U.S. Department of Treasury: What It Does and Its Effect

Secrets of the U.S. Treasury

U.S. Treasury
The U.S. Treasury manages the nation's finances. Photo: Derin Thorpe/Getty Images

The U.S. Department of Treasury is an executive branch of the federal government that manages national finances. It doesn't set fiscal policy since the U.S. Constitution gave that power to Congress. Treasury collects taxes through the Internal Revenue Service. It funds the U.S. debt through selling Treasury bills, notes, and bonds. It also advises the Office of the President on financial, trade, and tax policy.

What the Treasury Department Does

Unlike most other federal departments, 98 percent of the work of the Treasury is done by its 10 Bureaus. 

  1. The IRS collects federal income taxes.
  2. The Treasury Inspector General for Tax Administration prevents IRS fraud.
  3. The Bureau of the Fiscal Service manages the public debt
  4. The U.S. Mint prints postage stamps, currency, and coinage. 
  5. The Bureau of Engraving and Printing designs and manufactures U.S. currency and securities.
  6. The Office of the Comptroller of the Currency regulates national banks.
  7. The Inspector General conducts audits.
  8. The Financial Crimes Enforcement Network investigates and prosecutes tax evaders, counterfeiters, and forgers. It aids the war on terror by identifying and freezing funds of terrorists. 
  9. The Alcohol and Tobacco Tax and Trade Bureau enforces laws controlling alcohol and tobacco. It collects firearms and ammunition taxes. 
  10. The Community Development Financial Institution Fund expands credit in poor communities.

    The office of the Secretary of the Treasury does the remaining 2 percent of the work. The Secretary advises the president on financial, economic, and tax policies. He helps set fiscal and budgetary policies. 

    In 1789, Congress created the Treasury Department and the other two executive departments of Defense and State.

    Treasury employs 117,000 people with an $11 billion budget. It controls $358 billion in tax credits and debt financing.

    How It Affects the U.S. Economy

    The Treasury auctions Treasury bonds to pay for the U.S. debt. The 10 -year Treasury note sets the benchmark rate for all other long-term debt. The Treasury yield reflects the demand for government debt. The greater the demand, the lower the yield. That reduces interest rates on fixed-interest 15-year and 30-year mortgages. 

    Low mortgage rates strengthen the economy by allowing home buyers to buy more and bigger houses. That stimulates the real estate industry. Low rates also encourage homeowners to borrow more against the equity in their home. That permits them to spend more on consumer products.

    Treasury faces a critical role whenever Congress delays raising the debt ceiling. Once the public debt hits the ceiling, Treasury must stop auctioning new Treasury notes. If necessary, it can borrow from federally-managed retirement funds except for Social Security. It then starts to borrow from the Treasury notes purchased by the Federal Reserve.

    Once it exhausts these emergency measures, Treasury must rely on incoming tax revenue to pay the government's bills.

    For most of the year, that's not enough. It may not be able to pay benefits to Social Security and Medicare recipients. Federal employees may have to be furloughed. 

    If it can't pay the interest on the debt, then the United States would go into debt default. Although it might seem that Congress would want to avoid this at any costs, it created a debt crisis in 2011 and shut down the government in 2013. 

    How It Affects You

    Treasury affects you directly. Every April, the IRS expects a check from you, unless it has withheld enough from your paycheck. You may also have U.S. Savings Bonds. If you are concerned about inflation, you might own I Bonds which are from the Bureau of the Public Debt.

    Treasury bonds affect you by influencing mortgage interest rates. That affects your ability to buy and sell your home and to get equity loans.

    It also affects the value of the dollar. That impacts the cost of imports and inflation. Over the long haul, a declining dollar erodes your retirement savings to the point that you may have to keep working past 65.

    Demand for Treasury notes reflects the demand for U.S. dollars. When demand is high, it keeps the price of imports low, reducing inflation. But the U.S. current account deficit threatens to reduce confidence in the dollar's value. That would increase the cost of imports, aggravating inflation. Worse, it could also trigger a dollar crash.

    Unclaimed Money: The Treasury Department has a page devoted to helping you find unclaimed money. That's where you file claims for missing IRS refund checks, Savings Bonds, and Treasury bonds. It enables you to track property from states you've lived in, class action suits, and unclaimed credit union shares. The U.S. Treasury Unclaimed Money website will help you find anything you might be owed.