Yellen Spooks Investors With Talk of Rate Hikes

By Yuval Rosenberg

Yellen Spooks Investors With Talk of Rate Hikes

Treasury Secretary Janet Yellen suggested in an interview
with The Atlantic that interest rates may have to rise to keep the
economy from overheating if President Joe Biden’s spending plans
are enacted.

“It may be that interest rates will have to rise somewhat
to make sure that our economy doesn’t overheat, even though the
additional spending is relatively small relative to the size of the
economy,” Yellen said In a prerecorded interview
that aired Tuesday. “So it could cause some very modest increases
in interest rates to get that reallocation, but these are
investments our economy needs to be competitive and to be
productive. I think that our economy will grow faster because of
them.”

Interest rate policy is set by the Federal Reserve, not
the Treasury Department, and current Fed chair Jerome Powell has
said repeatedly that the central bank is not close to raising rates
and believes that any rise in inflation will be short-lived. “We’ve
been living in a world of strong deflationary pressures - around
the world, really - for a quarter of a century, and we don’t think
that a one-time surge in spending leading to temporary price
increases would disrupt that," Powell
said in testimony before Congress in
March.

Still, the remarks by Yellen, a former Fed chair, appeared
to contribute briefly to a
stock market dip Tuesday, given that they “seemed
to suggest that White House officials were acknowledging that
inflationary pressures were a growing concern,” as
The Washington Post put it. Asked about Yellen’s
comments, the White House said that it was closely monitoring
inflation. “We take inflationary risk incredibly seriously,” White
House Press Secretary Jen Psaki said.

Some analysts cautioned, though, that Yellen was likely
commenting on basic economics rather than monetary policy, and that
her remarks should not be taken as a signal of any coming policy
shift. “She was actually asked about the growing share of
government spending to GDP and she was asked a very economist
question and she answered in a very economist way, where interest
rates to yields might have to rise a little bit for the
reallocation of resources and the market read that as rates will
have to rise,” Gennadiy Goldberg, interest rate strategist at TD
Securities, told
Reuters. “But I think they’ve already risen.
They’ve gone from 1% to where we are now, so it’s certainly quite a
bit already.”

Yellen clarified in a
Wall Street Journal interview later in the day
that she does not see Biden’s plans overheating the economy and was
not predicting or recommending higher interest rates. She also
reiterated that she does not expect inflation to become a problem.
“I don’t think there’s going to be an inflationary problem, but if
there is, the Fed can be counted on to address it,” she
said.

Biden Sets a New Goal for Covid Vaccinations

President Joe Biden said Tuesday that he wants 70% of the adult
population in the U.S. to have received at least one Covid-19
vaccine dose by July 4, up from the current level of 56%.

Some experts believe that the spread of Covid-19 could slow
dramatically once the population hits the point of about 70%
vaccination.

“Get vaccinated,” Biden said in remarks at the White House. “In
two months, let’s celebrate our independence as a nation, and our
independence from this virus.”

Biden also said that he is aiming to have 160 million people
fully vaccinated by that date, which would require about 100
million doses to be administered over the next two months.

Slowing down: The new goal comes as the pace of
vaccination has slowed, and Biden said his administration was
working on programs that aim to reach more Americans, including
walk-in appointments at pharmacies, pop-up clinics and mobile
vaccination units.

The federal government is also changing the rules for shipping
vaccines. If a state does not order its full weekly allotment, the
unused doses can now be sent to other states that request more,
rather than reserved for future use by the first state.

Drug store losses: Waste is also a worrisome problem.
According to a report by
Kaiser Health News Monday, 182,874 doses of
vaccine had been thrown out as of late March. Two national drug
store chains accounted for about 70% of the total, with CVS and
Walgreens throwing away about 128,500 shots.

“CDC data suggests that the companies have wasted more doses
than states, U.S. territories and federal agencies combined,” KHN
said. “Pfizer’s vaccine, which in December was the first to be
deployed and initially required storage at ultracold temperatures,
represented nearly 60% of tossed doses.”

Although it’s not clear why the drug stores wasted so many
doses, some critics say the problem dates back to the chaotic,
early days of the vaccination program, when the Trump
administration relied on the two national chains to deliver doses
to long-term care facilities.

Health officials hope that those initial problems have
been resolved, leading to lower wastage rates moving forward. It
could be hard to tell, however, since the data is far from perfect.
“Months into the nation’s vaccination drive, the CDC has a limited
view of how much vaccine is going to waste, where it’s wasted and
who is wasting it, potentially complicating efforts to direct doses
to where they are needed most,” KHN said. “Public health experts
say having a good handle on waste is crucial for detecting problems
that could derail progress and risk lives.”

Five Former IRS Chiefs Say Biden’s Plan Would Make Tax System
‘Far Fairer’

Five former Internal Revenue Service commissioners said Tuesday
that President Biden’s proposal to boost the agency’s budget and
step up enforcement of tax laws “would restore our tax
administration system to make it far fairer and more
effective.”

In an
opinion piece published by The Washington Post,
the five former IRS chiefs — Lawrence Gibbs, Fred Goldberg,
Margaret Richardson, Charles Rossotti and John Koskinen — say that
budget cuts over the past decade have left the agency “starved for
resources” and resulted in worse service for taxpayers and sharp
drops in audit rates for millionaires and large corporations.

Biden has proposed providing $80 billion for the IRS over 10
years, with the money going toward a technology overhaul, new
hiring and training of personnel and increased enforcement focused
on top earners. The Treasury Department projects that such reforms
will generate an additional $700
billion in revenue over 10 years — and other estimates,
including from two of the former IRS commissioners, say the gains
would be far greater, as high as $1.4 trillion.

The former commissioners say that Biden’s plan “would benefit
everyone who pays their taxes. It would produce a great deal of
revenue by reducing the enormous gap between taxes legally owed and
taxes actually paid — much of it through increased voluntary
compliance. And it would improve taxpayers’ interactions with the
IRS.”


Read the full piece at The Washington
Post.

Jeff Bezos’s Heirs Would Pay Some Mighty Big Tax Bills Under
Biden Plan

Under current law, the cost basis of assets passed onto heirs is
“stepped up” at death, eliminating capital gains taxes on the
appreciation of those holdings. An enormous boon for wealthy
families, this wrinkle in the tax code costs the U.S. Treasury
about $43 billion a year in lost revenues, according to estimates
from Congress’s Joint Committee on Taxation.

In his quest for both fairness and funds to help pay for his
ambitious spending plans, President Joe Biden has proposed ending
this “step-up in basis” and requiring large estates to pay taxes on
the assets they possess, with the gains pegged to the original
purchase prices.

Such a change would mean much larger tax bills for the heirs to
some of America’s great fortunes. Amazon founder Jeff Bezos, for
example, is sitting on roughly $180 billion worth of his company’s
stock, which according to
Bloomberg’s Caleb Melby and David Kocieniewski he
acquired in 1994 for $10,000. Under current rules, the increase in
the value of the stock would disappear upon Bezos’s death,
eliminating the tax liability for his heirs. Under Biden’s
proposal, the capital gains on the Amazon shares would be taxed at
20%, producing a tax bill of roughly $36 billion.

Biden has also called for doubling the capital gains tax rate
for the very wealthy, to 39.6%. If both provisions were to become
law, Bezos’s eventual heirs would have a tax bill of about $72
billion, based on today’s prices.

While Biden’s proposed tax law changes are far from a sure
thing, there’s little doubt that they would have a significant
effect. Untaxed capital gains are worth hundreds of billions of
dollars per year, and about half of those gains belong to the top
1% of households, according to the Federal Reserve. And 40% of the
total wealth of that rarified group is now made up of unrealized
capital gains.

“Ending [the step-up in basis] practice and raising the
rate would amount to the biggest curb on dynastic wealth in
decades, altering an American economic landscape dominated by a few
wealthy families,” Melby and David Kocieniewski say.

Quotes of the Day

“We are particularly optimistic for a global agreement on
corporate income taxation in 2021. And it is urgently needed to
avoid, down the road, the risk of spiraling into a chaotic tax or
trade war where everyone loses.”

– International Monetary Fund Managing Director

Kristalina Georgieva, calling on countries to fix
their tax systems and agree to global standards for corporate
income taxes in order to avoid potentially harmful conflicts. The
Biden administration is pushing to end a global “race to the
bottom” on corporate tax rates and calling for an agreement on a
global minimum tax rate.

“If you take the corporate tax from 21% to 28% it’s about $1
trillion over the time frame that the President’s looking at. It’s
hard for me to see that they don’t try to go after that, given the
need for revenue and the few number of places you can really get
it. That one looks to me like a bit of a honeypot.”

– Greg Fleming, head of wealth adviser Rockefeller Capital
Management, in an interview with Bloomberg. Fleming
added that it will take quite a bit of time to
work out the details of a tax hike. “There’s a lot of wood to chop
before we get to any bill,” he said.

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