Toomey Opening Statement at Hearing with Secretary Yellen, Chair Powell
Washington, D.C. – In his opening statement at today’s U.S. Senate Banking Committee hearing, Ranking Member Pat Toomey (R-Pa) warned U.S. Treasury Secretary Janet Yellen that Democrats’ reckless tax-and-spending spree would hurt economic growth, while also pointing out that inflation rates are far outpacing projections by the Federal Reserve.
Ranking
Member Toomey’s remarks, as prepared for delivery:
Thank you, Mr. Chairman. Secretary
Yellen and Chair Powell, welcome.
Last
year, Congress, on bipartisan basis, forcefully responded to the threat of
economic collapse caused by the pandemic and resulting lockdowns. That
response, together with the Fed’s aggressive monetary policy support and the
end to lockdowns, enabled the U.S. economy to fully recover. Our economy today
is not only larger than it was before the pandemic, but we’re now running above
pre-pandemic GDP forecasts for 2021.
Unfortunately,
Democrats are trying to ram through a reckless tax and spending bill that will
threaten economic growth. Policies include massively expanding the welfare
state, raising taxes on U.S. employers, and diminishing investment by
increasing taxes on capital gains.
Let’s
be clear about the purpose behind these proposals: It’s not to spur economic
recovery—the economy is strong. Nor is it an anti-poverty plan—the programs are
not limited to the poor. It’s to reconfigure the relationship between the
federal government and the middle class. It’s about socializing many ordinary
responsibilities that families have always assumed.
Instead
of raising taxes to partially fund economically harmful programs, we should
work to return to the best economy of my lifetime, which we experienced before
COVID hit. We had the lowest unemployment rate in 50 years—including record low
unemployment rates for black and Hispanic Americans—real median household
income at an all-time high, and strong wage growth, above the rate of
inflation, particularly for lowest income earners.
This
was achieved by reforming the tax code, lowering tax rates, and lightening
regulatory burdens. Now the Democrats are proposing to reverse all of these
policies.
Chair
Powell, as you know, the Fed has clear and narrow mandates: To conduct monetary
policy that promotes stable prices, maximum employment, and moderate long term
interest rates, and to conduct banking supervision and maintain an efficient
payment system.
As
Chair Powell has articulated, these are “narrow but important”
responsibilities. It’s therefore concerning to see the Fed, especially its
regional banks, wade into politically-charged areas like global warming and
racial justice. These efforts undermine the Fed’s independence and distract
from the Fed’s actual responsibilities like controlling inflation.
Speaking
of which, the Fed’s excessively accommodative monetary policy, emergency
policies long after the emergency has passed, produced the inflation I have
feared, and the Fed did not expect. We’re now seeing rates of inflation
considerably higher than the Fed projected. And it is hurting businesses,
consumers, and workers.
You
don’t have to take my word for it. Here’s what the CFO of Costco said last
week: “Inflationary factors abound: higher labor costs, higher freight costs,
higher transportation demand, along with container shortages and port delays,
increased demand in certain product categories, various shortages of everything
from computer chips to oils and chemicals.”
To
address this threat, I urge the Fed to accelerate the process of normalizing
monetary policy so that it does not fall further behind the curve in responding
to inflation than it already has.
I’m
also concerned Treasury may be headed down a similar path of exceeding its
authority. To much fanfare, the Biden administration has announced an
international tax agreement that consists of two pillars.
Pillar
one is an unprecedented change that would allow foreign countries to tax
American companies based on their sales overseas. It’s a tax revenue transfer
from us to them. Unsurprisingly, this is the priority for other countries, who
have long sought this tax transfer.
Pillar
two is a global minimum tax on multi-nationals’ foreign income. This is the
Biden administration’s attempt to justify burdensome tax increases on U.S.
companies. Unsurprisingly, this is the administration’s priority and is part of
its efforts to dismantle our successful 2017 tax reforms.
The
administration is imploring other countries to implement a global minimum tax
that will harm their own workers and businesses. By doing so, the
administration has implicitly acknowledged that their proposed multi-national
tax increases will make U.S. workers and businesses less competitive, if other
countries either don’t implement a global minimum tax of their own, or
implement a significantly lower rate than what the administration is proposing.
But
there’s a real possibility that other countries will not implement a global
minimum tax for at least two reasons. First, the EU can only implement this
global minimum tax by unanimous consent, which they don’t have. Second, these
countries have only reluctantly agreed to pillar two in return for pillar one,
which is the transfer of U.S. tax revenue to them. But implementing pillar one
in the U.S. requires a treaty ratified by two-thirds of the Senate—and that’s
not going to happen.
The
administration has implicitly admitted that their global tax hike will be a
disaster for the U.S. if the rest of the world does not follow suit. There’s a
very substantial risk that the rest of the world will not follow suit. And yet
Democrats are charging ahead with this destructive tax increase in their
reconciliation bill that they’re going to try to pass any day now.
Secretary
Yellen and Chair Powell, I look forward to discussing these and other issues
with you today.
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