House Ways and Means Hearing on President Biden’s 2024 Budget Request
House Committee on Ways and Means
Hearing on President Biden’s Fiscal Year 2024 Budget Request
Friday, March 10, 2023
- Republicans questioned the Biden Administration’s plans to raise taxes and increase funding for the Internal Revenue Service.
- Democrats focused on the investments included in the budget and the need to raise the debt limit.
- Janet L. Yellen, United States Secretary of the Treasury
Chairman Jason Smith (R-Mo.)
Smith began the hearing by thanking Yellen for coming before the committee only a day after the budget was released by President Biden. He said that after two years of economic failures, the American people desperately want results, and he added that the American people are struggling. He also said the budget calls for $4.7 trillion in new taxes, which will kill jobs and force the U.S. to rely on foreign countries. Overall, he said this budget means more pain for the American people and small businesses.
Ranking Member Richard Neal (D-Mass.)
In his opening statement, Neal said that Secretary Yellen is a mainstream economic thinker and one of the brightest policymakers he knows. He noted that Biden’s economic plan is working, as evidenced by the growth of jobs. Neal said that rebuilding the economy from the bottom up and the middle out has been the President’s push, and Democrats agree this is the way economic rebuilding should be done. He also added that Democrats are looking forward to hearing what Republicans have to say in their budget plan blueprint if at some point they want to lay it out. Finally, Neal said that no policy has done more to reduce childhood poverty than the Child Tax Credit, and the Clean Energy Tax has been particularly effective in helping small businesses.
Janet L. Yellen, United States Secretary of the Treasury
In her testimony, Yellen said that the President’s proposals prioritize growth enhancing investments that will build on the economic progress the Administration has made, along with significant reforms that will substantially reduce the deficit, improve the long-run fiscal outlook, and reduce fiscal risks. She noted that over the past two years, the U.S. has experienced a historic economic recovery. This January, two years after Biden took office, the U.S. reached the lowest unemployment rate in over 50 years, and Yellen said it has been the strongest two years of business creation in history. She also noted that the real U.S. GDP per capita is at an all-time high, and the Administration’s mission is to transition from rapid recovery to sustainable growth.
Yellen also said that the Biden Administration’s top priority continues to be bringing down inflation. She added that the proposed budget builds on economic progress by making smart, fiscally responsible investments, and the proposed budget would be more than fully paid for if corporations and the wealthiest pay their fair share. She also emphasized that fiscal discipline is a main factor in the budget. Specifically, Yellen said the budget proposes a minimum income tax of 25% on taxpayers with wealth in excess of $100 million, and an increase in the corporate tax rate to 28% from the current 21%. She also asked Congress to implement the U.S. part of the global minimum tax deal. Finally, Yellen said that Congress needs to raise or suspend the debt limit, as defaulting on the debt would trigger an economic and financial catastrophe.
Question & Answer
The Internal Revenue Service
J. Smith asked how many more IRS agents the $43.2 billion included in the budget will result in. Yellen said the Treasury is hiring 85% more new agents to help reopen offices and keep them open on Saturdays. Smith also asked if there will be increased audits on working class families, and Yellen said no. Next, he asked about the actions the Treasury has taken in the last 20 months to identify and fix potential vulnerabilities in how the IRS maintains confidential taxpayer information. Yellen said she shares the chair’s frustration, but the agency has done everything necessary and is waiting for the outcomes of different investigations within the federal government. Finally, Smith asked if there is any circumstance in which the IRS should consider a person’s race or gender when deciding whether someone should be audited. Yellen said the IRS does not know an individual’s race or gender, and there should be fairness with taxes.
Rep. David Kustoff (R-Tenn.) also asked about audits and if the IRS will increase the number of audits on people making less than $400,000. Yellen replied that she does not have that information.
Rep. Bill Pascrell (D-N.J.) asked if Yellen will commit to addressing racial disparities in audit selection, and she said yes. He also asked if she would ensure that the IRS uses the Inflation Reduction Act (IRA) funds to stop disproportionately auditing Earned Income Tax Credit (EITC) recipients. Yellen replied that the purpose of the funds in the IRA is to focus on corporations and those who make large amounts of money.
Rep. Drew Ferguson (R-Ga.) asked if Yellen can ensure that none of the money appropriated to the IRS will be used to implement a financial surveillance system within the banking system. Yellen said the Treasury would never do that.
Rep. Judy Chu (D-Calif.) asked Yellen about the increased functioning of the IRS, and she explained that it is a priority for the Administration to better staff the agency to meet people’s needs.
Rep. Michelle Steel (R-Calif) asked why Yellen is in favor of adding more unnecessary filings when the IRS is already dealing with endless backlogs. Yellen explained that the 1099-K is meant to ensure that Americans have all the information needed to accurately file their returns and pay the taxes that are due.
The Debt Limit and the Deficit
Rep. Vern Buchanan (R-Fla.) asked what Yellen means when she says the current financial path is unsustainable. She said that a sustainable path is one that maintains the interest expense on the debt. Rep. Lloyd Smucker (R-Pa.) asked if it is desirable to reduce deficits, and Yellen said yes.
Rep. Suzan DelBene (D-Wash.) asked if it would be feasible for the Treasury’s payment systems to prioritize payments to bond holders over debt, and if it could help the debt ceiling. Yellen said that prioritization is not a solution to the debt ceiling issue.
Rep. Gwen Moore (D-Mich.) asked how the Administration can reduce the deficit by $3 trillion without austerity. Yellen said they are focusing on ensuring there is childcare, health care, and education, while also remedying the tax system to help working-class Americans.
Rep. Brad Schneider (D-Ill.) wanted to know what to tell constituents who ask what will happen if Congress does not address the debt ceiling. Yellen said if this happens the country will be faced with an economic and financial catastrophe.
The Child Tax Credit
Neal asked about the Child Tax Credit. Yellen explained that the American Rescue Plan expanded the credit, which helped many families, especially while recovering from the pandemic. She said she hopes that it is reinstated.
Rep. Lloyd Doggett (D-Texas) asked if it is true that about 85% of the tax increase mentioned in Biden’s budget plan would be paid by those who earn $1 million or more a year, and that none of the tax burden would be on those making below $400,000. Yellen said that is correct, and the revenue would also be devoted to Medicare and hospital funds. Rep. John Larson (D-Conn.) asked if it is fair for those making over $400,000 a year to pay more in taxes than a firefighter or other working-class Americans. Yellen stated that it is fair.
On the Republican side, Rep. David Schweikert (R-Ariz.) asked if the U.S. should reevaluate taxes on capital gains given inflation. Yellen said it could be something to consider. Rep. Darin LaHood (R-Ill.) said he would like an analysis to fully understand what actions Yellen is taking on taxes and foreign countries. Rep. Michelle Fischbach (R-Minn.) asked why the President believes that now is the time to increase taxes on small family-owned businesses. Yellen reiterated that there are no new taxes on small businesses or individuals that make less than $400,000 a year. Finally, Rep. Beth Van Duyne (R-Texas) asked if people making more than $400,000 are paying more in fuel taxes. Yellen said she did not understand the question. Van Duyne then asked why people making less than $400,000 are still being taxed so much. Yellen said it is because of state and local taxes.
The Bond Market
Schweikert asked if Yellen stresses over the bond market. She replied that there are recent developments that concern a few banks, and she is monitoring it closely.
Rep. Jodey Arrington (R-Texas) asked if the amount of recent government spending has contributed to the 15 consecutive month record inflation rates. Yellen said the government spending was critical and necessary. Rep. Jimmy Panetta (D-Calif.) asked if the U.S. needs to continue to raise interest rates or accept continued inflation. Yellen replied that the Federal Reserve will decide, and added that these are difficult decisions that require careful analysis.
Rep. Adrian Smith (R-Nebr.) asked Yellen to define a free trade agreement or at least provide a list of countries with whom the U.S. has a free trade agreement. Yellen replied that the U.S. has several free trade agreements.
Rep. Greg Murphy (R-N.C.) asked if Yellen agrees that the intent of Congress and the Thune amendment in the IRA will maintain the current aggregation rules. Yellen replied that it only applies to corporations with financial statements of book income in excess of $1 billion.
Research & Development
Murphy also asked Yellen to commit to getting Section 174 and R&D expensing across the finish line. She said that the Administration supports R&D. Rep. Randy Feenstra (R-Iowa) asked why the Treasury did not try to negotiate rules that protected the U.S. R&D incentives in the same way the U.K. did. Yellen replied that some of these incentives would have been lost regardless, but she is committed to working with Congress to make a R&D credit.
Doggett also asked if China will benefit from the budget plan. Yellen said they will not benefit at all, because they will be forced to raise the minimum tax on their multinationals to the level of 15% on a country-by-country basis.
Rep. Brad Wenstrup (R-Ohio) asked how raising the tax rate to a higher level than the People’s Republic of China would make the U.S. more competitive. Yellen replied that it is important to invest in America. Rep. Kevin Hern (R-Okla.) also asked how the Treasury plans to hold China accountable, and Yellen said they will tax the income of Chinese companies operating in the U.S.
DelBene also asked how increasing the supply of affordable housing could increase the economy’s long-term growth potential. Yellen said that there is an extreme shortage of affordable housing, which is directly impacting the employment of different businesses.
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