Billionaires’ Tax ‘Is a Bad Idea,’ Ex-Treasury Chief Summers Says

(Bloomberg) -- Former Treasury Secretary Lawrence Summers urged the Biden administration to focus on passing legislation to implement a historic global corporate-tax deal, while criticizing the White House's call for a so-called billionaire tax.

“It is absolutely essential -- the single most important priority for tax policy going forward is that we do what is necessary to move forward the global corporate-tax agreement,” Summers told Bloomberg Television's “Wall Street Week” with David Westin on Friday.

Summers lauded Janet Yellen, who holds the Treasury chief job he had more than two decades ago, for her “historic” economic diplomacy last year in securing a 15% global minimum corporate tax. The deal among almost 140 countries also would resolve disputes over the taxation of cross-border commerce, but needs validation by Congress.

President Joe Biden's 2023 federal budget proposal, released on Monday, includes implementation of the corporate tax deal. Summers, a paid contributor to Bloomberg Television and Harvard University professor, criticized a plank of the individual tax measures also in the budget.

“The billionaires' tax is a bad idea whose time will never come,” Summers said of the measure, which would tax the appreciation of financial and business assets owned by people worth more than $100 million. “It's mislabeled to give it a kind of populist appeal.”

‘Comical' Forecasts

House lawmakers didn't include a similar measure in legislation last year to enact Biden's long-term economic agenda.

“The general idea of taxing capital gains when people don't have those capital gains -- they haven't sold the assets -- is not a realistic one,” Summers said.

The former Treasury secretary also blasted the long-term interest-rate forecasts embedded in Biden's budget.

Three-month Treasury bill rates were penciled in at 0.2% for this year -- less than half their 0.5% current level. Ten-year Treasury yields were forecast at 2.1%; they're now about 2.36%. Over the coming decade, 10-year yields were projected just above 3%.

The interest-rate forecasts “look comical today,” Summers said. Using more realistic forecasts now would likely add 5% to the federal debt to gross domestic product ratio, Summers said.

Summers also predicted that in future the government will need to use fiscal-policy tightening in order to help bring down decades-high inflation, alongside Federal Reserve tightening.

“We're moving towards a moment when we're going to have to start thinking about fiscal policy as well as monetary policy as an anti-inflationary tool,” he said.

With regard to Biden's decision this week to release roughly a million barrels of oil a day from the government's strategic reserves for six months, Summers said a better way of going about it would have been a simultaneous sale in the spot market and purchase in the forward market.

The cheaper cost in the forward market means the administration could have made money on the deal, while replenishing the strategic reserve simultaneously, Summers said.