Janet Yellen prepares to become Biden’s cabinet minister of finance – impact on cash-strapped American families

In 2014, three months after her four-year tenure as head of the Federal Reserve, Janet Yellen tried to draw an important relationship for investors, decision-makers and community development leaders.

“Although we work in financial markets, our goal is to help Main Street, not Wall Street. With low interest rates, we are trying to make homes more affordable and revitalize the housing market. We’re trying to make it cheaper for businesses to build, expand, and deploy, ”Yellen said in a note at a Chicago conference.

Six years later, 74-year-old Yellen is reportedly electing the Treasury Secretariat as President-elect Joe Biden, the Wall Street Journal first reported on Monday.

If selected and confirmed – she will be the first woman to do the job – many families will expect Yellen to continue to focus on the relationship between Capitol Hill decisions and her own financial situation.

The coronavirus has forced millions of people to work; the unemployment rate fell to 6.9% in October, against double digits in the spring, but some economists are worried that coronavirus infections and new regulations on state shutdowns will shake the recovery. Various financial relief deadlines, such as eviction moratoriums and student debt breaks, will end on December 3, while negotiations on another congressional aid package have stalled.

Yellen, a labor economist talking about the problems of income inequality, will remember Main Street, said Desmond Lachman, a resident of the American Enterprise Institute, a right-wing think tank. “He’ll be very responsible, but at the same time he’s going out there to hit people at the lower end of the spectrum,” Lachman said. – He will be very sensitive to their problem.

Here’s an overview of what experts say a Yellen-led ministry of finance means further stimulus for the government, taxes in the Biden government, and cancellation of student debt.

Another round of government incentives

Markets closed higher on Monday and the rise continued on Tuesday with the Dow industrials DJIA,
+ 1.53%
is well on its way above the 30,000 mark, which was triggered in part by news of vaccinations and some analysts say Yellen’s expected appointment. Yellen’s potential selection is a good sign that the Biden government is serious about getting another incentive bill through Congress, now that the $ 2.2 trillion in money from the CARES Act has dried up, they added.

Yellen said loudly that more financial help was needed. “Expenditures are absolutely necessary to ensure that more pain does not spread throughout the economy and that unemployment continues to move,” Yellen, currently at the Brookings Institute, said at a July congressional hearing.

Ernie Tedeschi, managing director and policy economist at investment banking consulting firm Evercore ISI, wrote in a Monday note that Yellen “considers it vital to continue fiscal and monetary support for the economy and is likely to seek to increase its credibility. with Congress over time to support more fiscal support, including for the unemployed and state and local governments. “

Adopting the stimulus bill is a consensual political process, but Josh Bivens, a left-leaning think tank, research director at the Institute for Economic Policy, says Yellen has gravitations and understanding that could potentially convince Republicans. Further encouragement is essential, Bivens said, because “we are in very, very rough economic times.”

If Yellen is selected and confirmed, he will have a former colleague, Jerome Powell, with whom he can work with the Federal Reserve. Powell, who replaced Yellen at the head of the Fed, also supports soaking the economy with additional stimulus money.

Review of tax legislation

Biden has campaigned for campaigns in which the richest individuals and companies also pay higher taxes. The split congress has a high chance some observers say the tax increase proposals are out the window. But they add, there are still ways in which the Biden administration can bring in more tax revenue from the richest Americans and corporations while modifying the lower-income code without congressional approval.

Since the Revenue Service is under the Ministry of Finance, Yellen could play a central role in this experiment.

For example, a Treasury-led Treasury Department and the IRS may review certain tax code requirements for foreign assets of U.S. multinational corporations. “It’s an open question” if Yellen and the Treasury Department would like to change the regulation unilaterally, Bivens said.

Another place the IRS can bring in more money is more staff that can put more control over affluent taxpayers, Bivens noted.

Not a trivial warning that larger IRS staff require a larger budget – and the allocation of budget money than incentive negotiations, a political process – experts added.

Student loan debt cancellation

Proponents of student loan borrowers say Biden has the right to cancel student debt, which has risen to $ 1.6 trillion.

Yellen is well aware of the debt burden and its implications for home buying and the economy. For example, in 2016, then-Fed President Yellen told Congress, “We have been paying close attention to student debt trends, [and] indeed increased tremendously. “

It is difficult to say how these views can evolve as a political impact. The Department of Education is the agency primarily responsible for the student loan program, but the Treasury has the opportunity to play a role.

For example, the Ministry of Finance typically collects debts owed to the government, but due to the exemption granted by the Ministry of Finance to the Ministry of Education, the Ministry of Education generally directs the process of recovering outstanding student loan debt. (The agency hires contractors for this work).

Theoretically, the Ministry of Finance could strings for this exemption to force the Ministry of Education to change practice.

In addition, the Secretary of the Ministry of Finance technically appoints the Student Financial Ombudsman of the Consumer Financial Protection Board, one of the most important student loans in the country.

Don’t miss: Under Biden, the CFPB plays a role in clearing all student debt – and helps manage student loan agents

The tax treatment of student loan waivers is an area that offers an opportunity for Yellen to play a transformative role. If Congress releases part or all of the student debt of borrowers, lawmakers can determine the tax treatment of that forgiveness. But if the administration moves forward on its own with the cancellation of student debt, the tax consequences will become more obscure.

The Treasury and the IRS have the right to exclude student debt write-offs from a borrower’s tax revenue, wrote John Brooks, a professor at the Law Center at the University of Georgetown, in an article published by the Student Borrowing Center, a borrower advocacy group.

“Through the IRS, the Treasury Department has significant powers to specifically interpret tax law,” Brooks said. He added: “It should probably reflect the administration’s political agenda.” This would mean that the guidelines on the issue come from the Ministry of Finance and even the Secretary of the Ministry of Finance, he added.