As split Congress odds increase, Yellen warns of need to lift debt ceiling

By David Lawder

NUSA DUA, Indonesia (Reuters) – With the odds of a divided US Congress increasing, Treasury Secretary Janet Yellen has warned that the failure of lawmakers to raise the statutory limit on the state’s debt United posed a “major threat” to America’s credit rating and the functioning of US financial markets. .

Yellen told Reuters in an interview in New Delhi on Friday that cooperation is still possible with Republicans on some issues, but lifting the debt ceiling is a non-negotiable item.

Some Republicans have threatened to use the next hike in the $31.4 trillion debt ceiling as leverage to force concessions from US President Joe Biden, a Democrat. The public debt of the United States was $ 31.2 trillion on Wednesday and without an increase, analysts anticipate a potential default crisis by the third quarter of 2023.

Republicans who took back control of Congress in the 2010 elections brought the United States to the brink of default on a demand for spending cuts next year, leading to cuts in first-time ratings on US Treasury debt by Standard and Poor’s.

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Asked if Democrats should pass legislation in the post-election session, while still maintaining a majority through January, regardless of the election’s outcome Yellen said raising the debt ceiling was urgently needed.

“I think it’s irresponsible not to raise the debt ceiling. It’s always been raised,” Yellen said. “It would be a huge threat to the country not to do so, and completely irresponsible to threaten America’s credit rating and the functioning of the all-important single financial market.”

A US Treasury official said the department would be happy to see the measure pass before the newly elected Congress meets in January, adding, “It needs to be done.”

BIPARTISAN WORK IS STILL POSSIBLE

Yellen said she was not ready to concede that Biden’s legislative agenda would be stalled by the impasse, adding that she would defend recently passed measures against Republicans who want to undo some of the spending policies and gave -his tax.

“We’re certainly going to try to protect the gains we’ve made over the last year and a half,” Yellen said.

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If Republicans can win control of both the House and Senate, some have vowed to pass legislation to make the Trump-era tax cuts permanent and roll back parts of the law on Biden’s $430 billion green energy and health care subsidy passed by Democrats.

Among the most frequently targeted measures are $80 billion in new funds for the Internal Revenue Service to strengthen tax compliance and customer service and a 15% domestic alternative minimum tax for large corporations — the main sources of financing the measure.

Yellen, now attending G20 summit meetings in Indonesia, spoke before Mark Kelly won a tight Arizona Senate race, leaving Democrats needing just one of two seats. other undecided to keep control of the Senate.

In the House, the Republicans had won 211 seats, seven short of a majority of 218.

She said some Republicans supported last year’s infrastructure act and this year’s investments in semiconductors and research, and the administration looks for measures that could draw more bipartisan support.

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GLOBAL TAX BUSINESS

Another problem facing Yellen with a potentially divided Congress is the failure to implement a global agreement to end a 15% corporate minimum tax after one Democratic senator objected.

“I want to see it done. I would like the United States to go first. That hasn’t happened,” said Yellen, who helped broker last year’s deal aimed at ending a competitive downward spiral on taxes. corporates from countries that attract investment. .

She said she believes most European Union countries will proceed to implement the 15% corporate minimum, meaning that US firms that are now paying US foreign taxes of 10.5% may end up paying the difference to those governments possibly from 2024.

“And eventually, as they do, the pressure will mount on the United States to come into compliance as well. Because countries that have adopted the label will be able to impose taxes on companies based in countries under the tax like the United States.”

(Reporting by David Lawder; Editing by Diane Craft)

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