Congress is missing an opportunity to tackle decades of high inflation by not implementing tax increases, former Clinton Administration Treasury Secretary Larry Summers claimed on Friday.
Summers, a frequent critic of the federal response to inflation, argued that lawmakers should consider raising taxes as another means of cooling the economy — with a focus on corporations and wealthy Americans.
“The right thing to do now is to raise taxes to take some of the demand out of the economy,” Summers told Bloomberg. “We can generate significant revenue by closing corporate tax loopholes.”
While Summers backed tax hikes for the rich – a move also backed by President Biden and many prominent Democrats – he noted that it was “not the time for stimulus fiscal policy.”
Specifically, he said Biden should not extend the protracted pandemic-era moratorium on student loan payments or use tax revenues to fund a “major new spending program.” Biden has called for increases in corporate taxes to fund a long-stalled massive spending bill on climate and social programs.
Instead, Summers noted that more tax revenue would help “reduce the deficit in the near term.”
Summers also appeared to attack moderate Democratic Senator Joe Manchin of West Virginia – who hinted last week that he would not support including tax increases in a spending bill without seeing more inflation data.
“We can generate significant revenue just by enforcing the tax code and taking some of the money away from high-income tax evaders, who then spend the money, and that will also help reduce inflation,” Summers said.
“I really wish we could get past this basically ridiculous economic idea that tax increases are inflationary. It’s just not right,” he added.
According to federal data, inflation rose to a four-decade high of 9.1% in June. The Federal Reserve is widely expected to deliver an above-average rate hike next week in its latest attempt to tame prices.
The outspoken Summers, who also served as economic adviser to President Barack Obama, was highly critical of the Fed’s response to the inflation crisis.
Earlier this month, Summers said the central bank has “quite let us down” and is still overly optimistic in its assessment of the current economic landscape.
Summers has also claimed that unemployment is likely to rise sharply above its current level of 3.6% in the coming months as the economy adjusts to higher interest rates.