Former Clinton administration Treasury Secretary Larry Summers asserted Friday that Congress is missing an opportunity to combat decades-old high inflation by failing to implement tax increases.
Summers, a frequent critic of the federal response to inflation, has argued that lawmakers should consider raising taxes as another way to cool the economy — with a focus on corporations and wealthy Americans.
“The right thing to do is raise taxes right now to take some demand out of the economy,” Summers told Bloomberg. “We can increase substantial revenue by reducing corporate tax loopholes.”
While Summers supported tax increases on the wealthy – a measure also backed by President Biden and many prominent Democrats – he noted that “it is not the time for stimulus fiscal policies.”
In particular, he said Biden should not extend the extended pandemic-era moratorium on student loan payments or use tax revenues to fund a “big new spending program.” Biden has called for corporate tax increases to fund a massive spending bill long stalled on climate and social programs.
Instead, Summers noted that more tax revenue would help “reduce the deficit in the short term.”
Summers also appeared to take an insight into moderate Democratic Senator Joe Manchin of West Virginia – who indicated last week that he would not consider supporting the inclusion of tax increases in the spending bill without seeing more inflation data.
“We can generate significant revenue simply by enforcing the tax code and taking some money from high-income tax evaders who then go and spend the money, and that will also contribute to lowering inflation,” Summers said.
“I’m sure we can get past this basically ridiculous economic notion that tax increases are inflationary. It’s not true,” he added.
Inflation rose to a four-decade high of 9.1% in June, according to federal data. The Federal Reserve is widely expected to implement a larger-than-usual rate hike next week in its latest attempt to tame rates.
The outspoken Summers, who also served as an economic advisor to President Barack Obama, has been highly critical of the Fed’s response to the inflation crisis.
Earlier this month, Summers said the central bank had “let us down badly” and remains very optimistic in its view of the current economic landscape.
Summers also emphasized 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.