Congress is missing an opportunity to combat decades-high inflation by failing to implement tax hikes, former Clinton administration Treasury Secretary Larry Summers asserted 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 is to raise taxes right now to take some of the demand out of the economy,” Summers told Bloomberg. “We can raise substantial revenue by cutting corporate tax loopholes.”
While Summers backed tax hikes on the wealthy — a measure also supported by President Biden and many prominent Democrats — he noted that it was “not the time for stimulative fiscal policies.”
In particular, he said Biden should not extend the lengthy pandemic-era moratorium on student loan payments or use tax proceeds to bankroll a “big new spending program.” Biden has called for corporate tax hikes to fund a long-stalled, massive spending bill on climate and social programs.
Instead, Summers noted that more tax revenue would assist with “short-term deficit reduction.”
Summers also appeared to take a dig at moderate Democratic Sen. Joe Manchin of West Virginia — who indicated last week that he would not consider supporting the inclusion of tax hikes in a spending bill without seeing more inflation data.
“We can generate significant revenues simply by enforcing the tax law and taking some of the money out of high-income tax evaders who then go and spend the money, and that’ll contribute to reduced inflation as well,” Summers said.
“I sure wish we could get past this basically ludicrous economic idea that tax increases are inflationary. It’s just not right,” he added.
Inflation surged 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-normal interest rate hike next week in its latest bid to tame prices.
The outspoken Summers, who also served as an economic adviser 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 quite badly” and was still too optimistic in its view of the current economic landscape.
Summers has also asserted that unemployment is likely to rise sharply above its current level of 3.6% in the months ahead as the economy adjusts to higher interest rates.