As the Senate hopes to make progress on health care—with the GOP releasing its revised bill to repeal and replace ObamaCare Thursday—Fed Chair Janet Yellen addressed the next big ticket item on President Donald Trump’s to-do list: tax reform.
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In testimony before the Senate Committee on Banking, Housing and Urban Affairs Thursday, Yellen said tax reform could potentially provide a pathway toward pushing the economy out of its low growth pattern.
“I would certainly agree that appropriately designed tax reform could have a favorable effect on productivity,” Yellen said, in response to a question from Sen. Bob Corker (R-Tenn.). “Of course it obviously depends on the details of what you do, and I don’t have numbers to give you, but certainly there are distortions in the tax code that I believe are negatively impacting productivity. And, so, I think there is scope there to have a favorable impact on long-term economic growth.”
While the Republicans have yet to lay out a concrete bill to reform the U.S. tax code, the White House has insisted that 3% GDP growth is achievable if taxes and regulations are overhauled. Yellen said the key to pushing economic growth higher is ramping up productivity, which — unfortunately — she said is very difficult to do.
“I think [tax reform] is something could have a favorable impact if appropriately done. Productivity growth is something – it’s very hard to move,” she said. “It is challenging to move productivity growth up that much, but I hope that Congress and the administration will focus on changes that will succeed in accomplishing that.”
Productivity growth in the first quarter of 2017 averaged 1.2%, according to the Bureau of Labor Statistics. Yellen said in order for the administration to achieve its goal of 3% economic growth — that number would need to rise “to something over 2.”
Sen. Corker asked her whether she thinks that feat is achievable within the next five years, to which Yellen responded: “I think it’s something that would be wonderful if you can accomplish it, I would love to see it ... I think it would be quite challenging.”