Yellen: Biden’s phased-in spending plan won’t fuel inflation

Treasury Secretary Janet Yellen says President Joe Biden’s massive proposed spending on infrastructure, families, and education won’t fuel inflation because the plans would be phased in gradually over 10 years

By MARCY GORDON AP Business Writer

May 2, 2021, 7:19 PM

• 3 min read

WASHINGTON — President Joe Biden’s massive proposed spending on infrastructure, families, and education will not fuel inflation because the plans would be phased in gradually over 10 years, Treasury Secretary Janet Yellen said Sunday.

New economic reports have portrayed a surging recovery from the recession unleashed by the coronavirus pandemic. Americans’ incomes soared in March by the most on record, boosted by $1,400 federal stimulus checks, and the economy expanded at a vigorous annual rate of 6.4% in the first three months of the year, leading to concern over inflationary pressures.

Some economists, notably former Treasury Secretary Larry Summers, have warned that the Federal Reserve’s current ultra-low interest rates, along with the Biden administration’s proposed $4 trillion in new spending, atop about $5 trillion already approved by Congress, risk accelerating inflation.

Biden laid out his expansive plans in an address to Congress last week. They would expand the social safety net for children, increase taxes on the wealthy, and fund projects that take an ambitious definition of infrastructure to stabilize the economy over the long term with middle-class jobs.

Addressing fears about inflation, Yellen said on NBC’s “Meet the Press” that the proposed spending “comes into effect once the economy is back on track.”

“It’s spread out quite evenly over eight to 10 years. So the boost to demand is moderate,” she said. “I don’t believe that inflation will be an issue, but if it becomes an issue, we have tools to address it.”

A former Fed chair, Yellen, said the central bank “has the tools to redress inflation should it arise.”

Fed Chairman Jay Powell has clearly indicated that he does not believe a sharp price surge is likely. Powell is betting that the Fed can keep interest rates low even as the economic recovery intensifies and will not have to quickly raise rates to stop runaway inflation.

Yellen called the Biden plans “historic investments that we need to make our economy productive and fair.”

She noted that the administration proposes that the spending be paid for by raising the tax rate on corporations above the current level of 21% and closing loopholes that encourage U.S. corporations to shift their income abroad to tax havens. People earning more than a million dollars annually would see a tax increase on their capital gains and dividends to 39.6%, the same rate as income for families making over $400,000 a year before the 2017 Trump tax law.

The administration is pledging that no family earning less than $400,000 would pay a penny more in taxes under its plan.

Like the spending plans, Congress must enact tax changes, and the White House’s negotiations with Republican lawmakers, and some Democrats, who staunchly oppose tax increases promise to be strenuous.

“Anybody that says this is going to be just on the 1 percent or big corporations — I mean, that’s just phony math,” Sen. John Barrasso, R-Wyo., said on ABC’s “This Week.”

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