As the odds of a divided Congress increased, Yellen warned of the need to raise the debt ceiling

By David Lawder

NUSA DUA, Indonesia (Reuters) – With the possibility of a split in the U.S. Congress rising, Treasury Secretary Janet Yellen warned that lawmakers’ failure to raise the statutory U.S. debt limit poses a “significant threat” to America’s credit rating and the functioning of U.S. financial markets. .

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

Some Republicans have threatened to use further increases in the $31.4 trillion debt ceiling as leverage to force concessions from US President Joe Biden, a Democrat. US public debt stood at $31.2 trillion on Wednesday and without an increase, analysts anticipate a potential default crisis in the third quarter of 2023.

Republicans who regained control of Congress in the 2010 elections brought the United States to the brink of default on demand to cut spending next year, prompting the first rating cut on US Treasury debt by Standard and Poor’s.

Asked whether Democrats should pass legislation in the post-election session, while they would still hold the majority until January, regardless of the election’s outcome, Yellen said raising the debt ceiling was urgently needed.

“I think it is irresponsible not to raise the debt ceiling. It has always been raised,” said Yellen. “It will be a big threat to the country not to do it, and is completely responsible for threatening the American credit rating and the functioning of the single most important financial market.”

US Treasury officials said the department would be interested in seeing the measure passed before the newly elected Congress convenes in January, adding, “It has to be done.”

Bipartisan work is still possible

Yellen said she was not ready to admit that Biden’s legislative agenda would be stalled by gridlock, adding that she would defend the newly passed measure against Republicans who want to overhaul some of his spending and tax policies.

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

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

Among the most frequently targeted measures are new funds of $80 billion for the Internal Revenue Service to boost tax compliance and customer service and a 15% domestic alternative minimum tax for large corporations – the measure’s main funding source.

Yellen, who is currently attending the G20 summit in Indonesia, spoke before Mark Kelly won a tight Arizona Senate race, leaving Democrats needing only one of two undecided seats to retain control of the Senate.

In the House of Representatives, Republicans had won 211 seats, seven shy of the 218 majority.

He said some Republicans supported last year’s infrastructure act and this year’s investments in semiconductors and research, and the administration will look for measures that can attract further bipartisan support.

GLOBAL Tax deal

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

“I want to see it done. I would have liked the United States to go back first. It didn’t happen,” said Yellen, who helped broker a deal last year aimed at the end of a competitive downward spiral in corporate taxes by the country to attract investment. .

He said he believed most European Union countries would continue to implement the 15% corporate minimum, which means US firms currently paying US foreign tax of 10.5% could pay the difference to the government possibly starting in 2024.

“And finally, as they do, the pressure will increase in the United States to come into compliance as well. Because the country that adopted the label will be able to put in place taxes on companies based in undertaxed countries like the United States.”

(Reporting by David Lawder; Editing by Diane Craft)

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