LEXIS-NEXIS® Academic Universe-Document

LEXIS-NEXIS® Academic

March 10, 2000, Friday METROPOLITAN EDITION

SECTION: BUSINESS; Pg. C1 ;JERRY HEASTER

LENGTH: 602 words

HEADLINE: Trust fund 'surpluses' are illusory

BYLINE: JERRY HEASTER; The Kansas City Star

BODY:
One unreported aspect of an airport improvements bill wending its
way through Congress sheds more light on the questionable nature of
trust fund assets as a federal financing tool.

An Investor's Business Daily editorial this week criticized a
revenue enhancer accompanying an aviation bill that would increase
the passenger tax from $3 to $4.50. It's a move that would hit
business travel budgets particularly hard because corporate road
warriors use air travel proportionately more than the general public. This tax increase has been proposed even though the Airport and
Airway Trust Fund already gets about $10 billion a year from airport
user fees, the editorial said. What it didn't mention, though, is the
current status of the aviation trust fund, which offers a telling
lesson in federal finance.

The Public Debt Bureau's year-end statement showed the trust fund
holding more than $12.5 billion in outstanding Treasury debt. These
assets are nonmarketable Treasury securities credited to the fund
when revenue from dedicated taxes and fees surpasses what has been
appropriated to finance air transit system projects.

Any leftover tax money from these dedicated revenue sources goes
to pay for general budget outlays because Uncle Sam has no legal
mechanism to "save" money. In theory, the Treasury IOUs credited to
the trust funds are supposed to be redeemed as needed to finance
whatever the taxes are levied to pay for.

Redeeming these Treasury securities, however, requires a
congressional appropriation. If taxes aren't increased to fund the
appropriation, Congress must get the money elsewhere in the budget.
This helps explain why trust fund asset balances grow even as
Congress seeks tax increases to finance activities instead of dipping
into the appropriate trust fund. Taxes are real money. Trust fund
assets are debt requiring repayment from existing revenue.

The issue arose recently when gasoline prices surged. Suggestions
that some federal gasoline taxes be temporarily repealed were
rebuffed on grounds that Uncle Sam couldn't afford the revenue loss.
With a $24 billion balance in the Highway Trust Fund, the response
raised a compelling question: If Uncle Sam needs the revenue so
badly, why has the trust fund balance soared from $9 billion to $24
billion in recent years? The increase, after all, is due to fuel
taxes going unspent.

The same question could now be asked about the aviation fund. The
answer? Raising taxes means more revenue. Cashing in trust fund
assets requires an expenditure of tax money. As long as Americans
don't understand how the game is played, why not play it to
government's advantage and the taxpayer's disadvantage?

These trust fund questions are critical to evaluating political
promises to make up future Social Security revenue shortfalls with
the growing trust fund "surplus" pledged to keep the system viable.

In truth, Social Security's trust fund is just like the ones used
for highways and airports. Its potential as a source of real money
depends on political willingness to appropriate the money needed to
redeem the Treasury debt that constitutes all trust fund assets.

The lesson? There is no real money in the trust funds. Only IOUs.

- Jerry Heaster's column appears Wednesdays, Fridays, Saturdays
and Sundays. To reach him, write the business desk at 1729 Grand
Blvd., Kansas City, MO 64108. To share a comment on StarTouch, call
(816) 889-7827 and enter 2301. Send e-mail to jheaster@kcstar.com

LOAD-DATE: March 10, 2000