WITH PHONY TRUST FUNDS
By: 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
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 debta debt that can only be paid off with
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
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?
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
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
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 scamhiding 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
Ed Henry is the founder of TUFF, the
Taxpayers Union, and a regular columnist for Ether Zone.
"Published originally at EtherZone.com :
republication allowed with this notice and hyperlink intact."
Ed Henry can be reached at email@example.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.
Copyright © 1997 - 2004 Ether Zone.