U.S. Treasury Secretary nominee Basant: Not extending tax cuts faces "economic disaster," supports increasing sanctions against Russia, Trump policies will not drive up inflation

On January 16th, Eastern Time Thursday, during the Senate Banking Committee hearing on the confirmation of nominations, Scott Bessent, the nominee for U.S. Secretary of the Treasury by Trump, outlined the focus of economic affairs during Trump's second presidential term: domestic tax reduction policies and fiscal budget deficit issues, as well as external sanctions and tariffs.

According to CCTV, Trump nominated Bessent for the position of U.S. Secretary of the Treasury on November 22nd last year. Bessent is the founder of the global macro investment firm Key Square Group and has served as the Chief Investment Officer of Soros Fund Management. He provided economic policy advice to Trump during last year's presidential campaign. According to Yicai, if confirmed as Secretary of the Treasury, the 62-year-old Bessent will lead the economic agenda of tax cuts, deregulation, and tariffs during Trump's efforts to renegotiate trade agreements, and will also play a key role in issues such as cryptocurrency.

During the hearing, Bessent pledged to defend the U.S. supply chain and the dollar's status as the global reserve currency, warning that not extending the tax cuts implemented during Trump's first term would lead to an "economic disaster," and he believes that the U.S. government's fiscal spending issues are serious and out of control.

Bessent defended Trump's policy plans, predicting that the policies introduced by Trump would not drive up inflation, but rather bring inflation "closer" to the Federal Reserve's target of 2%. He hinted that to force Russia to end the Russia-Ukraine conflict through diplomatic negotiations, the Trump administration would consider increasing sanctions on Russia, particularly in the oil sector.

Commentators noted that Bessent's unexpectedly strong remarks about sanctioning Russian oil companies during the hearing were surprising. However, he repeatedly emphasized that maintaining order in U.S. fiscal conditions is his top priority, which was the most important theme of the hearing.

Ensuring Supply Chain Security and Cautiously Deploying Sanctions; The Dollar's Status as a Global Reserve Currency is Crucial

In his opening remarks at the hearing, Bessent expressed a strong stance on defending U.S. interests abroad, stating that the dollar's status as a global reserve currency is vital to the U.S. economy, although he did not directly mention tariffs.

In his prepared speech, Bessent stated:

"We must ensure the security of supply chains vulnerable to strategic competitors, and we must cautiously deploy sanctions as part of a whole-of-government approach to meet our national security requirements. It is crucial that we ensure the dollar remains the global reserve currency."

Bessent said that Trump has the opportunity to "open a new golden age of the economy," creating more jobs and wealth for all Americans.

Media commentary noted that Bessent's opening remarks did not mention policy details but were generally consistent with Trump's campaign views. The following statement from Bessent is a good example summarizing Trump's economic plan:

"As President Trump has said before, we will unleash the American economy by implementing growth-friendly regulatory policies, tax cuts, and unleashing American energy production. The breadth and depth of our capital markets, combined with predictable growth-friendly tax policies and smart, updated regulations, will continue to make America the most attractive destination for entrepreneurship, development, and public offerings globally."

Extending the 2017 Trump Administration Tax Cuts is the Most Important Economic Issue

In response to a senator's question, Bessent mentioned the tax cuts introduced during Trump's administration in 2017, most of which are set to expire at the end of this year. He warned that if these tax cuts are not extended, the United States will face a severe economic crisis impacting the middle class and wage earners, and the economy will "come to a halt." Bessent said:

"This is the most important economic issue today, whether we succeed or fail. If we do not fix these tax cuts, if we do not update and extend them, we will face an economic disaster. Financial instability will always affect the middle class."

"We will see a significant increase in taxes for the middle class. We will see the child tax credit cut in half. We will see deductions halved. ... It has the potential to come to a halt."

Bessent's view is in stark contrast to that of outgoing Treasury Secretary Yellen. Yellen stated on Wednesday that a comprehensive extension of the tax policies implemented by Trump in 2017 "could undermine our nation's strength, from the resilience of the U.S. debt market to the value of the dollar, and could even trigger a debt crisis in the future."

In subsequent Q&A, Bessent disagreed with a senator who accused Trump's tax cuts of primarily benefiting the wealthy, arguing that the wage increases seen before the COVID-19 pandemic were a benefit of the tax-related legislation.

U.S. Fiscal Spending Out of Control, Trump Administration Has No Plans to Reduce Social Security and Medicare Spending

Bessent believes there is an urgent fiscal spending problem in the U.S. that is spiraling out of control. He stated that the government has a "serious spending problem" and needs to adjust discretionary spending at the federal level.

Bessent said, "The U.S. does not have a revenue problem; we have a spending problem," and that he is running for office this time "considering that this spending has gotten out of control." He also mentioned that he has never seen such a severe fiscal deficit issue, "except during a recession or war," and given the current state of the U.S. government's fiscal deficit, it will be difficult to provide fiscal support in the future.

Bessent also stated that the Trump administration has no plans to reduce government spending on Social Security. He said, "I want to emphasize that President Trump has stated he will not affect Social Security and Medicare." He added that the government needs to first "get its internal order in place in the short term," before considering other ideas, such as setting up a supplemental fund to support welfare spending.

Last November, Bessent proposed the “333 Plan”: to reduce the budget deficit to 3% of GDP by 2028, achieve 3% GDP growth through deregulation, and increase oil production by 3 million barrels per day or an equivalent amount of energy. He believes that implementing this plan will create conditions for the Federal Reserve to initiate an "appropriate easing cycle." The contents of this plan are seen as potential hot topics for this hearing.

Carbon Tariffs May Be Included in Tariff Plans, Trump Administration May Especially Intensify Sanctions on Russian Oil Giants

A senator asked who would bear the cost of the tariffs proposed by Trump, whether it would be the American public or other countries. Bessent stated that changes in exchange rates, shifts in consumer preferences, and declining prices of Chinese goods will mitigate the impact of tariffs on American consumers Some lawmakers have proposed imposing a carbon tariff, referring to it as a "foreign pollution fee." Besant stated that the proposal for a carbon tariff is "very interesting," and it could be part of future tariff plans under a Trump administration.

Some lawmakers are concerned that the tariffs will increase supply chain costs and hurt exporters. Besant said that free trade must be balanced with fair trade. Trade is "clearly" unfair, which has caused American workers to suffer.

Besant also revealed in a Q&A that to help end the Russia-Ukraine conflict through diplomatic negotiations, the Trump administration may impose stricter sanctions on Russia, especially on Russian oil companies.

Besant bluntly stated that the existing sanctions are "not strict enough," and believes this is because the Biden administration is "worried about raising energy prices during election season." He said:

"If my (Treasury Secretary nomination) is confirmed, and if President Trump requests it as part of a strategy to end the war in Ukraine, I would 100% agree to increase sanctions, especially against Russian oil giants, to the level that would bring the Russian government to the negotiating table."

Trump’s Policies Will Bring Inflation Closer to 2%

Besant believes that Trump's policies will not drive up inflation, countering the view that Trump's policies would fuel inflation. When asked if he thinks any policies proposed by Trump would raise inflation, Besant replied, "I can't think of any at the moment."

Besant stated that he expects the policies implemented during Trump's presidency will bring the U.S. inflation rate "closer" to the Federal Reserve's target of 2% and will boost real wages. He also acknowledged that decisions made by Congress and the Federal Reserve could influence the direction of inflation.

He further stated in a subsequent Q&A, "Inflation is a major killer for working families," and noted that inflation "is still far above target."

The Federal Reserve Should Be Independent

When asked whether the Federal Reserve should maintain its independence, Besant answered, "Absolutely. I believe that in terms of monetary policy decision-making, the (Federal Open Market Committee) FOMC should be independent."

Wall Street Journal mentioned that last October, Besant stated in a media interview that Trump could control the Senate by nominating the next Federal Reserve chair in advance, allowing the Republican-controlled Senate to confirm a successor, thereby setting up a "shadow" Fed chair. "Once there is a 'shadow' Fed chair and forward guidance, no one will really care about Powell's statements anymore."

This proposal quickly sparked controversy and was criticized for potentially disrupting financial markets. Some analysts believe that influencing Federal Reserve decisions through a "shadow chair" may not work, as it cannot sway the direction of interest rates determined by FOMC meetings. Even if interest rates are successfully lowered and monetary policy is unexpectedly loose this year, considering the federal government's ongoing high deficits and the economy being overly stimulated, the likely outcome could be soaring inflation.

The U.S. Has No Reason for Central Bank Digital Currency

Besant stated that he believes the Treasury should not continue to explore the possibility of creating a central bank digital currency. He said:

"I believe there is no reason for the United States to have a central bank digital currency. In my view, central bank digital currencies are meant for countries that have no other investment options."

Bessent believes that digital currencies make more sense for countries that tend to hold currencies other than the dollar. He stated, "If you hold dollars, you can hold a variety of very safe U.S. assets."

Willing to Work with Trump and Lawmakers to Eliminate the Debt Ceiling

In December of last year, Trump called for the permanent abolition of the debt ceiling, but the government short-term spending bill he supported was rejected, raising the risk of a government shutdown. During this hearing, Democratic Senator Elizabeth Warren asked whether the debt ceiling should be abolished. Bessent indicated that he would be willing to work with Warren to eliminate the debt ceiling if Trump supported it.

Bessent responded, "If President Trump takes office, and if my nomination is confirmed, if he wants to eliminate the debt ceiling, I will work with him and you." He also said:

"If my nomination is confirmed, the U.S. government will not default on its debt."

AI Helps Address Tax Evasion Issues

A lawmaker asked Bessent whether he used a tax procedure to evade paying Medicare taxes. The IRS had previously stated that it would crack down on tax evasion using such loopholes.

Bessent stated that his hedge fund company has paid all taxes to date, and if the ongoing IRS lawsuit determines that the use of Medicare was improper, he would pay back taxes and indicated that if his nomination is confirmed, he would close the company.

The lawmaker further asked whether Congress should provide resources to the IRS to find tax evaders.

Bessent replied that tax collection is "very important," but he believes that many issues related to improving tax collection can be addressed through improved data processing systems and the use of artificial intelligence (AI).

He said, "We are on the brink of an AI revolution," which could help the IRS system