Yellen Admits Inflation Error – WSJ

Treasury Secretary Janet Yellen testifies before a Senate committee on May 10 in Washington.


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Tom Williams/Associated Press

The Biden administration has assembled a leftist dream team of tax drivers to help raise labor and capital costs. Now some team members are leaving government to return to science. While it’s too early for taxpayers to celebrate, hopes are mounting that the US can avoid new strains on productive businesses. If there’s a silver lining to President Joe Biden’s inflation debacle, it’s that his economics team has lost a significant measure of credibility as they try to get destructive policies through Congress.

No team member has suffered greater reputational damage than Treasury Secretary Janet Yellen, formerly a celebrated pillar of the respected business establishment. CNN’s Kevin Liptak and Paul LeBlanc report:

US Treasury Secretary Janet Yellen admitted on Tuesday that she did not anticipate how long high inflation would continue to plague American consumers as the Biden administration works to curb growing political liability.

“I think I was wrong at the time about the path inflation was going to take,” Yellen told CNN’s Wolf Blitzer on The Situation Room when asked about her 2021 comments on that inflation is only a “small risk”.

. . . Yellen and other White House officials have once described inflation as a temporary side effect of the economy’s return to post-pandemic normalcy, pointing to flaws in supply chains and demand exceeding supply.

But months later, inflation is at nearly four-decade highs.

In some cultures, such an admission by an official charged with maintaining the currency was followed by resignation or dismissal. But while it may seem that failure is never punished in Washington, there is a clear possibility of some sort of political reckoning here. Secretary Yellen’s historic inflationary blunder weakens her ability to persuade Congress to pass her misguided corporate tax plan that will inevitably make the United States less competitive.

It’s too early for US workers and taxpayers to celebrate. Caution is especially needed because leftists like Senator Elizabeth Warren (D., Mass.) continue to push for tax increases, and Senator Warren recently hinted that she and Ms. Yellen have “a small promise” to enact corporate tax changes. But there are indications that Team Biden will not expect big victories in legislation.

“Many of the smartest tax collectors in the White House seem to be leaving in a hurry.” tweets Alan Cole of Full Stack Economics. “That could indicate they think the corporate tax hikes are dead for this Congress.”

Do we dare to dream? Bloomberg’s Jennifer Jacobs reports this week:

Treasury Department Assistant Assistant Secretary for Tax Analysis Kimberly Clausing is leaving the Biden administration.

clause . . . Pushed to raise taxes on corporations and wealthy Americans, including raising the domestic corporate tax rate to 28%.

According to people familiar with the matter, Tuesday was her last day. Clausing is returning to academia, a Treasury Department spokeswoman said. Clausing was an economics professor at Reed College in Oregon before joining the UCLA School of Law.

Clausing had been giving the government advice on profit shifting – the practice by many companies of setting up businesses in low-tax jurisdictions to avoid levies in higher-tax countries like the US – as the Biden team drew up plans to overhaul corporate taxes in the US and abroad and collect more revenue.

Those plans, part of the Build Back Better package, have stalled in Congress, and a global tax treaty has encountered other problems.

Ms. Clausing isn’t the only one who sees greener pastures outside of federal service. “Biden’s tax-the-rich advocate to leave the White House,” proclaimed a Politico headline last week. Kate Davidson and Daniel Lippman reported:

One of the Biden administration’s staunchest supporters of taxing the wealthy to fund the president’s economic agenda is leaving the administration at the end of the week.

David Kamin, a former tax and budget official in the Obama administration, joined the National Economic Council as deputy director early in Joe Biden’s presidency and was previously a member of the campaign’s transition team. His last day is Friday. . .

Kamin, who is a professor on leave from New York University Law School, was one of the main architects of Biden’s plans to raise taxes on wealthy Americans to pay for his sweeping welfare spending plans, and in 2015 he wrote a widely circulated memo titled “How to Tax the rich.”

However, some of those efforts have not caught on in Congress, including Biden’s proposal to end provisions in the code known as “increased death bases,” which can allow wealthy people to pass assets on to heirs tax-free.

James Lucier of Capital Alpha Partners writes to clients today:

The clean energy tax breaks, which used to be part of the Build Back Better Act, won’t pass Congress this year unless Congress can also pass some form of a global minimum tax. . . to pay for them.

We have less than a 50% chance that Congress will pass the tax increases needed to pay for the clean energy tax credits, and we’re looking to lower that chance further soon. . .

We’ll watch Treasury Secretary Janet Yellen testify before Congress on June 7-8 as she appears before tax committees for routine budget-related hearings. You will certainly be confronted with questions [the proposed corporate tax change]. How well she answers these questions will determine our outlook.

Memorial Day has come and gone with no tangible sign of progress towards passage of the Fiscal 2022 Budget Voting Act, which could eventually be a vehicle for the clean energy tax credits that were previously part of the now-defunct Build Back Better Act.

We currently have less than a 50% chance that the central clean energy tax rules of the Build Back Better Act will be enacted before the Budget Vote Act time expires when fiscal 2022 ends on September 30th.

US investors and workers are not out of the woods yet. But time is running out for Biden’s tax hikes, and some of the most enthusiastic walkers are leaving the government.

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Russians against Putin’s war
Matthew Luxmoore reports for the Journal:

Hundreds of Russian soldiers have escaped fighting in Ukraine or refused to take part in the early stages of the war, according to military decrees viewed by the Wall Street Journal and accused soldiers and lawyers defending them.

Military analysts and Ukrainian officials say there were many more.

The Russian army stumbled badly early in its invasion of Ukraine, suffering thousands of casualties and the loss of an estimated one-fourth of its deployed military equipment, a senior Pentagon official said in April. Desertions and disobedience among soldiers, Interior Ministry troops and members of the National Guard compound the problem.

The desertions leave Russian authorities in a bind as to how to punish those who refuse to work without paying more attention to the problem, defense experts said. The Russian military is short of manpower and looking for recruits to turn the tide in Ukraine.

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James Freeman is co-author of The Cost: Trump, China and American Revival.

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Keep following James Freeman Twitter.

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https://www.wsj.com/articles/yellen-admits-inflation-error-11654122038 Yellen Admits Inflation Error – WSJ

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