Treasury Department, United States
█ MARTIN J. MANNING
The United States Department of the Treasury, the second-oldest department in the U.S. Government, was established by an Act of Congress on 2 September 1789 (I Stat. 65; 31 U.S.C. 1001). It advises Congress and the president on tax policy, acts as financial agent for the federal government, manufactures currency, and enforces tax laws. According to its establishment legislation, the Treasury Department is to "formulate, recommend, and administer domestic and international financial, economic, and tax policies, and manage the public debt." The Department serves as the principal financial agent for the United States government, manufactures coins and currency, and oversees the administration of the U.S. Customs Service (1789), U.S. Mint (1792), Internal Revenue Service (1862), Bureau of Engraving and Printing (1862), Office of the Comptroller of the Currency (1863), Secret Service (1865), Bureau of the Public Debt (1919), Financial Management Service (1920), Federal Law Enforcement Training Center (1970), Bureau of Alcohol, Tobacco, and Firearms (1972), and Office of Thrift Supervision (1989).
Background. The Treasury Department was already in existence in some form during the War of American Independence. On June 22, 1775, the Second Continental Congress approved the printing of $2 million in bills of credit to finance the War of American Independence. Between 1775 and 1779, more than $241 million Continentals were issued. The value of this first national paper money fell so low it engendered the expression "not worth a Continental." A month later, July 29, 1775, the Continental Congress appointed joint treasurers (Michael Hillegas and George Clymer). That November, a committee was established by the Continental Congress to examine the money in the Treasury and to estimate the public debt. The committee was one of several established by the Congress to handle different phases of the revolutionary finances. In February 1776, a standing committee of five was appointed to superintend the Treasury. The committee was referred to by various names, including Board of Treasury and Treasury Office of Accounts.
On July 31, 1789, the collection of customs revenue was established when the Tariff Act became effective. A Bureau of Customs, later the U.S. Customs Service, was created by an act of March 3, 1927 (44 Stat. 1381); 19 U.S.C. 2071). A postal service was established by Congress on September 22, 1789.
With the establishment of the Treasury Department, the first Secretary of the Treasury, Alexander Hamilton, maneuvered to give the emerging United States a strong financial basis and to provide the stability needed for economic development. Hamilton worked to fund the national debt, assume the state debts, create a national bank, pass a whiskey tax, enact high tariffs, and establish American industry on a sound financial footing. He was aided by legislation (April 2, 1792) that established a national mint and regulated coinage and an act (May 8, 1792; revised Act of March 3, 1809, chap. 28) that organized the Department of the Treasury into two major components: the Departmental offices, primarily responsible for the formulation of policy and management of the Department as a whole, and the operating bureaus, which carry out the specific operations assigned to the Department. Today, the bureaus make up 98% of the Treasury work force.
Key developments. Congress approved legislation (June 23,1836) that required the Secretary of the Treasury to designate at least one bank in each state and territory for the
deposit of government funds. Six years later, on Independence Day, sub-treasuries for deposit of federal funds were authorized in major cities but the legislation was repealed the next year (1841).
The Civil War (1861–1865) was the first modern war demanding enormous capital. The cost, after four years, was $2.3 billion to the U.S. government and $1 billion to the Confederacy. Less than one-fifth of the North's cost was paid for in taxes; four-fifths was financed by borrowing and the issue of unredeemable paper currency. To remedy this, and to set up future reserves, the Revenue Act (12 Stat. 432; 26 U.S.C. 3900; July 1, 1862) established a permanent tax collection agency, Commissioner of Internal Revenue, although internal taxes were levied by Congress and collected by the Treasury Department from 1791 to 1802 and 1813 to 1817. To administer the national banks, the Office of the Comptroller of the currency was created by legislation (12 Stat. 665; February 25, 1863). However, a national tragedy led to the creation of one of the better-known Treasury bureaus when the U.S. Secret Service, oldest general law enforcement agency in the federal government, was established (July 5, 1865) after the Lincoln assassination. Along with its protection of presidential families, heroically documented in stage screen, and print, the Secret Service was also authorized to halt the counterfeiting of currency. It derives its authority from the act of June 23, 1860 (12 Stat. 102). Today, it still provides these services although its detection of counterfeit money and its arrest of counterfeiters continues to fall behind its rather more popular and visual image of Secret Service agents traveling with the president and other VIPs.
"Guns and Butter" diplomacy. World War I cost $32.7 billion. To finance this enormous cost, President Wilson and Treasury Secretary William G. McAdoo transformed the income tax into the foremost instrument of federal taxation, both to raise revenue and to attack concentrations of wealth, special privilege, and public corruption; and to promote a more competitive economy. The Revenue Acts (1916, 1917) [39 Stat. 756, 1000] imposed the first significant taxes on corporate profits and personal incomes and introduced a graduated federal estate tax, but rejected a mass-based income tax. An excess profits tax became the centerpiece of wartime finance.
Henry Morgenthau, President Franklin Roosevelt's Secretary of the Treasury, issued regulations in 1934 that established a reporting system for specified international capital movements. Along with the required reports on security and foreign exchange transactions and changes in bank balances between the United States and foreign countries, commercial and industrial firms reported their foreign assets and liabilities. The present Treasury International Capital reporting system, an ongoing statistical program, evolved from the 1934 data collection efforts.
World War II, the most costly in American history at $360 billion, changed the American tax system as it shifted from a narrow base to a broad base, the basis of our current tax system. Roosevelt and Morgenthau wanted to finance the war with taxes that came mostly from business and upper-income groups as nearly one-half of America's national product went to war. Along with lend-lease programs, Treasury designed and implemented Foreign Funds Control (1940) to protect in the U.S. the assets of invaded countries and to keep them from the enemy. Foreign Funds Control froze Axis assets in 1941, regulated international financial transactions, administered wartime trade restrictions (Trading with the Enemy Act), and froze $8.5 billion of assets belonging to thirty-five countries by war's end. Although liquidated in 1948, Foreign Funds Control was re-established in 1950 as Foreign Assets Control.
Production of military invasion currency was among the Treasury's most highly secret work since any knowledge of production would reveal Allied invasion plans. Treasury loaned 14,000 tons of silver to help produce uranium for the atom bomb and financed the top-secret Manhattan Project while Morgenthau and a group of Treasury attorneys persuaded Roosevelt to establish the War Refugee Board (1944), the only government effort to save European Jews.
In the post-World War II period, Treasury developed international monetary policy to aid countries devastated by the war but by the end of the Korean War, the U.S. American dominance was lessening as it began to compete for economic control with countries it originally assisted. Treasury, supported by other U.S. agencies, developed comprehensive proposals for the reform of the international monetary system after fiscal collapses in the 1960s and the 1970s. Strengthened by accords and agreements, Treasury developed further policies to resolve the international debt crises of the 1980s and the early 1990s. Since 1989, Treasury has guided U.S. participation in the Financial Services negotiations of the Uruguay Round multilateral talks under the General Agreement on Trade in Services and the World Trade Organization.
After the terrorist attacks of September 11, 2001, the Treasury Department implemented regulations for helping financial institutions comply with the USA PATRIOT Act, a comprehensive legislative enactment addressing many facets of terrorist financing and money laundering passed by Congress after the terrorist attacks. The Department works jointly with other federal agencies to craft effective and common-sense regulations and programs that will help industry guard against future terrorist infiltration and abuse.
To date, the Treasury Department has issued a number of proposed and interim rules to help the financial services industry address specific threats to the financial system, create anti-money laundering programs that are tailored to each industry's needs, alert the appropriate authorities to large or suspicious financial transactions, and better understand their relationship with foreign banks. At the beginning of the twenty-first century, Treasury continues to maintain a central position within the federal government due to its size, leadership, and important role in the economic development of the United States.
█ FURTHER READING:
BOOKS:
Gilbert, Abby L. "Treasury, Department of the." In: Kurian, George T., ed. A Historical Guide to the U.S. Government. New York and Oxford: Oxford University, 1998.
Katz, Bernard S., and C. Daniel Vencill, eds. Biographical Dictionary of the United States Secretaries of the Treasury, 1789–1995. Westport, CT: Greenwood, 1996.
Walston, Mark. The Department of the Treasury. New York: Chelsea House, 1989.
ELECTRONIC:
U.S. Department of the Treasury Department< http://www.ustreas.gov > (April 18, 2003).
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