Yahoo Finance Presents: Larry Summers, Fmr U.S. Treasury Secretary

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Welcome to yahoo finance presents i’m jennifer schoenberger five former treasury secretaries endorsing the slimmed down version of the build back better bill now being dubbed the inflation reduction act former treasury secretaries geithner lou paulsen reuben and summers all saying in a statement quote taxes due or paid will not increase for any family making less

Than four hundred thousand dollars a year and the extra taxes loving on corporations do not reflect increases in the corporate tax rate but rather the reclaiming of revenue lost to tax avoidance and provisions benefiting the most affluent former treasury secretary larry summers joins me now to discuss this mr secretary welcome to the program thanks so much for

Being here so the inflation reduction act would impose a 15 minimum corporate tax rate on companies earning a billion dollars or more in revenues and you say along with a handful of former treasury secretaries both democratic and republican in a statement today that the extra taxes levied on corporations do not reflect increases in the corporate tax rate but

Rather the reclaiming of revenue lost to tax avoidance and provisions benefiting the most affluent my question is though how do you see this impacting job creation and business investment at a time when the economy is slowing i don’t think the effects are likely to be harmful i think that the total effects of this bill could very likely be positive the stimulus

To renewable investment in particular that’s given by the tax credit of provisions is likely to do far more to stimulate investment than closing various loopholes which in some cases probably encourage financial manipulation rather than real productive investments i don’t think there’s any reason at all to think that asking corporations to that report

Themselves as profitable every year to pay to pay something uh in taxes at a minimum rate of uh 15 is likely uh to be harmful and in fact by expanding the taxation of their global income relative to their domestic income i actually think this could encourage jobs to be brought home republicans have argued that the bill would break president biden’s pledge to

Not raise taxes on those earning 400 000 or less based on the joint committee on taxation’s analysis that higher taxes paid by corporations would indirectly raise the effective tax burden on those with incomes of 200 000 or less your rebuttal to that i don’t think that’s a credible argument the what the taxes are placed on uh corporations they’re placed only

On profitable uh corporations disproportionately they’re going to fall on corporations who are making investments abroad that’s going to work out on balance uh favorably for uh the whole economy there’s no sense in which this is a tax placed on uh any family with income below four hundred thousand dollars sir this bill is titled the inflation reduction act uh

And while it does lower the deficit some analysis out this week from wharton finds virtually no impact on inflation uh noting the estimates are quote statistically indistinguishable from zero your reaction to that and what is your argument for this bill decreasing inflation do you see that happening so the wharton analysis takes no account of lower prescription

Drug prices the wharton analysis takes no account of increased energy supply the wharton analysis is extremely conservative in its assumptions about extra government revenue from better tax enforcement and still the wharton analysis acknowledges that this legislation is doing great things for the environment great things for health access great things for

Fairness without contributing to inflation if wharton which focuses on the fiscal policy analysis but doesn’t focus on the sectoral uh analysis had recognized the impact on pharmaceuticals for example then it would have reached the same conclusion that bipartisan treasury secretaries were reached that this is reducing inflation uh mr secretary you said that uh

You think that the impact of this bill will be additive uh will help investment it will help the economy um i’m curious uh your outlook for inflation from here uh the federal reserve has raised interest rates by 75 basis points for the past two meetings uh we’re still seeing high readings on cpi on the fed’s preferred inflation gauge of pc uh granted there’s a

Bit of a lag indicator there on we have seen commodity prices coming down uh what is your outlook for inflation from here and how does this bill tie in with that jennifer i think we’ve got real inflation problems in the country i don’t think they’re going to go away uh quickly i think they’re a consequence of the overheating of the economy that took place last

Year along with uh adverse supply shocks and that’s just something we’re going to have to work through and live with i think we will do so in a better way if this bill passes but this bill is certainly not sufficient to contain our inflation problem and even with this bill we’re going to have inflation problems for quite some time to come the important thing

Though is that this is doing a whole set of necessary things for our country while beginning the process of reducing uh inflation pressure you just said you think inflation is going to be with us for a long time to come and as just noted the fed has been pretty aggressive do you think they should sustain that aggressive stance fed chair powell said at his press

Conference that there’s a prospect of perhaps tailoring the size of those rate hikes or minimizing i should say the size of those rate hikes from 75 maybe to 50 basis points in there 25 basis points do you think the fed needs to be more aggressive as we go through the latter half of this year we’ll have to see how the data unfold and i’m not prepared to make a

Prescription for the september fed meeting at this point i do think there’s an important lesson that we all learn at some point in our lives which is when the doctor prescribes a set of antibiotics you have to take the whole course through and you’re making a mistake and you’re compromising your potential health if you stop taking the antibiotics the moment

You feel better and i think there’s some similar principle here with respect to the central bank that if inflation comes down a bit if the economy looks like it’s slowing it will be tempting to stop raising interest rates and indeed people in the market are expecting that interest rates will come down beginning in december or january and i think that would be

A serious error interesting okay before we get to your outlook on the economy i do want to ask you while the fed is in the driver’s seat for trying to reduce inflation you know what other actions do you think the administration could take at this point for instance should the president um dial back president former president trump’s uh tariffs on chinese imports

Are there other actions the administration could take to help ease inflation perhaps when it comes to commodity prices creating incentives for farmers opening up more land or perhaps that’s just an issue that has to do with the weather your take i think we should be reducing tariffs not just on chinese goods but on goods all over i think the consumer interest is

Really important i think we need to think more about affordability economics than we tend to than we tend to do we need to put consumers first uh many times i think there are things we can do in this bill and outside of this bill that would reduce energy uh regulation and make possible more production and even more more distribution of energy which contribute

To lower gasoline prices and lower energy prices i think in general if we can have more rapid permitting and less nimby problems less not in my backyard regulation i think we could get more housing built and that would contribute to more affordable uh housing so in general i think we need to think about uh affordability whether the issue is higher education

Whether the issue is health care and that could make a contribution to reducing inflation though i think the overwhelmingly most important determinant of inflation is going to be the cyclical performance of the economy and what monetary policies we pursue you said just a bit ago that it would be a serious mistake for the fed to sort of do a u-turn uh after hiking

Rates um next year as the market is pricing in uh given that i’m curious do you think that a soft landing can be engineered here we just thought saw two consecutive quarters of negative gdp growth uh what some would call a common definition for recession of course the official arbiter looks at much more than that and secretary yellen has argued we’d need to see

Massive layoffs to actually be in a recession right now do you think a soft planning is in the cards uh or do you think that a recession is near or that we are in one given what we’ve seen with the gdp numbers i don’t think we’re in a recession i think it’s unlikely that it will be judged that in july of uh 2022 the american economy was in recession i think

Given the difficulties associated with high inflation and bringing it down the necessary monetary policy response the odds that the economy will go into recession within the next 18 months are quite serious and probably in the three-quarters range and i think that if the economy gets into a situation where unemployment rises unemployment is likely to rise quite

Substantially and so i would expect sometime within the next two or three years that the unemployment rate would cross six percent and then that would that be the medicine that’s really needed to get inflation back under control as a recession needed i think we’re unlikely as i’ve said many many times i think we are unlikely to restore inflation to target levels

In scenarios that don’t involve a recession at some point mr secretary thank you so much for your insight so appreciate it hope to speak with you again soon thank you you

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Yahoo Finance Presents: Larry Summers, Fmr U.S. Treasury Secretary By Yahoo Finance