Spend big now, pay down debt later, Biden's Treasury nominee Yellen tells lawmakers

WASHINGTON (Reuters) – Janet Yellen, U.S. President-elect Joe Biden’s nominee for Treasury Secretary, urged lawmakers on Tuesday to “act big” on the next coronavirus relief package, adding that the benefits outweigh the costs of a higher debt burden.

Yellen said her task as Treasury chief will be to help Americans endure the final months of the coronavirus pandemic, and rebuilding the U.S. economy “so that it creates more prosperity for more people and ensures that American workers can compete in an increasingly competitive global economy.”

Biden, who will be sworn into office on Wednesday, outlined a $1.9 trillion stimulus package proposal last week, saying bold investment was needed to jump-start the economy and accelerate the distribution of vaccines to bring the virus under control.

Asked what outlays would provide the biggest “bang for the buck,” Yellen said spending on public health and widespread vaccinations was the first step. Extended unemployment and SNAP benefits, better known as food stamps, should be next, she said.

Targeting relief to people in the greatest need, and to small businesses, will create “a great deal of spending per dollar spent, they’ll create jobs throughout the economy,” Yellen said.

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“Neither the president-elect, nor I, propose this relief package without an appreciation for the country’s debt burden. But right now, with interest rates at historic lows, the smartest thing we can do is act big,” Yellen, a former Federal Reserve chair, told the Senate Finance Committee.

“Even though the amount of debt relative to the economy has gone up, the interest burden hasn’t,” Yellen said, referring to the amount of money the federal government pays in interest on that debt.

Biden’s proposed aid package includes $415 billion to bolster the U.S. response to the virus and the rollout of COVID-19 vaccines, some $1 trillion in direct relief to households, and roughly $440 billion for small businesses and communities particularly hard hit by the pandemic.

Many Americans would receive stimulus payments of $1,400, which would be on top of the $600 checks approved in a pandemic relief bill passed by Congress last month. Supplemental unemployment insurance would also increase to $400 a week from the current $300 a week, and it would be extended to September.

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Yellen received an endorsement from all former Treasury secretaries, from George Schultz to Jack Lew, who urged senators in a letter to swiftly confirm Yellen’s nomination so she can quickly tackle “daunting challenges” in the economy.

“Addressing these pressing issues will require thoughtful engagement by the Department of the Treasury. Any gap in its leadership would risk setting back recovery efforts,” the former secretaries wrote.

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A spokeswoman for departing Treasury Secretary Steven Mnuchin, who steps down on Wednesday, could not immediately be reached for comment.

Yellen also addressed the Treasury’s stance on the dollar, after President Donald Trump frequently called for a weaker dollar to boost U.S. exports.

The United States should oppose attempts by other countries to artificially manipulate currency values to gain trade advantage, she said, adding that the targeting of exchange rates for commercial advantage was “unacceptable.”

She said China was clearly the most important strategic competitor of the United States and underscored the determination of the Biden administration to crack down on what she called China’s “abusive, unfair and illegal practices.”

Treasury secretaries have previously affirmed their commitment to a market-determined exchange rate and some in recent years have said that a strong dollar is in U.S. interests.

Yellen also said that she believed some of the signature 2017 tax reform act should be repealed, such as the cut in corporate tax rates, though rates would not go back to their pre-2017 levels. Treasury yields fell slightly on the testimony.

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