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Ed Henry

The federal Treasury manages 159 accounts that it calls "trust funds." Sixteen of these are real trusts. The rest are bogus.

Trust funds are fiduciary activities dealing with the stewardship of property. The objective is usually to preserve value for beneficiaries and, if possible, increase that value through wise management and investment.

For a not-for-profit organization like the federal government, an organization required to bring its books to a zero balance at the end of each fiscal year, trust funds also function as a mechanism to carry cash or liquid assets from one fiscal year to another.

At the close of fiscal 2003, the sixteen legitimate trusts held a total of $53.4 billion. The government's Thrift Savings Plan held $51 billion of this amount leaving the balance spread amongst things like confiscated drug money, Indian accounts, and the likes of the Kuukpik Alaska escrow fund (Kuukpik is where Phillips Petroleum has exploratory oil wells).

The remaining 143 trust funds are a significant part of the national debt composing what the government calls "Intragovernmental Holdings," a name that's meant to fool you into believing that "the government owes itself" or one governmental department owes another. There is nothing "intragovernmental" about these accounts and no record of transfers from one governmental department to another.

These accounts hold nothing but bogus special obligation nonmarketable U.S. Treasury bonds. At the close of fiscal 2003, the total in these bonds was $2.859 trillion or 42 percent of the national debt—a debt that can only be paid off with taxpayer money.

The vast majority of this debt is held by 24 entitlement accounts with the two Social Security trust funds leading the pack with $1.5 trillion in debt. The taxpaying public bought this debt by giving our government more money than the particular entitlement needed in order to meet its obligations. We might as well have walked into the Treasury, plunked down a large bundle of cash, and said: "Here, give me some debt."

This subject has been covered in detail elsewhere, but the nut of it is that pretending to borrow the money the Beltway Bandits steal it and then ask you to believe that the same money can be both spent and saved because they deposit bogus nonmarketable bonds in bogus trust funds, sometimes referring to these as IOUs when they are actually UOUs.

I call this the Pay-It-Again, Sam scam because American taxpayers are forced to pay a second time for taxes that were already paid before, often paid by themselves but sometimes paid previously by others. For instance, unemployment taxes that were previously paid in surplus by employers are today being paid by all taxpayers as the debt incurred by this ridiculous scam is redeemed to cover shortfalls. More on this in a moment.

Most heinous of all is the fact that in order to continue the pretense/fiction/scam of "borrowing" the pirates add annual interest to these accounts by simply handing the various trusts more bogus bonds, no money involved, but putting the taxpaying public even further in debt.

The remaining 119 accounts in "Intragovernmental Holdings" account for only $224 billion, about 8 percent, of the holdings in this category. Nonetheless, this greater number of smaller accounts is worthy of your attention.

For one thing, by legislating to have something like a "gift" account for various departments such as the CIA, State Department, and so forth, and at no cost whatsoever simply depositing some nonmarketable bonds in it, the government has a source of purposeful funding that can be carried from one fiscal year to another without annual budgeting or further legislation. Each of these accounts need to be questioned.

In this category, philanthropic donations such as scholarships, endowments, and so forth, have been treated exactly like the Social Security and other entitlement tax overcharges. In other words, the Beltway Bandits stole and spent the original cash donations long ago and the theft is now represented by bogus bonds with annual compound interest added.

In all cases, whenever cash is required, the government simply draws it from the Treasury's general fund of cash on hand by supposedly redeeming these bogus bonds. The cash can come either from current taxes or money borrowed. In one way or another, the taxpaying public replaces money paid previously but stolen and spent elsewhere. And we pay interest on top of it all.

Everyone worries about what will happen when the government must draw upon Social Security's $1.5 trillion and growing holdings, but it's already happening with many of the other entitlement fraudulent holdings.

Pay-It-Again, Sam is already happening

Last year, the taxpaying public paid at least $23 billion to help The Federal Employees Retirement System (FERS) pay benefits to its retired people (see chart). This entitlement trust fund (debit black hole) came into existence in exactly the same way as the Social Security trust funds. Yes, the government took excess contributions from their own employees, spent the money elsewhere, and deposited bonds in the so-called trust. Even with a larger number of federal employees, contributions were not sufficient to cover outflow in fiscal 2003. Perhaps, the eight-to-one benefits promised eligible employees has something to do with it.

Money we paid in gas taxes (see chart) to maintain and repair federal highways was a little better this year. The government only withdrew $9 billion to cover expenses, and taxpayers replaced $9 billion worth of taxes they had already paid in better times, times when there was nothing but surplus by over-taxation.

In these charts, you should notice that when there is a surplus in revenue, when receipts exceed outlays, the government takes this surplus money, spends it elsewhere, and adds nonmarketable bonds to the account. Public indebtedness goes up. Only when there's a shortfall does the debt go down. In other words, the government never uses extra revenue to pay against the principal like we do with our mortgages.

Unemployment was a major problem in fiscal 2003 (see chart). Only in the month of April were receipts from employers higher than outlays to the unemployed, some drawing extended benefits. The taxpaying public covered at least $26 billion of this shortfall. There was probably even more paid in the month of May but this is difficult to determine since annual interest was also awarded the trust at this time.

If you want an example from something other than entitlements, take a look at the fiscal 2002 list of trust funds and item #127 (my number) in particular, the "Unconditional Gift Fund, State Department." In the fiscal 2003 list, this fund is gone entirely. Almost $89 billion has disappeared. What would you wager that this went towards buying the coalition of the willing?

In Summary

Are you starting to see why the Bush administration ran up the national debt $555 billion last year? They claim a deficit of only $374 billion "deficit" in money borrowed from investors (the "Public Debt" side of the national debt) and before the Treasury revised its figures to $371 billion. They don't count the money they supposedly borrowed from entitlements like Social Security.

The entire "Intragovernmental Holdings" portion, 42 percent of the national debt, could be eliminated tomorrow with no effect on anyone but the Beltway Bandits who use it to double tax us and avoid raising taxes honestly, even when tax increases are truly required.

It's the greatest financial rip-off a government has ever pulled on its own taxpaying citizens. And it makes Enron, WorldCom, Arthur Andersen, and other private sector crooks look like pikers who learned from Uncle Scam.

Verifying the Scam

Over and over, financial experts have told us that if the government must someday turn to the Social Security trust funds to meet obligations the poor dears in Washington will be faced with the "tough decision" to either (1) raise taxes (2) borrow large sums from investors (3) cut benefits or any combination thereof.

If you had access to the archives, you could put together hours of snippets aired on television of various experts giving testimony to the above. It would almost rival George W. Bush's six months of daily accusations of "weapons of mass destruction" in Iraq coupled with how the 9/11 terrorists "must have thought we'd sue them."

You can also check statements from the horse's mouth or where various people from President Clinton on down said the same thing about the phony trust funds, but not publicly.

On Tuesday, June 19, 2001, then Secretary of the Treasury Paul O'Neill, at a luncheon speech to the Coalition for American Financial Security in the Sky Room of the World Trade Center publicly stated, in his abbreviated manner, that there "are no viable assets in the Social Security trust funds."

For once, the media immediately picked up on this statement and for the first time in years Social Security was off the back burner. The scam was beginning to unravel. By the following Sunday, O'Neill was on the Sam Donaldson This Week show saying the same thing in a little more detail.

In the following months, the banter on the media and in print reached major proportions. Neil Cavuto was even joking about how useless the Social Security trust fund was. But no one got to the major issue, the complete fraudulence of a good chunk of the national debt.

We all know what happened on September eleventh. From that point forward, the government was off the hook. The subject has been buried once again and the scam continues. You can make what you want of the deeper implications.

The next time it popped up temporarily was when Enron, WorldCom, and other private sector corporations were found running the same sort of scam—hiding debt, setting up bogus corporations, giving a false picture of their profits, and so forth. Attack Iraq and weapons of mass destruction then became the major issue of the day.

The Beltway Bandits are scared to death that this nonpartisan rip-off might be exposed. The anger on the part of taxpayers can, and should, spell their Waterloo. You will not find any candidate for office mentioning this scam during the upcoming debates and campaigning. Nor will you find the loyal and controlled media giving it the slightest attention.

"Published originally at EtherZone.com : republication allowed with this notice and hyperlink intact."

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Ed Henry is the founder of TUFF, the Taxpayers Union, and a regular columnist for Ether Zone.

Ed Henry can be reached at ctzcrank@mindspring.com

Ed's FREE pamphlet-"To The Moon, Alice" the national debt, your Social Security, and the Pay-It-Again Sam scam.

We also invite you to visit his website at www.uncle-scam.com

Published in the January 28, 2004 issue of  Ether Zone.
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