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What Are Trust Funds, Anyway?

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posted on Jun, 17 2006 @ 07:15 AM

posted by ShadowXIX

posted by DalairTheGreat
I don’t believe that story but the US is broke and doesn’t have a dime. Get over it Shadow, America it’s the greatest country in the world anymore . . [Edited by Don W]

Well that shows a poor understanding of how much the US is worth. Fort Knox shows how small 8 Trillion is to a country worth as much as the US. Debt compared to GDP - a lot of countries are worse off then the US, 34 in fact The US is the 35th most indebted country in the world by percentage of GDP at 64.7% of GDP. [Edited by Don W]

Because a great nation-state like the US, and others not so great in material terms, like the UK, Germany, France, Italy and Japan, China, India and so on, are not really comparable to private citizens or to private enterprises. There are at least four reasons. 1) Government is not a for profit enterprise. 2) Government is a service. 3) Governments can tax their citizens. 4) Governments can legally print money.

As the “representative” of the collective “people” a country’s government can set national policies and make regulations that determine how money is “made,” how much is kept, how much is taken and how the money is “spent.” For those reasons nation states are not comparable either to private entities like Daimler Chrysler, Micro Soft, Nippon Tel. And Tel. And etc. My point is you cannot compare a government with any other entity.

Consider the United States. 3.6 million square miles. 300 million people. Estimated worth of the whole country, $45 to $55 Trillion. Gross Domestic Product, $14 Trillion. Total debt of the United States Government, $8.4 Trillion. Annual cost to service debt, about $375 Billion. Service equals Interest. Government outlays, $2.75 Trillion. Annual government revenues, $2.2 Trillion.

So far, it is not looking too bad. There are two factors I personally disagree with. I would prefer to be paying down the national debt in anticipation of heavy borrowing in the 2020-2030 decade to pay baby boomers on social security, when the OASI income will not equal to outlay. Second, there is a substantial amount of “entitlement” out there that is unfunded.

It is the unfunded outlays mentioned just above, and the vast amount of money needed to pay Medicare based on the recent 8%-10% annual runup in health care costs. Also included in this entitlement is Medicaid. I have a 43 year old friend who has LMS - an untreatable form of cancer - had to stop work. His Personal Time Off runs out in August, when he goes off the regular payroll. He current pays $200 towards his health care family plan. COBRA will raise him to $1,100 per month. He can keep that 18 months, the he is out of the American insurance market. Medicaid allows him to retain only $3,000 equity in a house, and $1,000 in cash. Before he can get Medicaid, he must be broke! Hello America. I digress.

A long time ago it seemed like a good idea to impose a tax on to dedicate the revenues raised to a particular project. The first one was the Highway Trust Fund. The US imposed a 2 cents a gallon gas tax. The Trust Fund would be used to build a national highway system. To get the states to go along, the Federal government agreed to match any state money, 1 for 1. So, any state that would levy a second 2 cents a gallon tax would end up with 4 cents per gallon to build roads.

The interstate highway system used a 9 to 1 ratio to attract state participation. For a billion dollars of superhighways, the state put up $100 million and the Feds put up $900 million. In both instances, the Feds imposed uniform standards which is why y0u can travel across America passing through a dozen stats and have uniform lane widths, exits and signs. All that did not happen by accident. It was planned. Another reason why those of us who oppose so-called “states rights’ know we really live in ONE country. Not 50 independent countries. A cheap subterfuge with ulterior motivations.

The Airport Trust Fund, the Wildlife Trust Fund and others all used dedicated taxes to accomplish what was deemed to be a worthwhile purpose. In 1935, the New Deal established the Social Security Trust Fund. America was the last industrialized nation to have social security. It was fort proposed by Theodore Roosevelt but defeated by the monied interests. Poverty is an inseparable ally to the money-mongers to give them control of the lower classes.

The poor almost escaped the clutches of the rich, for by the late 1950s it was possible for a working man or woman to own his or her own home, a decent car, take annual vacations and send their children to college. The middle class had arrived. But alas, the rich never sleep. By the 1980s the new blue collar middle class was under assault. Gone is the 40 hour work week and gone is the decent hourly wage. Gone are the fringe benefits we loved so much from 1945 to ab0ut 1980. I date the end of the American milled class with the election of Ronnie Reagan. You may date it from some other national event. Oops. I digress.

The social security trust fund and the Medicare trust fund are funded by the FICA - Federal Insurance Contributions Act. The OASI - Old Age and Survivors Insurance - the formal name for social security funding, is 6.2% of wages up to $80,000. The funding for Medicare is 1.45% of all wages. The employer is required to match those amounts, making a total of 15.3% of wages. An account is established in each person’s name and his or her benefits are paid based on the contributions made. Full eligibility requires 10 years of covered employment.

By the bye, it costs Americans nothing if an undocumented foreign worker comes here and qualifies for social security then retires back to his homeland. He is paid only what his account shows him to be eligible for. Another urban legend quashed.

Trust funds include many different special trust accounts: such as the social security trust fund, the federal employee retirement fund, federal hospital trust fund, railroad retirement fund, military retirement fund, employee life insurance fund, etc.

It is true the US Treasury borrows all the money paid into the all of the trust funds. It can be no other way. You would have to pile the money in the Ft. Knox Gold Depository to “save” it for future use. It would earn no interest. It would be unwise. As it is, the Treasury pays interest on the sums borrowed, which makes our contribution worth more. Because there really is only one Federal government, there is really only one budget and only one taxation and only one disbursement. So, don’t make more out of the fact the Trust Fund money is borrowed. It has to be.

Sound government fiscal polices will make it easier to meet the obligations the government has assumed. But I assure you, the obligations will be met.

[edit on 6/17/2006 by donwhite]

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