DEPARTMENT OF THE TREASURY

OVERVIEW

    Established in 1789, the Department of the Treasury oversees and administers the Nation’s finances. Treasury collects taxes and enforces the tax code, oversees currency production, regulates national banks, blocks terrorist assets, and advises the President on domestic and international economic policy. Treasury is on the forefront of the Administration’s efforts to strengthen the economy. The President has helped Americans keep more of the money they earn by implementing three major tax cuts since 2001. The Department will continue to implement the President’s agenda to promote job growth and prosperity in the coming years.

    The 2005 Budget supports Treasury’s efforts to update the Internal Revenue Service’s (IRS) outdated information systems. Further, the Budget supports IRS efforts at deterring tax fraud by building up its enforcement resources and ensuring that tax evaders and promoters of abusive tax shelters are properly targeted. The Budget also provides funding for improved information sharing between law enforcement and financial institutions, helping to better target and freeze terrorist assets. Finally, Treasury is continuing its effort to safeguard our Nation’s currency through improved anti-counterfeiting measures.

PROMOTING AMERICA’S PROSPERITY

    Since 2001, the President has signed three tax bills to boost the economy. In combination, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) provided substantial tax relief and immediate stimulus to the economy, improving the potential for economic growth in the long-run. These Acts reduced taxes by an average of $1,544 for 109 million taxpayers in 2003. In addition, the Job Creation and Worker Assistance Act (JCWAA) of 2002 provided businesses investment incentives as well as extended unemployment insurance benefits.

    Treasury acted swiftly to ensure that the tax relief presented by both EGTRRA and JGTRRA was quickly delivered to taxpayers, thus providing stimulus to the economy. The reductions in tax rates enacted under EGTRRA above the 15-percent rate were reflected in lower withholding effective in July 2001. Most workers received the full benefit of the tax rate reductions through the change in withholding during the second half of the year.

    In addition, the benefit of the new 10-percent tax rate bracket was provided in 2001 through rebate checks mailed out between July and September 2001. About $36 billion in rate reduction rebate checks were sent to 85 million taxpayers. Stimulus was also provided in 2001 through reductions in estimated tax payments.

    After the enactment of JGTRRA in 2003, the Department acted again, immediately announcing reductions in wage and salary withholding. Employers were requested to implement the withholding changes no later than July 1, 2003. The withholding reductions reflected the reduction in tax rates higher than 15 percent, the widening of the 10-percent tax bracket, and the expansion of the 15-percent tax bracket and the standard deduction for married taxpayers. In addition, many families with children received $400 per child in advance child tax credit checks that were promptly sent out by Treasury in 2003.

MANAGING FEDERAL FINANCES

    By collecting revenue, making payments, and administering the Government’s finances, Treasury acts as the Government’s financial manager. IRS is the main revenue collector for the Government, collecting $1.7 trillion (93 percent of total collections) in 2003. IRS continues to modernize both its work processes and technology to improve customer service and make sure that all taxpayers meet their legal obligation to pay their fair share. In 2003, IRS answered 80 percent of taxpayer calls, up from only 59 percent in 2000.

    The Budget also provides $285 million in continued investments in technology modernization as IRS works to improve management and accelerate implementation of the modernization program.

    Treasury administers the Government’s payments through the Financial Management Service (FMS). FMS issues over 930 million non-Defense payments annually, valued at $1.6 trillion. Social Security benefits, tax refunds, and veterans’ benefits are all issued through FMS. In 2003, FMS issued over 684 million electronic payments and 244 million paper checks. FMS also manages the Government’s non-tax delinquent debt portfolio by providing central debt collection operation services to Federal agencies and States. FMS collected $3.1 billion in non-tax delinquent debt in 2003, up 9.2 percent from 2002. For 2005, the Budget proposes legislation to increase and enhance debt collection opportunities.

    Treasury manages the Nation’s debt through the Bureau of Public Debt (BPD). BPD manages the issuance of the Federal Government’s securities portfolio. Last year, BPD issued approximately $4.1 trillion by auctioning marketable Treasury securities and selling savings bonds. BPD continues to develop its TreasuryDirect system, which offers retail investors an online, user-friendly method to buy and redeem Treasury securities. In addition, and as a result of a 2004 Program Assessment Rating Tool (PART) evaluation, BPD has developed long-term performance measures and is setting interim targets to evaluate the success of TreasuryDirect.

    The Alcohol and Tobacco Tax and Trade Bureau (TTB) is responsible for the administration of alcohol and tobacco laws and the regulation of the alcohol and tobacco industries. TTB also collects approximately $15 billion annually in alcohol, tobacco, firearms, and ammunition excise taxes and enforces the provisions of the Federal Alcohol Administration Act, which mandates that a Government warning label appear on all alcohol beverages for sale and distribution in the United States. In 2005, TTB anticipates that it will receive over 100,000 label applications and expects to process 70 percent of these applications within nine calendar days of receipt.

Tax Enforcement

    The IRS is continuing its effort to improve enforcement of tax laws. IRS does not have current information on tax compliance to show the effectiveness of its programs. Through its National Research Program it is collecting compliance information to allow it to determine how well its programs work and to allow it to target enforcement efforts on the least compliant taxpayers. IRS is also enhancing its enforcement efforts by focusing on prosecuting promoters of abusive tax schemes and pursuing taxpayers illegally sheltering income through offshore accounts. The Budget supports fair tax enforcement by:

• Providing an increase of $300 million for efforts to investigate and seek criminal prosecution of tax fraud and to examine more returns, particularly those involving abusive tax schemes (see accompanying vignette).

• Proposing legislation in 2004 to allow IRS to employ private collection agents (PCAs) to help collect known Federal tax debts and to pay PCAs from receipts. This legislation will help raise $1.5 billion over the next 10 years and includes strong protections for taxpayer rights. Many States and Federal agencies already use PCAs. For example, Treasury’s FMS used PCAs to collect $73 million in non-tax debt in 2003.

REGULATING FINANCIAL INSTITUTIONS

    The Office of the Comptroller of the Currency charters, regulates, and examines approximately 2,150 national banks and 53 Federal branches of foreign banks in the United States, accounting for more than 56 percent of the Nation’s commercial banking assets. Likewise, the Office of Thrift Supervision charters, regulates, and examines approximately 936 thrifts with approximately $1 trillion in assets. The mission of both agencies is to ensure a safe and sound and competitive national banking and thrift system that supports the citizens, communities, and economy of the United States.

Supervising the Market for Housing Finance

    The Administration has proposed broad reform of the supervisory system for Government-sponsored enterprises (GSEs) in the mortgage market: Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System. Part of this reform includes establishing a new safety and soundness regulator for the housing GSEs in the Department of the Treasury, and providing this new regulator and the Secretary with the appropriate authority to oversee effectively these large and complex enterprises. The Administration’s proposal promotes both a strong, resilient financial system and increased opportunities for affordable homeownership. (See the Credit and Insurance chapter in Analytical Perspectives for a background discussion.)

FIGHTING THE FINANCIAL WAR ON TERROR

    Many Treasury offices combine their forces to combat terrorist financing. The Executive Office for Terrorist Financing and Financial Crimes coordinates the U.S. process for designating and blocking the accounts of terrorists and those associated with financing terrorist activity, administers U.S. sanctions policy, and helps strengthen U.S. and international anti-money laundering and counter terrorist financing standards. The Terrorist Financing Unit of the Office of International Affairs works to maintain the international coalition against the financing of terrorism, especially by working with the Group of 7 Industrialized Nations (G-7) and International Financial Institutions (World Bank, International Monetary Fund, etc.). The Internal Revenue Service-Criminal Investigation Division, the Financial Crimes Enforcement Network (FinCEN), and the Office of Foreign Assets Control all help detect, disrupt, dismantle, and block terrorist financing operations.

    IRS’s Special Agents are experts at gathering and analyzing complex financial information from numerous sources and applying the evidence to tax, money laundering, and Bank Secrecy Act (BSA) violations. They apply their training, skills, and expertise to support the national effort to combat terrorism and participate in the Joint Terrorism Task Forces and similar interagency efforts focused on disrupting and dismantling terrorist financing.

    Perhaps the most visible and effective tactic of the comprehensive strategy has been public designation of terrorists and terrorist organizations. Since September 2001, the United States and our allies have designated 345 terrorist related entities and frozen $139 million in terrorist assets in over 1,400 accounts worldwide. In addition, FinCEN’s unique role in linking the law enforcement and intelligence communities with financial institutions and regulators helps these entities uncover illegal activities and schemes. The President’s Budget proposal provides FinCEN with resources to improve information sharing between the financial services and law enforcement communities. FinCEN is also enhancing its information systems to increase access to records filed under the BSA. Finally, the bureau is educating and assisting industries not previously regulated under the BSA, including precious metal, stone, and jewelry dealers and life insurance companies.

SAFEGUARDING OUR NATION’S CURRENCY

    The United States Mint (Mint) and the Bureau of Engraving and Printing (BEP) are responsible for ensuring that our Nation continues to produce the world’s most accepted currency. In commemoration of the Louisiana Purchase and the Lewis and Clark expedition, the Mint will produce two new designs on the nickel in 2004 and 2005. It is the first time in 65 years that the design of the five-cent coin has been changed. One new design will feature a rendition of the original Indian Peace Medal commissioned for Lewis and Clark’s expedition. The second will feature the boat that transported members of the Lewis and Clark expedition through the rivers of the Louisiana Territory. Monticello will return to the nickel in 2006. During 2005, the Mint will also roll out the next installment of the popular 50 State quarters program, with quarters for California, Minnesota, Oregon, Kansas, and West Virginia.

    During 2005, BEP will continue its efforts to redesign our Nation’s currency to deter counterfeiting efforts. BEP introduced the new $20 note in October 2003, and will introduce redesigned $50 and $100 notes in late 2004 and 2005, respectively. These notes will remain the same size and use similar portraits and images to maintain their unique and accepted appearance. BEP’s New Currency program was rated effective by the PART.

    In 2004, the Administration will begin work on a plan to merge some or all of Mint and BEP functions to achieve significant cost savings for taxpayers. The Treasury Department will issue a merger plan that outlines these cost savings by July 1, 2004.

PERFORMANCE EVALUATION OF SELECT PROGRAMS

    The Budget continues to focus on improving program performance. Four Treasury programs were reviewed for performance effectiveness using the Program Assessment Rating Tool (PART), which evaluated the programs' design and purpose, strategic planning efforts, how well they are managed, and whether they are generating positive results for taxpayers. Below are some of the highlights and recommendations from the PART evaluations. For further details on Treasury’s performance assessments, see the White House budget website at www.whitehouse.gov/omb/budget/.

UPDATE ON THE PRESIDENT’S MANAGEMENT AGENDA

    The table below provides an update on Treasury’s implementation of the President’s Management Agenda as of December 31, 2003.