Why US still lacks it's own sovereign wealth fund Unlike Azerbaijan, Qatar and Norway

Azerbaijan, Qatar, Saudi Arabia and Norway. At first glance the only common denominator that could link these countries is their heavy presence in the oil and gas industry, but there exists another factor that links them: They all possess a sovereign wealth fund (SWF).

Azerbaijan created its State Oil Fund (SOFAZ) in 1999, Norway and Qatar in 1990 and 2005 respectively while Saudi Arabia's Public Investment Fund (PIF) exists since 1971. These government-owned funds strive to protect and grow their nation's financial assets and diversify their economies. Several dozen countries have set up such SWF's around the world and one might be forgiven to automatically assume that the world's biggest economy, the USA, is one of them - but that has not been the case.

President Donald Trump has signed an executive order in February to join the list of other countries and create its own sovereign wealth fund: a government-owned fund that could invest in stocks, real estate or other private assets, allowing the country's citizens to share those companies’ profits.

An article by the Washington Post explains why the US has been missing out on this financial institution and proposes an innovative method that the to-be established institution should implement that would tackle two major issues at the same time.

SWF's typically built from trade surpluses, public savings or resource exports like those from oil and gas, which is the case for the above mentioned countries. They serve as long-term savings vehicles, investing in assets like stocks, bonds and infrastructure to benefit future generations and are generally thought to have been quite successful. Unlike pension funds, which individuals tap into for personal needs, SWFs are designed to generate national wealth.

There are two reasons that are most often brought up why the US government traditionally held back from setting up such a fund, the first being the fact that most of the US oil exported to other countries is privately owned, which means that it's revenue does not flow into the government's budget. The second one is the colossal trade deficit the country has accumulated over the years. With the US importing much more than it exports, there is no excess trade surplus revenue to invest into an SWF. 

Maze of US corporate taxation

Authors of the Washington Post article propose, however, that the US could both boost corporate productivity and create a sovereign wealth fund by eliminating corporate income taxes. In place of taxes, companies would issue a calculated number of nonvoting shares to the government. These shares, held as investments, would generate income to replace tax revenue.

The article highlights that the current corporate tax system across the US is widely regarded as too complex and inefficient, with massive spending on legal and accounting resources from both corporations and the government. These efforts largely result in "economic deadweight", which economist describe as a scenario which doesn’t produce more revenue for the government while also not increasing the goods companies provide. The proposal aims to eliminate this waste and realign public and private interests, emphasizing that all Americans would benefit from corporate growth.

According to the proposal's authors, their proposal, which they emphasize is not a new concept, counters concern of government interference by requiring shares to be nonvoting and strictly for investment purposes. It also avoids accusations of favouritism, since companies wouldn’t be selected but would participate uniformly. While the government would share in both profits and losses, this is already true under the existing tax model.

Unlike traditional sovereign wealth funds that buy assets, this model would acquire shares by law. In return, corporations would be freed from tax burdens, potentially raising share values — benefiting both private and public shareholders alike.

By Nazrin Sadigova