Yellen: We Have Additional Deficit Challenges Due to Rates, But We Don’t Need to Pay for Israel, Ukraine Spending

On Monday’s broadcast of CNBC’s “Squawk Box,” Treasury Secretary Janet Yellen acknowledged that we do need to have a fiscally responsible path, especially since “the higher interest rate environment does pose additional challenges” but we don’t need offsets for Israel and Ukraine spending since they are emergency spending.

After Yellen pushed for the aid package proposed by the Biden administration for Israel and Ukraine, co-host Andrew Ross Sorkin asked, “[W]e are having our debt and deficit go up and up and up and up and up. We had Stan Druckenmiller on our program recently. He said, we are spending like drunken sailors. Don’t forget, pre-COVID, the federal government was 20% of GDP. Now, it’s 25% of GDP. My father told me, if you’re in a hole, stop digging, Stan. And so, the question is, if we’re going to be spending this money, are there offsets? Should we be thinking about offsets? Or is that the wrong way to think about it in the context of war and national security?”

Yellen responded, “Well, I don’t think we need to have offsets for what is an emergency national security situation. But we certainly do need a fiscally responsible and sustainable path for spending and taxation and our economy. President Biden has signed bills that result in $1 trillion of deficit reduction over the next ten years, we have had responsible investments in the U.S. economy that will have a payoff, and we have provided additional money to the Internal Revenue Service, which will have an enormous payoff in closing the 7 trillion-dollar tax gap that we have in the United States. We’re simply not collecting the taxes that people owe, and this will have a huge payoff as well. And President Biden’s last budget proposed an additional $2.5 trillion of deficit reduction while continuing to invest in the economy. So, we need to work with Congress to put some of this into effect, and, of course, the higher interest rate environment does pose additional challenges that we need to address.”

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