sustainability of the U.S. debt trajectory,” she said. “Our current debt-to-GDP ratio of about 75 percent is not frightening, but it’s also not low.”

Today, it’s 120 percent.

Ms. Yellen conceded that policymakers need to employ measures to trim federal deficits to manageable levels.

Annual interest payments, representing the fourth-largest budgetary item, total about $1 trillion. Economists warn that they are rising the longer interest rates remain high.

“U.S. debt dynamics are evolving in a way that requires attention,” Darrell Spence, an economist for U.S. asset manager Capital Group, said in a research note. “Over the next five years, net interest payments on the debt are expected to surpass defense spending.”

In the first three months of the current fiscal year, gross and net interest payments have exceeded $500 billion.

‘Bidenomics’

Ms. Yellen’s appearance comes soon after a solid, better-than-expected fourth-quarter GDP reading of 3.3 percent. Last year, the U.S. economy grew by 2.5 percent.

The White House championed the latest data, saying the recent numbers represent “three years in a row of growing the economy from the middle out and the bottom up on [President Biden’s] watch.”

The Treasury secretary also took the opportunity to tout “Bidenomics.”

“We started with an economic recovery that is remarkable for both its speed and its fairness,” Ms. Yellen said in her prepared remarks. “The recovery is so strong and so widely shared because Bidenomics is not just about a post-pandemic rebound in demand. We have also focused on unsnarling supply chains and bringing more Americans into the labor force, which increases supply.”

She noted that President Biden’s “economic agenda is far from finished.”