The next Treasury secretary will join the Biden administration amid an almost yearlong economic downturn and with limited fiscal tools at their disposal to cobble together a recovery plan.
Janet YellenJanet Louise YellenBiden’s Treasury pick will have lengthy to-do list on taxes Mnuchin to put 5B in COVID-19 relief funds beyond successor’s reach Biden soars as leader of the free world MORE, President-elect Joe BidenJoe BidenPennsylvania Supreme Court strikes down GOP bid to stop election certification Biden looks to career officials to restore trust, morale in government agencies Biden transition adds new members to coronavirus task force MORE’s expected pick, would be one of the most experienced economists to lead the Treasury Department, having served as both Federal Reserve chair and head of the White House Council of Economic Advisers.
But the immediate challenges will be monumental.
“It’s a pretty profound list, I would say, at this juncture for our country and anyone taking that position,” said Jim Nussle, president of Credit Union National Association who served as White House budget director during the George W. Bush administration.
“You have to start with the recovery of an economy that’s a challenge we haven’t seen in modern times.”
The country has 10 million fewer jobs now compared to the beginning of the pandemic. Initial jobless claims, which have remained above their pre-pandemic record for the past eight months, have increased over the past two weeks as coronavirus cases, hospitalizations and deaths surge in almost every state.
Meanwhile, personal income has declined and consumer confidence is waning heading into the holiday shopping season.
Congress has been deadlocked over a new COVID-19 relief bill for months, with dwindling prospects for a deal before Biden takes office on Jan. 20.
That stalemate has allowed programs that provided much-needed aid to small businesses and extra unemployment benefits for the millions who remain jobless to expire.
More programs are set to expire on Dec. 31. Economists expect that will leave some 12 million people without unemployment benefits and millions without protection from evictions in the middle of winter, setting the stage for a “COVID cliff” to start the new year.
Economists across the political spectrum have long argued that in order for the economy to improve, the U.S. needs to get the pandemic under control. Promising preliminary vaccine data indicates there’s a light at the end of the tunnel, but economists say businesses need to stay afloat and workers need to remain in the workforce in order for there to be a robust rebound later next year if a vaccine is widely distributed.
Yellen’s ability to extend that financial lifeline just got a lot harder this week when Treasury Secretary Steven MnuchinSteven Terner MnuchinBiden’s Treasury pick will have lengthy to-do list on taxes On The Money: Initial jobless claims rise for 2nd week | Dow dips below 30K | Mnuchin draws fire for COVID-19 relief move | Manhattan DA appeals dismissal of Manafort charges Mnuchin to put 5B in COVID-19 relief funds beyond successor’s reach MORE recalled $455 billion in funds from five of the Federal Reserve’s emergency lending programs that Fed Chairman Jerome Powell says have been key to maintaining market confidence in the recovery.
Democrats went a step further by calling Mnuchin’s decision to return the money to the Treasury’s general fund an attempt to hamstring his successor.
Most policy responses by Yellen would require legislation from Congress, where Democrats control the House and Republicans are poised to keep their majority in the Senate so long as they win one of two runoff elections in Georgia on Jan. 5.
Nussle said Yellen’s history of serving in mostly apolitical positions could make the Treasury post more challenging, especially if she has to win over Republicans in a divided Congress.
“I think her challenge is that she has not been a political animal — and I say that with respect — she’s going to have a difficult time dealing with the political policy side of this,” he said.
“She’s the quarterback for the economic policy of the administration, which is not going to just be the recovery but the tax policy and revenue challenges, as well as the borrowing challenges.”
David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, where Yellen has been his colleague since leaving the Fed, said she is well equipped to tackle the political side of the job.
“She’s really exquisite at getting consensus,” he said, pointing to her experience “schmoozing” Federal Reserve Board members and members of Congress during her time as central bank chief.
That could also establish more credibility when it comes to both the public and Congress, Wessel said.
“I think she’ll bring a degree of stature and respectability that will make it harder for Republican senators to just dismiss her as a partisan,” he said.
Yellen, 74, will also have her work cut out for her across a number of key Democratic priorities, some of which may be limited without cooperation from Congress.
Yellen, who would be the first female Treasury secretary, has consistently spoken of the importance of addressing climate change, voicing support for a proposed carbon tax that has faced stiff Republican resistance over the years. She has also spoken repeatedly and passionately about the need to address economic inequality, particularly its effects on minority communities.
Chuck Marr, senior director of federal tax policy at the Center for Budget and Policy Priorities, said that while it’ll be tough to get Republicans to agree to many of the revenue-raising measures Biden has proposed, Yellen could still take some unilateral action.
“Getting people to pay the taxes they owe is important, rebuilding the IRS for better enforcement,” he said.
On the international front, Yellen is unlikely to be the point person on trade, but she will need to play a key role in rebuilding ties with longtime U.S. allies and taking a tough stand against others.
The Treasury Department has been central in international policies ranging from China’s industrial, technological and trade practices to sanctioning regimes such as Iran and Venezuela.
Chad Bown, a trade expert at the Peterson Institute for International Economics, said Yellen would be central to issues involving international cooperation and corporate taxation.
He noted that she would be involved in “negotiations over international corporation tax, given that France and other countries are potentially imposing digital services taxes that could lead to U.S. tariff retaliation.”
Yellen would also have to weigh in on whether countries such as Vietnam are undervaluing their currencies, a politically and economically fraught issue.
But Wessel said Yellen’s experience shows that she’s up for the challenge.
“She’s always the most prepared person in the room,” he said.
“I think it’s partly personality and partly what women in high office have learned they have to do.”