'Economically And Financially Catastrophic': Yellen Warns Against Failing To Raise Debt Ceiling

Chairman, nobody likes inflation. Inflation eats away, particularly at those with fixed incomes. But I've served here, as all of you know, a long time. And inflation under Ronald Reagan in his going into his third year, I believe, was 10.7. So as a comparison. But we need to bring inflation down.

But I want to add something about a broader thing. Madam Secretary, if we fail to increase the national debt, to allow headrooms so that America can pay its bills, what impact will that have on inflation? You're talking about the debt ceiling? Yes. I think it's utterly imperative that we raise the debt ceiling. That is about allowing the government to pay the bills. It is already incurred. It has nothing to do with future spending. And a failure by the government to pay the bills it's incurred is something that would be economically and financially catastrophic.

It would have a horrendous effect on financial markets where the United States is seen as an utterly secure country in which to invest. U.S. Treasury securities are seen as the safest bedrock of our global financial system. The U.S. dollar serves as the world's reserve currency.

We would be undermining that. And even coming close to the debt ceiling without raising it, we saw in 2011 that led to a downgrade of the U.S. credit rating. And this will raise borrowing costs for American households and businesses for a good long time. If we fail to raise the debt ceiling and had to cut spending to match the inflow of revenues that we had, we would be certain to have a recession or worse. It would be a dramatic cut in spending and the financial market consequences would be disastrous.

I strongly urge Congress to raise the debt ceiling and to fail to do so would lead to economic and financial chaos. Secretary would be fair to say that every one of your predecessors, whether they were Republicans or Democrats, shared that view. Absolutely. Would it be fair to say that the last time we raised that limit, it was a bipartisan vote in which the Democrats joined with Republicans to avoid that irresponsible action? There have been many occasions, 90 or more occasions in which Democrats and Republicans have joined together to raise the debt ceiling, which simply allows the Treasury Department to pay the bills the government has incurred. Madam Secretary, last question I would ask of you is, we passed an $80 billion or $87 billion increase in the IRS budget in the Inflation Reduction Act. That was to get them back to a position they had been over a decade ago, while the population of our country has substantially increased. And the complexity of our tax system has increased.

The proposition was made that we had done so so that there would be armed guards at everybody's doorstep demanding that they pay their taxes. Everybody ought to pay their fair share, but no more than their fair share. Would you comment on what we need to do with IRS? You mentioned it in your statement, but elaborate on what the consequences of cutting that increase to get them to a level where they can service the American people. So the IRS needs both discretionary appropriations that are adequate to service a base level of spending on an ongoing basis. And that budget for ongoing expenditures has fallen by 20% in real terms just between 2011 and 2019. The staffing levels at the IRS are at 1970 levels in spite of the fact that our GDP has risen enormously since that time, and the need for staffing has increased. The consequence of that has been a tax gap that over a decade is estimated at $6 or $7 trillion.

Those are taxes due but not paid. But not paid. And the money that we spend on the IRS, both discretionary and mandatory, contributes to lowering the deficit because it enables more tax collections. And importantly, it's also a question of service to the American people of do they get the phone calls they make answered. I promised that with this additional funding, this tax season, the IRS response rate would be in customer service would reach 85% from a level under 20% last year. And so far, IRS is meeting that. So Americans can see as they have contact with the IRS that the IRS is going to be servicing their needs.

And the money that was allocated for mandatory spending over the next decade will serve to modernize the IRS and transform it into a modern agency that will work with businesses, work with households, make it easy for them to pay their taxes. And thank you, Madam Secretary. My time has long expired. Thank you. Mr. Amade. Thank you, Mr.

Chairman. And I also want to say that I'd like to take up something with the ranking member offline, but I was told this committee was a sexy committee. And so we'll need to straighten that out before we go much further in this process.

Rep. Steny Hoyer, Sec. Janet Yellen, House