The incredible shrinking U.S. Treasury: can new chief John Snow turn things around?

• Author: Barnes, Fred
• Position: United States - Cover Story

When Karl Rove, President Bush's chief political adviser, appeared recently at a hotel near the White House for a luncheon with the media, more than fifty newspaper and magazine reporters jumped at the chance to interview him. Nearly as many turned up when Jean-David Levitte, the French ambassador to the United States, was the guest at a similar event. But when John Snow made an appearance shortly after becoming U.S. Treasury Secretary, no more than twenty journalists attended, roughly the same number as showed up for a session with Gerald McEntee, a labor union official.

The turnout was a reflection of the status of the once-powerful Treasury Department in Washington today. If reporters think the Treasury Secretary is no longer a central figure, he may not be. This is not simply the result of the Bush administration's emphasis on wars with Iraq and global terrorists. Rather, Treasury has suffered an enormous loss of influence for both political and structural reasons. And the unanswered question in Washington is whether Snow, an ebullient former railroad executive, can return Treasury to a position of power.

On what issues has Treasury lost ground? Taxes, for one. President Reagan's 1981 tax cut was drafted largely at Treasury, but President Bush's new tax proposal that includes the elimination of taxation of stock dividends is a product of White House economic aides. The same is true of tax reform. In 1984, the assignment to create a sweeping tax reform plan was given to Treasury Secretary Donald Regan. Now, the reform agenda is in the hands of White House staffers, including non-economists such as Rove. In fact, it's Rove who has been the moving force behind reform proposals to create private investment accounts in the Social Security system and to make investment and savings income in retirement accounts non-taxable.

International economics is another area of declining Treasury influence. In the mid-1980s, Treasury Secretary James Baker and his chief deputy, Richard Darman, turned the G7 group of industrial democracies--United States, France, Great Britain, Canada, Italy, Germany, and Japan--into an unsurpassed forum for finance ministers, especially the American ones. In the past decade under three secretaries, however, the American role has precipitously declined, so much so that President Bush seems to have lost interest in the G7 as tool of American economic policy. Bush and his aides have a bilateral bias.

In Treasury's fall, former Secretary Paul O'Neill played a critical part. When he was appointed at the start of the Bush administration, Treasury was one of the four elite departments of government along with State, Defense, and Justice. O'Neill...