Uncle Sam Cooks The Books


have been a very active and vocal critic of the Government's handling of the Trust Funds earmarked for special purposes, such as Social Security, the Highway Trust Fund, the Airport Trust Fund, and 168 others. In my 1996 book, The Secret World of Money, I opined that the Trust funds were lakes of debt, out of sight but destined to flood into the broad money supply. This debt was hidden from public view by the use of what the bureaucrats at the time decided to refer to as "Non-Marketable U.S. Government securities". The more appropriate term is "worthless paper". What good is a security that is "non-marketable"? Enough questions have been raised to justify a serious look at the subject.


Finally some answers are forthcoming in the form of a report from the General Accounting Office, or GAO. {quotes align=right}The report, GAO-01-199SP, clearly confirms that the Federal Government's Trust Fund balances are virtually fictitious, effectively double booked. {/quotes}Having studied this issue at length, rest assured I was not at all surprised by these revelations. This is not a new condition. This numerical trickery has been going on right under our collective noses since at least 1970. Trust Funds had always been accounted for as separate entities. Their funds were never commingled with those in the General Treasury. They were treated as distinct line items. Funds which were collected and earmarked for specific spending were not included in the general budget. They were to be held distinct and separate from all other Government monies.

President Johnson’s budget commission suggested a unified Administrative budget. It was billed as a way to get an overall view of the Government's total budgetary picture. Combining all budget accounts would supposedly give us a better overall indication of the Government's borrowing needs. Further, it would be helpful in determining the Government's true fiscal condition. It also helped to draw all of these earmarked funds into the sphere of the "all spending eye". Previously out of sight, these Page 3 "earmarked" funds created a massive pool of money that could be drawn upon without affecting the overall health of the economy. These funds were not competing for goods and services because they were being "saved". "Investing" these earmarked funds into Treasury debt would be far more seamless if the money was all put into one big pile.

 Although it is presently the largest of the Federal Trust Funds, during much of the early 1960s, the Social Security Trust Fund seldom had any surplus funds. Often, it in fact spent more than its income and the general fund was used to subsidize the difference. However, by the late 1960s the fund began taking in more than it spent. President Johnson was preparing his final budget in January 1969. As a lame duck President with so many failures on his plate, he wanted desperately to present a balanced budget to the people of the United States. The Federal Government had not shown a budget surplus since 1957. {quotes align=left}Under President Kennedy and all of his predecessors, Social Security surpluses were kept separate from the budget.{/quotes} Overall payroll taxes were kept at just enough to pay benefits and perhaps build a small surplus. Occasionally, money was needed from the general fund, but overall the fund was self supporting. However, using the Commission's new unified budget concept, President Johnson proposed that all surplus funds would be included in his budget and the Social Security surplus of $3.9 billion was simply counted as revenue in fiscal year 1970. This was enough to balance the budget and report a $3 billion surplus in the unified budget. That money obviously needed spending. So, spend it they did. When the unified budget first reported a surplus of nearly $70 billion in 1998, the on-budget accounts were still in deficit by 30 billion. Today we owe these funds over 3 trillion dollars. I have yet to see a credible plan for paying it back. One thing is certain: Somebody’s gotta pay.



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