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Biden confirms he wants Janet Yellen to be his Treasury secretary – what it means for cash-strapped American families

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In 2014, three months after starting her four-year tenure as head of the Federal Reserve, Janet Yellen was trying to make an important connection for investors, policymakers and community development leaders.

“Although we work in the financial markets, our goal is to help Main Street, not Wall Street. By keeping interest rates low, we are trying to make housing more affordable and to revive the housing market. We are trying to make construction, expansion and hiring cheaper for businesses ”, Yellen said in remarks at a conference in Chicago.

Six years later, President-elect Joe Biden confirmed on Monday that he was choosing Yellen, 74, to be his Treasury secretary. Biden announced Yellen, along with his picks for the director of the Bureau of Management and Budget, deputy treasury secretary, and president and members of the Council of Economic Advisers.

Biden said in a statement that Yellen and the others “will work tirelessly to ensure that every American gets a fair return for their work and an equal chance to move forward, and that our businesses can thrive and surpass the rest of the world “.

Yellen said on Twitter TWTR on Monday,
+ 2.98%
that she focuses on the American dream in her role.

Yellen is not expected to face a setback in the Senate confirmation process. If confirmed – becoming the first woman to hold the post – many families will count on Yellen to focus on the connection between decisions made on Capitol Hill and their own financial situation.

The coronavirus has put millions of people out of work. The unemployment rate fell to 6.9% in October, from double digits in the spring, but some economists fear that the surge in coronavirus infections and more government shutdown orders could cause the recovery to falter. Meanwhile, various financial aid programs, such as moratoriums on evictions and student debt payment breaks, will end on December 31, while negotiations on another congressional aid plan are stalled.

Yellen, a labor economist who has spoken about issues of income inequality, will remember Main Street, said Desmond Lachman, a resident researcher at the American Enterprise Institute, a right-wing think tank. “She will be very responsible, but at the same time, she will go batting for people on the lower end of the spectrum,” Lachman said. “She will be very sensitive to their problems.

Here’s a look at what experts say a Yellen-led Treasury Department will mean for another round of government stimulus, taxes in a Biden administration, and student debt cancellation.

Another round of government stimulus

Markets reacted approvingly to early reports from Nov. 23 that Biden had chosen Yellen. A day later, the Dow Jones Industrial Average DJIA,
+1.69%
surpassed the 30,000 mark, supported in part by vaccine news and, some analysts said, Yellen’s early appointment. (Stocks fell on Monday after Thanksgiving weekend, but stocks could still make their biggest monthly gain since 1987.)

Yellen’s potential pick is a good sign the Biden administration is seriously considering pushing another stimulus bill through Congress, now that the $ 2.2 trillion CARES bill money has dried up , they added.

Yellen expressed the need for additional financial assistance. “The spending is absolutely necessary so that more pain is not prolonged throughout the economy and so that unemployment continues to fall,” Yellen, currently at the Brookings Institution, said during a congressional hearing in July.

Ernie Tedeschi, managing director and political economist of Evercore ISI, an investment banking consultancy, wrote in a note that Yellen “believes that it is essential to continue fiscal and monetary support to the economy and will seek likely to leverage its credibility with Congress over time to promote more tax support, including for the unemployed and for state and local governments. ”

Passing a stimulus bill is a political process that involves consensus, but Josh Bivens, research director at the Economic Policy Institute, a left-wing think tank, said Yellen had the seriousness and the understanding the issues to potentially persuade Republicans. Further stimulus measures are imperative, Bivens said, because “we are living in very, very difficult economic times.”

If Yellen is selected and confirmed, she will have a former colleague, Jerome Powell, to work with at the Federal Reserve. Powell, who succeeded Yellen at the head of the Fed, also supports the injection of more stimulus money into the economy.

Revision of tax code regulations

Biden campaigned for positions that included higher taxes for wealthier individuals and for businesses. With the high likelihood of a divided Congress, some observers say these tax hike proposals are being rejected. But, they add, there are still ways for a Biden administration to generate more tax revenue from wealthier Americans and corporations while tweaking the code for low-income people without congressional approval.

The Internal Revenue Service reporting to the Treasury Department, Yellen could play a central role in this attempt.

For example, a Treasury Department led by Yellen and the IRS could review some tax code regulations relating to the foreign assets of U.S. multinational corporations. It is an “open question” whether Yellen and his Treasury Department would feel like making regulatory changes unilaterally, Bivens said.

Another place the IRS can bring in more money: larger staff who can run more audits on affluent taxpayers, Bivens noted.

A not insignificant caveat is that larger IRS staff require a larger budget – and allocating budget money, like stimulus talks, is a political process, the experts added.

Cancellation of student loan debt

Advocates for student loan borrowers say Biden has the power to write off student debt, which has reached $ 1.6 trillion.

Yellen is well aware of the debt burden and its implications for home buying and the economy in general. For example, in 2016, then president of the Fed, Yellen told Congress, “We have been very attentive to trends in student debt, [and] it really intensified to an extraordinary degree.

It is difficult to say how these views could translate into policy impact. The Department of Education is the body primarily responsible for the student loan program, but there are opportunities for the treasury to play a role.

For example, typically the Treasury Department collects debts owed to the government, but due to a planned exemption Through the Treasury at the Department of Education, the Department of Education generally manages the process of collecting delinquent student loans. (The agency hires contractors to do this work).

Theoretically, the Treasury Department could tie some strings to this exemption to push the Ministry of Education to change its practices.

In addition, the Secretary of the Treasury technically appoints the Consumer Financial Protection Bureau’s Student Loans Ombudsman, one of the nation’s top student loan officials.

Don’t miss: Under Biden, CFPB will play a role in any student debt cancellation – and help fight student loan managers

The tax treatment of student loan forgiveness is an area that offers Yellen the opportunity to play a transformative role. If Congress pays some or all of the student debt owed by borrowers, lawmakers can specify the tax treatment of that remission. But if the administration goes ahead with the cancellation of student debt, the tax implications become more obscure.

The Treasury Department and the IRS have the power to exclude the cancellation of student debt from a borrower’s income for tax purposes, John Brooks, professor at Georgetown University Law Center, written in a diary published by the Student Borrower Protection Center, a borrower advocacy group.

“The Treasury Department through the IRS has substantial authority to interpret tax law in a particular way,” Brooks said. He added: “It must probably reflect a political agenda of the administration.” That would mean that guidance on the matter would come from the Treasury Department and even the Treasury Secretary, he added.

This story was updated on November 30.


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