HWMC Proposed FY23 Budget with Treasury Secretary Janet Yellen Hearing

House Ways & Means Committee

Proposed Fiscal Year 2023 Budget with Treasury Secretary Janet Yellen

Wednesday, June 8, 2022

Topline

• The hearing largely focused on the Internal Revenue Service (IRS), an international minimum tax, inflation, and affordable housing.
• Democrats’ top concern was inflation, affordable housing, and increasing resources for the IRS.
• Republicans questioned Yellen on the Administration’s policies to raise taxes on corporations, how government spending has impacted the rise of inflation, and the ProPublica leak.
• Yellen stated it is within the United States national interest to lead on a global minimum tax and urged Congress to implement policies to help mitigate costs for American families.

Witnesses

• Janet Yellen, Secretary, Department of Treasury

Opening Statements

Chairman Richard Neal (D-Mass.)

In his opening statement, Neal discussed the U.S. economy and the impact the pandemic has had on the American workforce. He also discussed the impact the American Rescue Plan had in getting families back to work and keeping small business open. He said many members of the Committee would like to see a better funded Internal Revenue Service (IRS) in order to promote fairness and administration of tax laws. Neal discussed the importance of Congress passing Build Back Better legislation and thanked Secretary Yellen for leading international tax negotiations.    

Ranking Member Kevin Brady (R-Texas)

In his opening statement, Brady discussed his views on then U.S. economic recovery, the IRS ineffectiveness in returning tax refunds to the people and using funds generated by Congress to work on the wrong things, and the ProPublica leak. He also voiced his concerns about the tax policies allotted in the FY2023 budget.

Janet L. Yellen, Secretary, Department of Treasury

In her testimony, Yellen said the FY23 budget prioritizes essential investments in education, medical care, and affordable housing, alongside tax reforms that enable deficit reduction and prioritize a fairer tax system. She discussed the American Rescue Plan and the bill’s ongoing impact on the U.S. economy. She said Treasury has been working to make sure the war in Ukraine has a minimal impact on the U.S. economy. She also discussed the bipartisan infrastructure bill and its impact on the future of the U.S. economy. She concluded by urging Congress to implement a global minimum tax as part of its legislative agenda.

Question & Answer

Internal Revenue Service (IRS)

Reps. Bill Pascrell (D-N.J.) and Neal asked why it was important to invest 80billion dollars into the IRS. Yellen said it is important so the agency can effectively enforce the nation’s tax laws to promote fairness amongst the nation’s low- and high-income workers adding that it will also improve the experience of taxpayers as they interact with the IRS. Rep. Judy Chu (D-Calif.) asked how the increased resources for the IRS would change the audit strategy of the IRS to lift the unfair burden on low-income taxpayers. Yellen said the audit rates of the top income workers have fallen off significantly and more quickly than low-income workers. She also said the budget request helps the IRS address the tax gap between low- and high-income workers.

International Minimum Tax

Rep. Lloyd Doggett (D-Texas) asked why it is in America’s best interest that we lead on a global international minimum tax. Yellen said it is very much in the United States national interest adding that it will enable the U.S. to reduce some of the tax burden that falls on workers and place it on corporations whose contributions are diminished over time. She also said it will allow the U.S. to place sanctions on countries that do not adopt the minimum tax. Reps. Earl Blumenauer (D-Ore.) and David Schweikert (R-Ariz.) asked if an international tax agreement would negatively affect Americans. Yellen said it would not, adding that an international tax agreement will stop a global race to the bottom in global tax rates that have been going on around the globe for decades. She said without a global tax minimum, the losers are American workers, and the winners are large corporations.

Brady asked Yellen if she would commit to walking away from any tax deal in the Organization for Economic Co-operation and Development (OECD) agreement that lowered tax revenues for the U.S. Yellen discussed the possible results of Pillar One and Two but concluded that Treasury does not have the information yet to determine whether the agreement will be profitable. Rep. Kevin Hern (R-Okla.) asked if the Treasury could have been wrong on the Foreign Tax Credit (FTC). Yellen said protecting the American tax base is crucial and that foreign tax is allocated when foreign countries have a taxing right, adding that Treasury found digital taxes to be unfair trade practices.

Inflation

Reps. John Larson (D-Conn.) and Brad Schneider (D-Ill.) asked what actions Congress should be taking to bring down the rate of inflation. Yellen discussed how rapidly the U.S. has bounced back from the economic effects of the pandemic and how the Administration is doing everything it can to address energy cost, affordable housing, and living costs. She also asked Congress to legislate programs that will cut critical costs that Americans face such as health care costs, utility costs, and more. Rep. Ron Kind (D-Wis.) asked how inflation has affected other developed countries. Yellen stated that all developed countries are seeing a rise in inflation. Rep. Brendon Boyle (D-Pa.) asked why the United States economy has done so much better than every other country. Yellen said the U.S. economy is having the strongest recover as it relates to unemployment and economic growth adding that the results a product of the large fiscal package the U.S put together to address shortfalls within the economy. Pascrell asked how the Administration balances the urgency to lower inflation with care to preserve the economy. Yellen said the Fed has a primary role in bringing inflation down and that the Treasury’s goal is to keep the economy operating at full employment.

Rep. Adrian Smith (R.-Neb.) asked if the low inflation before the pandemic was a good thing. Yellen said 2% inflation is an appropriate target and discussed how too low of inflation can hobble a monetary system and create deflationary pressures. Smith asked if 8% inflation growth and 5% wage growth were acceptable. Yellen said 8% inflation was not acceptable, citing the Ukraine conflict as a cause, and that other countries are experiencing similar or worse levels. Rep. Jason Smith (R-Mo.) asked if fiscal restraint has a role in combating inflation. Yellen said yes and explained her belief in further deficit reduction. 

Taxes

Rep. Donald Beyer (D-Va.) asked how a minimum tax on Americans with a net worth would help address the issue of wealthy Americans paying their fair share in taxes. Yellen said under current law, some of the wealthiest Americans pay very little in taxes through capital gains, adding that the Administration’s proposed minimum income tax would apply to all taxpayers worth a million dollars or more. She also said it would prevent wealthy Americans from escaping paying taxes and would affect one in 10,000 taxpayers. Smith asked if President Biden supports the windfall tax on energy production. Yellen stated that the Administration has not taken a position on this subject. Rep. Lloyd Smucker (R-Pa.) asked if raising corporate taxes will lower the cost of food for families. Yellen said the president has proposed growth policies and does not think the price of food will rise. 

Affordable Housing

Reps. Suzan DelBene (D-Wash.) and Dwight Evans (D-Pa.) asked how expanding the low-income housing tax credit would help American families fight inflation. Yellen said affordable housing is a high priority of the Administration’s and is critical to helping families fight inflation. Yellen also stated that the Administration is looking into rental assistance programs as well. Evans asked if expanding the Earned Income Tax Credit (EITC), to younger taxpayers, advance economic opportunity for young people of color. Yellen said yes adding that the EITC expansion has had a very positive impact and is an important tool for poverty reduction. Rep. Steven Horsford (D-Nev.) asked what tools the Treasury Department currently has to combat the predatory actions of corporate investors who are buying up homes and pricing out local residents. Yellen said the Treasury has been very focused on the Emergency Rental Assistance Program (ERAP) and the Homeowner Assistance Fund that have been helpful tools in addressing affordable housing. She also said affordable housing is a key goal of the Administration and recognized the pandemics impact on the housing market.   

Government Deficit

Reps. Vern Buchannan (R.-Fla.) and Smucker asked how the current deficit ties into inflation. Yellen said spending has come down and that a substantial response to the pandemic was necessary. She also said inflation is high but is also due in part to supply and demand. Buchannan asked Yellen about raising interest rates to help fight inflation. Yellen said low interest rates during the pandemic resulted in a negative burden on the U.S. debt but added that the importance of the burden lies in the net interest that the U.S. must pay. Yellen also said the Administration views the debt as manageable.

Taxpayer Privacy

Smith asked what steps Treasury has taken to investigate the ProPublica leak. Yellen said there is a team of independent investigators looking into the leak and affirmed taxpayer privacy as a top priority for the Administration. Rep. Drew Ferguson (R-Ga.) asked if the FBI has acted on Treasury’s referral to look into the ProPublica leak. Yellen said yes, but she has not received any updates.

 

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