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In 2014, three months into her four-year tenure leading the Federal Reserve, Janet Yellen was trying to draw an important link for investors, policy makers and community development leaders.
“Although we work through financial markets, our goal is to help Main Street, not Wall Street. By keeping interest rates low, we are trying to make homes more affordable and revive the housing market. We are trying to make it cheaper for businesses to build, expand, and hire,” Yellen said in remarks at a conference in Chicago.
Six years later, President-Elect Joe Biden confirmed Monday he is selecting Yellen, 74, to be his Treasury Secretary. Biden announced Yellen, along with his picks for Director of the Office of Management and Budget, Deputy Treasury Secretary and the chair and members of the Council of Economic Advisers.
Biden said in a statement that Yellen and the others “will work tirelessly to ensure every American enjoys a fair return for their work and an equal chance to get ahead, and that our businesses can thrive and outcompete the rest of the world.”
Yellen said Monday on Twitter /zigman2/quotes/203180645/composite TWTR -1.33% that she focus on the American dream in her role.
Yellen isn’t expected to encounter push back in the Senate confirmation process. If she’s confirmed — becoming the first woman to hold the job — many families will be counting on Yellen to zero in on the connection between decisions on Capitol Hill and their own financial situations.
The coronavirus has put millions of people out of work. The jobless rate dropped to 6.9% in October, down from double digits in the spring, but some economists are worried that surging coronavirus infections and more government shutdown orders will rock the recovery. Meanwhile various financial-relief programs, such as eviction moratoriums and student-debt payment pauses, will end on Dec. 31, while negotiations on another congressional relief package are stuck.
Yellen, a labor economist who’s talked about the problems of income inequality, will remember Main Street, said Desmond Lachman, resident fellow at the American Enterprise Institute, a right-leaning think tank. “She’ll be very responsible, but at the same time, she will go out there to bat for people at the lower end of the spectrum,” Lachman said. “She’ll be very sensitive to their problems.”
Here’s a look at what experts say a Yellen-led Treasury Department will mean for another round of government stimulus, taxes in a Biden administration and student-debt cancellation.
Another round of government stimulus
Markets reacted with approval on the initial Nov. 23 news reports that Biden had picked Yellen. A day later, the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.57% surpassed the 30,000 milestone, buoyed in part by news about vaccines and, some analysts said, Yellen’s anticipated appointment.(Stocks fell on Monday’s open after the Thanksgiving weekend, but equities still could make their largest monthly gain since 1987.)
Yellen’s potential selection is a good sign the Biden administration is serious about getting another stimulus bill through Congress, now that the money from the $2.2 trillion CARES act has dried up, they added.
Yellen has been vocal about the need for more financial help. “Spending is absolutely needed for more pain not to be extended throughout the economy and for unemployment to continue moving down,” Yellen, currently at the Brookings Institution, said at a July congressional hearing.
Ernie Tedeschi, managing director and policy economist for Evercore ISI, an investment-banking advisory firm, wrote in a note that Yellen “believes it is essential to continue fiscal as well as monetary support for the economy and will likely seek to leverage her credibility with Congress over time to promote more fiscal support, including for the unemployed and for state and local governments.”
Passing a stimulus bill is a political process that involves consensus, but Josh Bivens, research director at the Economic Policy Institute, a left-leaning think tank, said Yellen has the gravitas and grasp of issues to potentially persuade Republicans. Further stimulus is imperative, Bivens said, because “we are in for very, very rough economic times.”
If Yellen is selected and confirmed, she’ll have a former colleague, Jerome Powell, to collaborate with over at the Federal Reserve. Powell, who succeeded Yellen at the Fed’s helm, also supports infusing the economy with more stimulus money.
Revisiting tax-code regulations
Biden campaigned on positions including higher taxes for the richest individuals and for corporations. With the strong chance of a divided Congress, some observers say those tax-hike proposals are out the window. But, they add, there are still ways a Biden administration can bring in more tax revenue from the wealthiest Americans and corporations while tweaking the code for lower-income earners without congressional approval.
With the Internal Revenue Service falling within the Treasury Department, Yellen could have a central role in that attempt.
For example, a Yellen-led Treasury Department and IRS could revisit certain tax-code regulations related to the foreign assets of U.S. multinational companies. It’s an “open question” if Yellen and her Treasury Department would have an appetite to unilaterally make regulatory changes, Bivens said.
Another place where the IRS can bring in more money: a larger staff that can launch more audits on affluent taxpayers, Bivens noted.
A not-insignificant caveat is that a larger IRS staff requires a larger budget — and allocating budget money, like stimulus talks, is a political process, experts added.
Student-loan debt cancellation
Advocates for student-loan borrowers say Biden has the power to cancel student debt, which has grown to $1.6 trillion.
Yellen is well aware of the debt burden and its implications for home purchasing and the economy more broadly. For example, in 2016, then–Fed Chairwoman Yellen told Congress , “We have been very attentive to trends in student debt, [and] it really has escalated to an extraordinary degree.”
It’s hard to say how those views might translate into policy impact. The Department of Education is the agency primarily responsible for the student-loan program, but there are opportunities for Treasury to play a role.
For example, typically the Treasury Department collects on debt owed to the government, but because of an exemption provided by Treasury to the Department of Education, the Department of Education generally manages the process of collecting on defaulted student-loan debt. (The agency hires contractors to do this work).
Theoretically, the Treasury Department could attach strings to that exemption to push the Department of Education to shift its practices.
In addition, the secretary of the Treasury technically appoints the Consumer Financial Protection Bureau’s student-loan ombudsman, one of the nation’s top student-loan officials.
The tax treatment of student-loan forgiveness is an area offering Yellen an opportunity to play a transformative role. If Congress discharges some or all of borrowers’ student debt, the lawmakers can specify the tax treatment of that forgiveness. But if the administration moves forward with student-debt cancellation on its own, the tax implications become murkier.
The Treasury Department and the IRS have the authority to exclude student-debt cancellation from a borrower’s income for tax purposes, John Brooks, a Georgetown University Law Center professor, wrote in a paper published by the Student Borrower Protection Center, a borrower advocacy group.
“The Treasury Department through the IRS has substantial authority to interpret the tax law in a particular way,” Brooks said. He added: “It probably needs to reflect a policy agenda of the administration.” That would mean that guidance on the issue would flow from the Treasury Department and even the Treasury secretary, he added.
This story was updated on Nov. 30.