March 16, 2023
Treasury Secretary Janet Yellen testified before the Senate Finance Committee on March 16th about President Joe Biden’s budget request, but fielded questions on a wide range of issues.
Extending Trump Tax Cuts:
Yellen was asked to provide a list of Trump-era tax cuts that if expired would increase taxes on taxpayers earning less than $400,000 a year (President Biden has vowed to not tax them).
She said completing this list might be impossible.
“I don’t know that I can provide you with that… I think that it is a very complex exercise, and I’m not sure [we can do it],” she said.
Yellen’s response raises the question for how Treasury can make good on Biden’s promise to not increase taxes on annual earnings under $400,000.
Overseeing Tax Preparers:
Yellen supports giving the IRS the authority that would require paid tax preparers meet minimum competency standards.
“I support that proposal. At present, incompetent and dishonest paid preparers disadvantage taxpayers and undermine confidence in the tax system. I believe the IRS should have the authority to oversee paid preparers and make sure that they help taxpayers,” she said.
Tax credits in the Inflation Reduction Act:
Yellen said that completing the regulations for clean energy tax credits in the Inflation Reduction Act is her number-one issue.
“We have no higher priority at Treasury in our office of tax policy,” she said.
Yellen hopes that final regulations on these tax credits will be completed by the third quarter.
Yellen took issue with Republican efforts to repeal the $80 billion that the IRS will receive over the next ten years to improve operations. Without that money, she said the tax agency would be hard-pressed to oversee tax laws.
“[Repealing the funding] would allow the wealthy and corporations to skip-out on taxes that they owe and make life harder for ordinary middle-class families, who pay their taxes, to get the kind of service that they deserve from the IRS,” she said.
The funding would also allow the IRS to hire experienced tax lawyers who could “go after” wealthier taxpayers, Yellen said.
Specifics for how the funding will be spent should be released to Congress in a “matter of weeks,” she said.
Yellen responded to several questions about the recent run on banks.
One of her more eye-opening responses was that the decision for the federal government to back uninsured accounts may not be an automatic response if other banks fail.
“A bank only gets that treatment if a majority of the FDIC board – a super majority… A super majority of the Fed board. And I, in consultation with the President, determine that the failure to protect uninsured depositors would create systemic risk and significant economic and financial consequences,” she said.
Senator James Lankford (R-Okla.) said her response could accelerate large depositors moving from community banks to larger banks.
“I’m concerned you’re about to accelerate that by encouraging anyone who has a large deposit in a community bank would say, ‘we’re not going to make you whole, but if you go to one of preferred banks we will make you whole,’” the Senator said.
Lanford asked Yellen if the recent collapse of banks will mean that other banks will pay higher fees to insure against future bank failures. She did not directly answer the question.
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