Yellen Says Treasury Trying to Speed Tax Rules for Climate Plan

Christopher Condon, Bloomberg News

Janet Yellen, US Treasury secretary, speaks during her visit to Microsoft India Development Center, in Noida, India, on Friday, Nov. 11, 2022. Yellen is visiting India and expected to discuss trade, investment, climate financing and India's upcoming G20 presidency with Indian counterpart Nirmala Sitharaman. , Bloomberg

(Bloomberg) -- Treasury Secretary Janet Yellen said her department is bringing in stakeholders to work out how best to implement last year’s climate package, a groundbreaking bill that relies on tax credits to incentivize investment.

“We are working expeditiously to maximize the economic benefits of the legislation — while making sure we enact effective guardrails so benefits are delivered as intended,” Yellen said in prepared remarks during a visit Wednesday to Tennessee.

The auto industry has been lobbying Yellen to take a broad interpretation of the Inflation Reduction Act that would give them more flexibility in setting up electric-vehicle supply chains that exclude China — which they argue is needed to meet the administration’s ambitious EV sales targets.

“We are bringing a broad and diverse set of stakeholders to the table,” Yellen said. “Over the next year, I suspect that you will see activity accelerate. More ideas turning into plans. Plans into construction sites – just like this one,” she said in the remarks prepared for a visit to the Ultium Cells battery plant in Spring Hill, Tennessee.

Automakers have already had some victories: Last week, Yellen sided with the industry in adopting vehicle classifications that would allow more cars and trucks to qualify for a $7,500 consumer tax credit.

Administration Push

Yellen’s trip is part of a broader push by the administration to tout its economic policy following President Joe Biden’s State of the Union speech Tuesday. Biden’s team is aiming to build public recognition for a slew of legislation enacted over the past two years, including a bipartisan infrastructure program, a semiconductor-industry subsidy plan and the sweeping clean-energy initiative.

Also in her remarks, Yellen suggested the US economy can run at a faster trend rate in coming years as it absorbs the impact of the Biden administration’s longer-term investment programs.

“With an economy at full employment, we are undertaking a supply-side expansion that invests in our workforce and its productivity,” Yellen said. “These investments raise the ceiling for what our economy can produce.”

Faster productivity would help raise the US economy’s ability to expand without stoking inflationary pressures. Productivity has seen a long-term deceleration over recent decades, however, with both companies and the government less apt to invest in new projects.

“Our potential was being weighed down by slow productivity growth — along with an aging population that was constraining growth in our labor supply,” Yellen said.

Most economists haven’t boosted their estimates of the long-run potential for the US in the wake of the Biden administration’s economic packages, however. For their part, Federal Reserve officials in December estimated the long-run annual growth rate at 1.8%. That’s down slightly from their 1.9% projection in December 2019.

--With assistance from Gabrielle Coppola.