Janet Yellen set to become Treasury Secretary at a Biden cabinet – and here’s what that means for cash-strapped American families

Six years later, Yellen, 74, would be President-elect Joe Biden’s choice for Treasury secretary, first reported by The Wall Street Journal on Monday.

If selected and confirmed – becoming the first woman to hold the job – many families will count on Yellen to stay focused on the connection between decisions made on Capitol Hill and their own financial situation.

The coronavirus has put millions of people out of work; The unemployment rate fell to 6.9% in October, from double digits in the spring, but some economists fear that the surge in coronavirus infections and the rise in government shutdown orders could shake the recovery. Various financial relief deadlines, like moratoriums on evictions and student debt payment breaks, will end on December 3, while negotiations on another Congressional relief program are stalled.

Yellen, a labor economist who has spoken about issues of income inequality, will remember Main Street, said Desmond Lachman, a resident at the American Enterprise Institute, a right-wing think tank. “She will be very responsible, but at the same time, she will go out there to stand up for people at the bottom of the spectrum,” Lachman said. “She will 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 closed higher on Monday, and the rise continued on Tuesday with industrialists Dow DJIA,
+ 1.53%
on track to close above 30,000 for the first time, supported in part by vaccine news and, some analysts say, Yellen’s early appointment. Yellen’s potential selection is a good sign that the Biden administration is serious about pushing through another stimulus bill in Congress, now that the $ 2.2 trillion CARES bill money has dried up, they added.

Yellen expressed the need for additional financial assistance. “The spending is absolutely necessary so that more pain does not carry over throughout the economy and so that unemployment continues to fall,” Yellen, currently at the Brookings Institution, said at a congressional hearing in July.

Ernie Tedeschi, chief executive and political economist of Evercore ISI, an investment banking consultancy, wrote in a Monday note that Yellen “believes it is essential to maintain fiscal and monetary support for the economy. and will likely seek to leverage its credibility. with Congress over time to promote more tax 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-wing think tank, said Yellen had the gravity and the understanding the issues to potentially persuade Republicans. An additional stimulus is imperative, said Bivens, because “we are living in very, very difficult economic times.

If Yellen is selected and confirmed, she will have a former colleague, Jerome Powell, to work with at the Federal Reserve. Powell, who took over from Yellen at the head of the Fed, also supports the injection of more stimulus money into the economy.

Review the regulations of the tax code

Biden campaigned on positions that included higher taxes for wealthier individuals and for corporations. With the good luck of a divided Congress, some observers say these tax hike proposals are out of reach. But, they add, there are still ways for a Biden administration to generate more tax revenue from wealthier Americans and corporations while changing the code for low-income earners without congressional approval.

With the Internal Revenue Service reporting to the Treasury Department, Yellen could play a central role in this attempt.

For example, a Treasury Department led by Yellen and the IRS could review some tax code regulations relating to the foreign assets of U.S. multinational corporations. It is an “open question” whether Yellen and his Treasury Department would have an appetite to unilaterally make regulatory changes, Bivens said.

Another place the IRS can make more money: larger staff who can run more audits on affluent taxpayers, Bivens noted.

A non-negligible caveat is that larger IRS staff require a larger budget – and allocating budgetary funds, like stimulus talks, is a political process, experts added.

Cancellation of student loan debt

Student borrower advocates say Biden has the power to write off 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 in general. For example, in 2016 then Fed President Yellen told Congress, “We have been very attentive to trends in student debt, [and] it has really intensified to an extraordinary degree. “

It is difficult to say how these views could translate into political impact. The Department of Education is the primary agency responsible for the student loan program, but the treasury has the option of playing a role.

For example, the Treasury Department usually collects debts owed to the government, but due to an exemption granted by the Treasury to the Department of Education, the Department of Education typically manages the process of collecting debts on loans. suffering students. (The agency hires contractors to do this work).

Theoretically, the Treasury Department could tie strings to this exemption to push the Department of Education to change its practices.

In addition, the Secretary of the Treasury technically appoints the Consumer Finance Protection Board’s Student Loans Ombudsman, one of the nation’s top student loan officers.

Don’t miss: Under Biden, CFPB to play role in any student debt cancellation – and help fight student loan managers

The tax treatment of forgiveness of student loans is an area that offers Yellen the opportunity to play a transformative role. If Congress pays all or part of the student debt owed by borrowers, lawmakers can specify the tax treatment of that remission. But if the administration goes ahead with canceling student debt on its own, the tax implications become more obscure.

The Treasury Department and the IRS have the power to exclude student debt forgiveness from a borrower’s income for tax purposes, wrote John Brooks, professor at Georgetown University Law Center, in an article published by the Student Borrower Protection Center, a borrower advocacy group.

“The Treasury Department, through the IRS, has substantial authority to interpret tax law in a particular way,” Brooks said. He added: “It must probably reflect a political agenda of the administration.” That would mean advice on the matter would come from the Treasury Department and even the Treasury Secretary, he added.