President Biden has been heavily criticized during his tenure for allowing the budget deficit to soar and push the national debt to a record high of nearly $34.8 trillion. But his Treasury Secretary, Janet Yellen, put the blame for the nation’s fiscal issues on former president Donald Trump’s Tax Cuts and Jobs Act on Monday as politicians continue to debate extending that signature conservative legislation, which is set to expire in 2025.
“I think it's responsible for many of the problems that we face now with our fiscal trajectory,” Yellen said in an exclusive interview with Yahoo Finance, adding that it would “concern” her to leave the tax cuts in place.
Trump’s 2017 Tax Cuts and Jobs Act was an effort to juice spending and investment in the economy through several measures, including slashing the corporate tax rate from 35% to 21%, trimming income tax rates in most tax brackets, increasing the standard deduction for non-itemized tax filers, and more. But Treasury Secretary Yellen argues that instead of leading to an investment and spending boom as intended, Trump’s policies merely gave tax breaks to wealthy corporations and individuals, while increasing the national deficit.
To her point, the national debt grew $7.8 trillion from $19.95 trillion to $27.75 trillion during Trump’s presidency. And a new report from the nonpartisan Congressional Budget Office (CBO) found that extending Trump’s tax cuts for the next 10 years, as has been proposed, would add $4.6 trillion to the deficit.
However, proponents of Trump’s tax cuts argue they were a critical tool to boost the economy and increase U.S. corporation’s competitiveness with foreign firms. Jay Hatfield, CEO of investment management firm Infrastructure Capital Advisors, told Fortune that he views Trump’s tax cuts as one of the key factors behind the U.S.’s recent run of economic and market outperformance when compared to other developed peers.
Hatfield argued the tax cuts have made U.S. corporations more resilient and more likely to invest in their growth, or in research and development. At the same time, lower tax rates may help prevent key U.S. companies from domiciling in more tax-friendly regions, thereby improving economic growth. “It's critical to global competitiveness,” he said.
To his point, while the U.S. would have a corporate tax rate of 35% if Trump’s tax cuts aren’t extended, the G7, the seven wealthiest nations in the world, have an average corporate income tax rate of 27.2%, and the 38 mostly wealthy countries in the Organisation for Economic Co-operation and Development (OECD) have an average corporate tax rate of just 23.7%.
Still, opponents of the Trump-era tax cuts say the policies only serve to increase inflation and the national debt, and make the rich richer.
“The Trump tax law was never intended to help everyday people. It served as a windfall for the wealthy and corporations—the same corporations that have jacked up prices and scored record profits. It’s time to reverse the damage,” Lindsay Owens, executive director at Groundwork Collaborative, a nonprofit progressive think tank, said in a statement sent to Fortune.
For Treasury Secretary Yellen, ending the Trump tax cuts and enacting President Biden’s proposed $3 trillion, 10-year budget deficit reduction plan will be key to ensuring the U.S. is on the right fiscal path. But she doesn’t believe the government is too far off course.
“I think the most important metric in judging sustainability is the interest cost of the debt, and the interest cost of the debt, even with higher interest rates, is at normal historical levels,” she said. “If we engage in deficit reduction so that it stays at this level, I think…we will be on a fiscally sustainable course.”
