Go big now to save the economy, worry about debt later, Yellen says in Treasury testimony.

WASHINGTON (Reuters) – Janet Yellen, nominated for US President-elect Joe Biden’s Treasury Secretary, urged lawmakers Tuesday to “act big” on coronavirus relief spending, saying the economic benefits far outweigh. long the risks of a greater debt load.

In more than three hours of confirmatory testimony, the former Federal Reserve chairman presented a vision of a beefier Treasury that would act aggressively to reduce economic inequality, fight climate change, and counter unfair trading practices and subsidy of China.

Taxes on corporations and the wealthy will eventually have to rise to help fund Biden’s ambitious plans to invest in infrastructure, research and development, and worker training to improve the competitiveness of the US economy, he told lawmakers.

But that would only come after curbing the pandemic, which killed over 400,000 people, and the economic devastation it brought.

Yellen, who spoke via video link, said her job as head of the Treasury will be to help Americans endure the final months of the coronavirus pandemic as the population is vaccinated and rebuild the U.S. economy to make it more competitive and create more prosperity and more jobs. .

“Without further action, we risk a longer and more painful recession now and long-term scarring of the economy thereafter,” he said.

Yellen said reducing the pandemic would take priority over tax hikes, but said corporations and the wealthy, who both benefited from The 2017 Republican tax cuts “must pay their fair share.”

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He raised the eyebrows of some senators and Wall Street when he said the Treasury would consider taxing unrealized capital gains – through a “mark-to-market” mechanism – as well as other approaches to increasing revenue.

BURDEN OF DEBT

He also said that the dollar’s value should be determined by the markets, a rupture from departing President Donald Trump’s desire for a weaker US currency.

“The US is not looking for a weaker currency to gain competitive advantage and we should oppose other countries’ attempts to do so,” he said.

Wall Street shares rose Tuesday in response to Yellen’s call for a heavy stimulus package, as well as positive bank earnings updates. Oil prices also rose, while Treasury yields fell slightly due to his comments that parts of the 2017 tax reform should be repealed.

Biden, who will be sworn in on Wednesday, outlined a proposed $ 1.9 trillion stimulus package last week, saying bold investments are needed to jump-start the economy and accelerate vaccine delivery to keep the virus under control. .

When asked what spending would provide the biggest “bang for the buck,” Yellen said spending on public health and widespread vaccinations was the first step. Extended unemployment and nutritional aid, better known as food stamps, should be next, he said.

“Neither the president-elect, nor I, are proposing this aid package without appreciation for the country’s debt burden. But right now, with interest rates at an all-time low, the smartest thing we can do is act big, ”Yellen told the Senate Finance Committee.

He said that even though the amount of debt related to the economy has increased, the interest burden – the amount the Treasury pays to pay its debt is not, due to lower interest rates. He said he will be watching that metric closely as the economy recovers.

NEW CLIMATE PLACE IN TREASURY

Yellen called climate change an “existential threat” to the US economy and said she will appoint a senior Treasury official to oversee the issue and assess the systemic risks it poses to the financial system.

He added that investments in clean technologies and electric vehicles were needed to reduce carbon emissions, keep the US economy competitive and provide good jobs for American workers.

Yellen said China is the United States’ most important strategic competitor and stressed the Biden administration’s determination to crack down on what she called China’s “abusive, unjust and illegal practices.”

Asked whether China has committed “genocide” in its treatment of Muslim Uyghurs, as declared by the Trump administration in a last-minute proclamation, Yellen said that China is “guilty of horrendous human rights violations, yes” .

Democrats will take over Senate committees, including finance. Republican Senator Mike Crapo said he will work for a “quick” confirmation for Yellen.

It also received the approval of all former Treasury Secretaries, from George Schultz to Jack Lew, who urged senators in a letter to swiftly confirm Yellen’s appointment to avoid “delaying recovery efforts.” A spokesperson for Treasury Secretary Steven Mnuchin, who resigns Wednesday, did not respond to a request for comment.

Reportage by David Lawder, Andrea Shalal, Ann Saphir and David Shepardson; Additional reporting by Trevor Hunnicutt; Editing by Heather Timmons and Andrea Ricci