The American Rescue Plan has economic watchdogs like Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell encouraged about the country’s fiscal path.
WASHINGTON (CN) — America’s economic recovery is positioned for a hopeful moment, but fiscal decision makers should be clear eyed about the pandemic-sized hole they’re digging out of, Treasury Secretary Janet Yellen told lawmakers Wednesday.
“When Congress passed the CARES and Consolidated Appropriations Acts last year, it gave the federal government some powerful tools to address the crisis,” Yellen said, testifying remotely at a hearing of the Senate Banking Committee. “But upon taking office I worried that they weren’t powerful enough. After all, there were and still are some very deep pockets of pain in the data. One in 10 homeowners with a mortgage are behind on their payments and almost one in five renters are behind on their rent.”
Yellen was joined at the hearing by Jerome Powell, chairman of the Federal Reserve. Both said there was still progress to be made in several economic sectors such as the service and airline industries — where aftershocks of decline from the pandemic are reverberating still. Sectors that have been unable to ensure 6 feet of distance between users are still struggling to stay above water, and the burdens increase for workers, especially where such industries are dominated by minority groups.
Yellen said it was because of this daunting fiscal forecast she was most thankful for the passage of the Biden administration’s $1.9 trillion American Rescue Plan.
“With the passage of the rescue plan, I’m confident that people will reach the other side of this pandemic with the foundations of their lives intact, and I believe they will be met there by a growing economy,” Yellen said. “In fact, I think we may see a return to full employment next year. Of course, the speed and strength of our recovery depends in part on how we implement the legislation.”
The speed and strength of economic recovery also depends on national response to the virus. That idea is one Powell has reiterated since the pandemic’s outset, again saying today that recovery depended on the course of the virus.
“Since January, the number of new cases, hospitalizations and deaths has fallen, and ongoing vaccinations offer hope for a return to more normal conditions later this year,” Powell said. “In the meantime, continued social distancing and mask wearing will help us reach that goal.”
Briefly examined at Wednesday’s hearing was the backlog of tax returns, which has forced the IRS to push back the country’s tax-filing deadline until May 17 and delayed the delivery of stimulus checks.
Senator Mike Rounds, a South Dakota Republican, noted that understaffing at the agency had partially contributed to the jam. Meanwhile Americans might risk penalties if their payments aren’t received in a timely fashion.
Yellen revealed that she met with IRS Commissioner Charles Rettig to discuss the problem but hadn’t delved into the issue of processing backlogged tax returns. In general, she said, the agency was one in need of additional funding to help close its tax-collection loss gap — which is estimated at $7.5 trillion in uncollected taxes over the next decade.
“And, more generally, I think IRS needs funding to be able to appropriately manage the burdens it has, including providing support to taxpayers who call,” Yellen said. “A shortage of personnel makes it a frustrating matter to try and call and get advice over the telephone.”
Senator Chris Van Hollen, a Mayrland Democrat, also homed in on the issue of an underfunded IRS, saying an estimated $570 billion in owed taxes just last year hadn’t been paid due to underenforcement — 70% of those unpaid funds coming from the top 1% of American wealth holders.
“The tax gap is huge, and I think we’d have a fairer tax system and collect more tax revenue without the need to raise rates if we resourced the IRS properly to be able to address this issue,” Yellen said.