Yellen says ‘no plans to leave’, too much unfinished business

US Treasury Secretary Janet Yellen speaks at a House Financial Services Committee hearing on December 1, 2021.

Janet Yellen, President Joe Biden’s surprise pick as Treasury secretary in the wake of his 2020 election victory, says there’s too much unfinished business to think about departing the role after just over a year on the job.

The biggest win of her tenure—a historic global agreement on corporate taxes that Yellen engineered through careful international diplomacy—remains incomplete, with the US Congress yet to endorse it. The administration’s “Build Back Better” package of social investments is also in legislative limbo. Meantime, high inflation is marring assessments of the $1.9 trillion aid bill enacted last March.

“We still have a huge amount of important work to do,” Yellen, 75, said last week in a statement to Bloomberg News following a wide-ranging interview marking her first year in office. “I have no plans to leave Treasury anytime soon.”

After more than 15 years at the Federal Reserve—culminating in her chairmanship that ended in 2018—Yellen brought an authoritative voice to the Biden team’s early call to “go big” with fiscal stimulus. Assuring Democrats that low interest rates gave them more room for extended federal spending, she provided an economic rationale to the White House’s negotiations on Capitol Hill.

“We were trying to make sure that we took care of people so they could make it through the pandemic,” she said in the interview Wednesday. “I have to say, I’m very pleased with the results.”

By many measures the American Rescue Plan, which delivered $1.9 trillion to households, businesses and states, was a success. Millions have returned to employment, the economy bounced back strongly and wage gains surged as employers scrambled to attract workers.

Yellen highlighted that poverty measures have fallen, evictions are below pre-pandemic levels and the massive lines seen at food banks a year ago have disappeared.

“This is an extraordinary achievement,” she said.

Another key data point, however, has gone in an unwelcome direction. After Yellen forecast in June that inflation would slow in the second half to around 3 percent, it zoomed to a four-decade high of 7 percent by December, overwhelming wage gains.

It’s expected to climb even higher in the January data. Republicans—none of whom voted for Biden’s relief bill—blame it for the cost-of-living surge. And they’re not alone in criticizing the size of the package.


“The American Rescue Plan was well intentioned but over-sized,” said Jason Furman, who served as chair of President Barack Obama’s Council of Economic Advisers and now has posts at Harvard University and the Peterson Institute for International Economics. “They erred on the side of too much.”

Yellen disagrees.

The ARP probably contributed “a little bit” to inflation, but Covid-induced supply chain constraints were the bigger culprit, she argued. Regardless, “you have to decide what’s the biggest risk that you face and address it effectively, and I think the American Rescue Plan was sized to do that,” she said.

“I often think maybe Americans take it for granted. It’s like a dog that didn’t bark. You tend not to appreciate how different things could have been” with the assistance provided, Yellen said.

What the labor economist does concede is that “transitory,” a term she used through much of 2021, wasn’t the best choice to describe inflation.

“I think people heard ‘transitory,’ and to them it meant a couple of months,” she said. “Maybe a better word could have been chosen.”

The bipartisan infrastructure package that Biden signed in November was a clearer success. At $550 billion in net new spending beyond the previous trajectory, it was the biggest such package in decades.

It will provide “the modern infrastructure of a modern economy,” Yellen said—with funds not only for roads, bridges, water and ports, but also for the power grid, electric car-charging stations and broadband Internet.

Other marks of Yellen’s tenure include Biden’s reappointment of Jerome Powell as Fed chair—for which she had advocated against the voices of some progressives—and a new focus on examining potential risks to the financial system from climate change.

Build Back Better, the administration’s more ambitious plan to spend roughly $2 trillion over a decade and to raise taxes on the wealthy and on companies, hasn’t gone as well. West Virginia Democrat Joe Manchin rejected the plan in December, leaving Democrats short of the 50 votes they need to pass it in the Senate.

Yellen, who last month described the proposals as “modern supply-side economics,” said she’s “really enthusiastic” about reviving a number of the package’s elements.

‘Historic’ contributions

“The truth is that, in a way, almost each one of them, if they got done, would be historic in making a huge contribution on its own,” she said.

She called the climate-related components “critical” and said adding two years of early childhood education would be a “massive accomplishment.” She believes Manchin might support both.

“This is year one of a four-year term, and Rome wasn’t built in a day,” she quipped.

The days of Democratic political control in Washington may be limited, however. Analysts see high chances for the Republicans to seize a majority of at least the House in November’s midterm elections.

And that brings urgency to nailing down what observers say is Yellen’s biggest victory: reviving what had been a years-long, moribund project to reform and modernize the taxation of multinational companies across the globe.

Yellen personally led efforts that resulted in a deal backed by 140 countries. It takes on two major problems: How to halt the flight of big corporations to tax havens like Ireland and the Cayman Islands, and how to tax the profits from cross-border digital commerce—a dispute that had been on the verge of sparking trade wars.

The deal addresses these through a 15 percent global minimum tax and an agreement that will see countries where profits are booked share some taxes with countries where revenue is generated.

Calling India

Among Yellen’s efforts: calling her Indian counterpart twice at crucial points to bring, and then keep, the emerging-market giant behind the agreement, according to a person familiar with the matter. She also was key in bringing around Ireland, one of three European Union members that initially refused to sign on.

Assuming Democrats find a legislative vehicle, lawmakers are expected to approve the minimum tax portion, known as Pillar Two, which had been wrapped into the Build Back Better bill. But the other central element, Pillar One, is still tied up in technical talks. With many Republicans opposed and elections that may flip Congress looming in November, the clock is not on Yellen’s side.

But she stuck to her view that enough Republicans will eventually support the deal because US companies will ask them to. The international tax landscape, she argued, has so deteriorated, with many countries unilaterally targeting US firms with special levies, that big multinationals will prefer the new regime.

“You are going to see, I think, a lot of firms talking to their congresspeople and telling them it’s really important to enact Pillar One,” she said.

How that legislation pans out, along with how consumer prices shape up as the year progresses, will go far to determine Yellen’s legacy as Treasury secretary. Bloomberg News

Image credits: Bloomberg


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