Building Back Better: the U.S. Treasury Department

 Across the street from the White House in Washington D.C., a 10-foot-high bronze sculpture of a man stands atop a granite plinth. The tousled jabot at his throat appears to have been stirred by a breeze coming up off of the Potomac. The figure holds a long coat bunched under one arm, and a tricorn hat in his other hand – it almost looks as if he’s leaving the office after a long day’s work. Looming behind him, the United States Department of the Treasury covers a block and a half, an imposing building that may look vaguely familiar – it’s the building featured on the back of the U.S. ten-dollar bill.

 And the bronze figure? It’s a heroic representation of the fellow who also is featured on the front of the ten-dollar bill: Alexander Hamilton, lately of Broadway fame, but to be remembered also as the nation’s first Treasury Secretary.

The inscription that is carved into the statue’s granite base would have you believe that Hamilton possessed something akin to supernatural powers: “He smote the rock of the national resources and abundant streams of revenue gushed forth. He touched the dead corpse of the public credit and it sprang upon its feet.”

Surely all of Hamilton’s successors at Treasury might have wished to be remembered so favorably.

But the fact of the matter is, this federal Department has a tough portfolio to manage.  It is charged with overseeing the United States’ finances and resources, promoting economic growth and stability both at home and abroad, and combating threats to the integrity of the American financial system. And juggling all of those sometimes conflicting responsibilities at once is never likely to make everyone happy at the same time.

 Fast forward to now, April 2021, as the entire world struggles to come out of the COVID-19 pandemic. Last month, in accordance with President Joe Biden’s American Rescue Plan, the Treasury Department and one of the agencies it oversees, the Internal Revenue Service, started sending out more than 242 billion dollars’ worth of stimulus checks. It was the largest assistance effort to Americans since the Great Depression. This month (and into May, due to a recently announced deadline extension) they’re dealing with the annual influx of income tax returns.

Presiding over all of this, just weeks after being sworn in as the nation’s 78th Secretary of the Treasury, is Janet Yellen.

She’s the first woman ever to serve in the post since it was established 232 years ago by President George Washington. But this isn’t the first time Yellen has shattered the glass ceiling. After earning her PhD from Yale and joining the faculty of UC-Berkeley as a professor of economics, she was tapped in 1994 by President Bill Clinton to serve on the Federal Reserve Board of Governors. When he promoted her to Chair of the White House Council of Economic Advisers three years later, she became the first woman ever named to that position. And in 2014 she achieved another first for women when she was appointed by President Barack Obama to serve as the nation’s top central banker, chair of the Federal Reserve.

With her snow-white pixie haircut, her Brooklyn accent, and her current assignment to fund the nation’s recovery from a catastrophic global pandemic, Yellen is going to be a very visible and vocal player in Biden’s effort to Build Back Better. Her innate sympathies for Main Street rather than Wall Street align with her boss’s commitment to the working class. (Although after having spent five decades as an economist, with 30 of those years serving in top-level positions, Yellen is certainly no stranger to the world of high finance.)

On top of contending with the nation’s pandemic-related economic woes, Yellen also will be dealing with the results of the previous administration’s four-year mishmash of trade wars, tax cuts for the rich, and a ballooning federal debt.

But when has Treasury ever been a barrel of laughs?

If you’d like to see an abbreviated guide to the Treasury Secretaries who have served throughout the history of the United States, the Department of Treasury website has thumbnail sketches of Yellen’s 77 male predecessors at the Department and the major issues each of them had to face.

 As the very first Secretary of the Treasury, Hamilton worked to put the fledgling United States’ chaotic treasury in order. He successfully argued that the federal government should assume the various states’ war debts – doing so instilled foreign nations’ confidence in this New World upstart. Hamilton also instituted excise taxes and customs duties as the basis for the nation’s revenue system. He established a National Bank and introduced plans for a federal Mint. Regarding the latter, he and then-Secretary of State Thomas Jefferson became embroiled in a power struggle over whose Department – Treasury or State – should oversee the Mint. To Hamilton’s disappointment, Jefferson won out.

 It wasn’t until 80 years later, in one of the periodic reorganizations undertaken by the federal government, that the Mint was reassigned to operate under the auspices of the Treasury Department, and that is where it remains today.

 Just as Hamilton had to deal with the nation’s finances after a major war, many of the Treasury Secretaries who followed him were called upon to wrangle the nation’s finances during other times of upheaval.

In the run-up to the Civil War during the James Buchanan administration, for example, Southern states began refusing to participate in the collection of U.S. Customs revenue from the cotton trade. Buchanan’s Treasury Secretary, Howell Cobb, had tried to persuade Congress to raise tariffs in order to increase revenue, but in November 1860, as soon as Abraham Lincoln was elected to succeed Buchanan, Cobb’s real loyalties became clear. He resigned before the year was out and became a leading founder of the Confederacy.

Lincoln’s inauguration wasn’t scheduled until March, but in the waning months of Buchanan’s presidency, seven Southern states voted to secede from the Union – and when they went, so did the revenue they contributed. With financial panic rising across the land, Buchanan installed Philip Thomas to succeed Cobb at Treasury, but the former Maryland governor was not up to the job and resigned after only a month at the helm.

 Buchanan then appointed John Dix, a former Senator from New York, who in short order was able to secure some desperately needed bank loans. Dix also won the appreciation of Unionists when his telegram to a U.S. Customs agent in Louisiana was intercepted and widely publicized. The message had contained instructions to secure a Treasury Department revenue cutter that was in New Orleans – and if anybody on the ship attempted to lower the American flag, to “shoot him on the spot.”

When Lincoln was inaugurated in March of 1861, he rewarded Dix with a high-level military commission, and tapped Salmon P. Chase (who had been sworn in as the new U.S. Senator from Ohio only two days earlier) to serve as his Secretary of Treasury. Knowing that he had to raise money in order to fund the fight to reunite the Union, Chase turned to a mechanism that had been hotly debated in previous administrations, but never before implemented: an internal (income) tax. The Bureau of Internal Revenue, forerunner of the Internal Revenue Service, was established in 1862.

 Also that year, the Bureau of Engraving and Printing was formed to print greenbacks – currency that wasn’t backed by specie. A year later, the National Banking System was created, and in 1865 the Secret Service was formed.

This new agency was charged with combatting a rampant problem during the Civil War era – fraudulent currency – by infiltrating counterfeiting operations and confiscating their printing presses. Lincoln signed the order creating the Secret Service on April 14, 1865. That evening he was shot and killed by John Wilkes Booth. It is a bitter irony that today we primarily associate the Secret Service with protection of our Presidents and other U.S. government leaders.

The Secret Service remained a bureau of the Treasury until 2003, when it was transferred to the newly created Department of Homeland Security.

Financing war has not been the only challenge that has occupied the Treasury Department. Throughout its history, there have been repeated debates about whether or not there should be a National Bank, and about whether to adhere to a specie standard (gold or silver) for currency or instead approve a currency that uses fiat money (which doesn’t have intrinsic value but is backed by government promise). Likewise, there have been debates over an income tax, which was instituted, then repealed, introduced again, then struck down as unconstitutional, and finally made pretty much bulletproof with the ratification of the Sixteenth Amendment.

And there’s often been concern about how to deal with the national debt.

Henry Morgenthau was Franklin Delano Roosevelt’s Treasury Secretary for the bulk of Roosevelt’s time in office. By inclination Morgenthau was a monetarist, preferring private investment over government initiatives and advocating for national debt reduction. But the country was in the throes of the Great Depression, so the Treasury Secretary worked with FDR on a double budget – balancing the country’s regular budget, but outside of that allowing large-scale emergency spending on the Civilian Conservation Corps, Works Progress Administration and other agencies that had been set up to provide employment and economic stimulus during hard times.

It was also during Morgenthau’s tenure that the Social Security program was launched in an attempt to soften the financial impacts for people who were caught unprepared for old age, disability, or loss of a spouse.

And with the United States involvement in World War II, Morgenthau and his Treasury Department were leading advocates for rescuing European Jews from the danger posed by Hitler’s Germany. At Morgenthau’s urging, FDR established the War Refugee Board, which allowed tens of thousands of Jewish refugees to find safety in the United States.

Over the years, it should be noted, the Treasury Department also has played a significant, if not always highly-publicized, role in fighting crime, both domestic and foreign. The notorious gangster Al Capone, for example, was finally locked up after being convicted – not for the brutal killings he was responsible for, but for several counts of tax evasion.

And as former Treasury staffer Juan C. Zarate lays out in his book Treasury’s War, following the 9/11/2001 attacks on the World Trade Center and the Pentagon, the United States responded with a counter-terrorist campaign that reshaped the notion of financial warfare.

“The Treasury Department waged an all-out offensive, using every tool in its toolbox to disrupt, dismantle, and deter the flows of illicit financing around the world,” Zarate writes. Treasury targeted not only rogue leaders but the entire Al Qaeda and Taliban networks – and their financial backers.

 But questionable funding sources operate within the United States, too. In fact, there is rising concern about dark money – campaign donations from politically active nonprofits that use their tax-exempt status to avoid disclosing their donors’ identities. In funding for the 2012 election, dark money accounted for more than $300 million. And, according to a recent investigative piece in Rolling Stone, the Trump administration tried to make it “even harder for the IRS to ascertain the identities of the people and companies bankrolling the armada of nonprofits now spending anonymous cash.” But this did not end up working in Trump’s favor. In last year’s presidential campaign, it was Joe Biden who benefited the most from dark money contributions – to the tune of $145 million.

Citing dark money’s “corrosive influence,” Senators Sheldon Whitehouse (D-Rhode Island) and Elizabeth Warren (D-Massachusetts) have pressed Biden’s Treasury Secretary, Janet Yellen, to beef up the IRS’s oversight of this phenomenon.

But that isn’t the only issue that is going to land on Yellen’s plate.

During her Senate confirmation hearings she asserted that dealing with climate change should be a Treasury Department mandate – and that under her command, Treasury would assume an active role in reviewing the climate-related impacts on financial stability. It might leverage finance instruments to encourage accelerated action on reducing emissions. Incubating green start-ups could be another goal. Yellen has announced her intention to name a “very senior-level” official to monitor Treasury’s climate work.

On both climate change and green energy, Yellen has talked about the importance of multilateral agreements – a big switch from the last four years. Also on a global scale, the Secretary is in active talks with her counterparts in more than 140 countries regarding setting a global minimum rate for corporate taxes – this to prevent multinational corporations from shopping for the lowest rate by playing countries off of one another.

 Back on the domestic front, although the Secretary is no fan of Bitcoin, she has indicated interest in the possibility of a central bank digital currency.

And she has affirmed that Treasury will be playing a key role in Biden’s Build Back Better package, which will include repairing infrastructure, creating good jobs, providing educational opportunities from early childhood through labor force development, supporting families with meaningful child care and paid leave initiatives and – crucially – addressing racial inequality.

 Right now, Yellen is keeping close tabs on the rollout of the American Rescue Plan, and working to ensure that the relief will reach the people who need it most. Just days after her confirmation, Yellen joined Vice President Kamala Harris in a virtual meeting with members of the National Black Chamber of Commerce.

The Secretary began her remarks by sharing a memory from her first economics class in college back in 1963. Her professor presented economic data that showed the average black family possessed roughly 15% of the wealth of an average white family – more than a 6 to 1 difference.

 “Jim Crow was still in effect, so maybe that’s not surprising,” Yellen said. “What is surprising, though, is that it is now more than half a century later and that 6 to 1 number has barely budged.”

Noting that economic crises historically have affected people of color harder and longer than their white counterparts, Yellen vowed that this time was going to be different. Biden’s American Rescue Plan, she said, would “make sure that this pandemic isn’t another generational setback for racial equality.”

"We’re really learning lessons from the failures of the first round [of stimulus funding],” she told the gathering.

Last fall, the Trump administration had set up CARES Act funding in a way that favored big business. Considering that the most recent Census numbers counted 27.9 million small businesses compared to 18,500 large companies (500 employees are more), that doesn’t make a lot of sense.

With new leadership this time around, there’s a new set of priorities in place. Recently passed legislation provides a $12 billion infusion of funds to Community Development Financial Institutions and Minority Depository Institutions that interact more directly with Main Street businesses and particularly minority-owned businesses. And a much more concerted effort is being made to help small businesses cut through any red tape.

Just as Alexander Hamilton endeavored to set the United States up for future success, Yellen is also looking to what will put this country on a sustainable long-term track – and for it to be sustainable, it also has to be equitable.

She doesn’t claim to be able to smite revenue out of rocks but, as she said at her confirmation hearings earlier this year, “The Treasury Secretary has to be a voice for fiscal sanity.”

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