Throughout the past few weeks, Biden has started lining up his support team for when his administration takes over in January. A much anticipated nomination is Janet Yellen as Secretary of the Treasury. Many believe that Yellen’s politics will influence taxpayers and the American people. Although that is true, we wanted to dispel some of the mystery surrounding this important public office.
What can the Secretary of the Treasury actually do?
The Secretary of Treasury functions as the Chief Financial Officer (CFO) of the federal government. The primary role of the Treasury department itself is to manage public debt, oversee the IRS, and ultimately manage the US economy. Further the Secretary serves at the President’s primary economic advisor, and is often instrumental in crafting policy related to finance and taxes.
It is important to note, however, that the Secretary of the Treasury does not have the power to levy tax, change rates, or otherwise directly influence taxation of the American people. The power to levy tax is squarely on the shoulders of Congress per the Constitution.
The Secretary of the Treasury can also put forth administrative interpretations of tax legislation. The Secretary is empowered by the language of passed legislation to take action. The CARES Act referred to the phrase “Secretary of the Treasury” 29 times. One such example, related to IRA withdrawal provisions, states that an individual who qualifies for deferrals includes individuals meeting specific criteria, “or other factors as determined by the Secretary of the Treasury”. Such language opens the door for development of policy through regulation. This is one area where we could see Yellen making moves.
So tell me a little about Ms. Yellen.
Janet Yellen is a very knowledgeable and experienced individual. If confirmed, she would be the only person, let alone woman, to hold each of these positions during her public career: Chair of the Federal Reserve, Council of Economic Advisors (For Clinton), and Secretary of Treasury.
Yellen has supported policies in the past which prioritized everyday Americans over corporations. Some believe that she will use her influence to persuade Congress to pass another stimulus bill, repeal certain aspects of the TCJA enacted during the Trump administration, and extend unemployment benefits to aid the millions of unemployed Americans.
While Janet Yellen will be able to use her position to influence Congress (if her appointment is confirmed of course), it is important to distinguish that she will not able to set tax law. Yellen’s direct influence would be through administrative operations of the Treasury including the IRS. These actions could include increasing use of the Treasury’s budget on the IRS operations. Some believe that would lead to more audits, which is historically the case. Such audits typically result in generation of more revenue than the costs allocated to the process. However, such increases in spending could also help with the customer service crisis facing taxpayers and tax professionals today.
In conclusion, even if Biden’s appointee Janet Yellen is confirmed, Biden’s proposed tax plan would not come into effect until it is passed by Congress. At the moment with Republicans owning the Senate (subject to change in January pending Georgia run offs), it is uncertain whether any tax related bill proposed by Biden’s Administration would make it all the way through Congress, and therefore onto Ms. Yellen desk for her regulatory guidance.
