Still other agencies are tasked with keeping the U.S. economy healthy and functioning while also ensuring that cash is available for the government to pay its bills. Many of these agencies belong to the Treasury or Commerce Departments, but some are independent. One of them is likely to be very familiar to you if you ever had to file a tax return.
Use the tabs below to learn more about the IRS and a few other agencies that keep the nation's money flowing.
Internal Revenue Service
Federal Trade Commission
Federal Reserve System
Office of Management and Budget
Probably the most notorious agency in the federal government related to money is the Internal Revenue Service, or IRS. It was created in 1862 to help administer a temporary income tax during the Civil War. The law allowing the tax expired, and future income taxes were ruled unconstitutional until the Sixteenth Amendment was passed. This amendment created an official and permanent federal income tax. Since then, the IRS has been tasked with checking returns and assuring taxes are paid properly while also enforcing tax codes created by Congress. Without the taxes that the IRS processes, the government would have a major cash-flow issue, and it would have to cut spending or seek other sources of revenue.
Created as an independent agency in 1914, the Federal Trade Commission, or FTC, was founded to restrict businesses that attempt to form trusts or monopolies, which most Americans see as a major threat to a strong and fair economy. Today, the FTC still enforces anti-trust laws and regulations, but it also helps protect consumers from fraud and unfair business practices, such as false advertising.
The idea of a national or central bank in the United States is not a new one. We had two U.S. banks in the 18th and 19th centuries until President Andrew Jackson dissolved the Second Bank of the United States. The nation’s economy suffered many panics, or economic failures, in the first 125 years, leading the government to look for a better way to protect the country's financial health and stability. The Federal Reserve System, more commonly called "the Fed," was created in 1913. It functions independently to regulate interest rates and control valuation of the U.S. dollar. Today, it also maintains 12 Reserve Banks throughout the nation.
Just as every household operates on a budget, governments must closely monitor how much money is coming in versus how much is going out. Congress ultimately establishes the national budget, but the president is expected to present a budget to Congress each year--mainly because most of the government's expenses can be attributed to the federal bureaucracy that is part of the executive branch. Created as a merger of smaller agencies in 1970, the Office of Management and Budget, or OMB, reports directly to the president and helps prepare the budget. It also monitors departmental budgets to ensure that money is spent properly.
Government agencies that handle the nation's money can seem complex and a bit abstract. Take a few minutes to review some key points: Look at each statement below and decide if it is correct or incorrect and why. Then, click the statement in the left column to check your answer.
| Without the Sixteenth Amendment, the Internal Revenue Service would not be able to function. | True! Before the Sixteenth Amendment was ratified in 1912, the U.S. government was not allowed to collect income taxes. Its right to do so had been denied by numerous court decisions. Without income taxes to calculate and monitor, the IRS would have no purpose. |
| The Federal Trade Commission acts to support the growth of trusts and monopolies as they are seen as beneficial to the economy. | False! The FTC was founded to enforce anti-trust legislation passed at the beginning of the 20th century. Today, the FTC still prevents monopolies, and it also protects consumers from fraud. |
| The Federal Reserve System is a national bank that is subject to direct control by the president and Congress. | False! The Fed is designed to exist as an independent entity, free to act as needed to support the U.S. monetary system. The president appoints the system's chairman and commissioners, and the Senate approves them, but much like the courts, they are then free to act without direct interference. |
| The Office of Budget and Management reports directly to the president. | True! As a direct part of the executive office of the president, the OMB helps to prepare the annual budget and audit the expenses of other agencies. |
