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I think the US government should look seriously into the possibility of creating a sovereign wealth fund in the US as a pragmatic approach for paying down the federal debt and achieving long-term financial stability. In this essay we will explore ways to get the initial funding, what the legislation would look like, and practical examples of how the fund would operate.

The creation of a sovereign wealth fund in the US is a great opportunity to get beyond political parties and unite as a country for future generations.

Congress needs to think seriously about passing spending cuts and initiating robust audits of the federal budget to find areas where we can free up some capital to reinvest in the fund ex. ( decentralize to the state and local level: infrastructure projects, department of education, etc ). Decentralization of federal programs will push control down the governmental hierarchy to state and local governments. Decentralization will allow for local communities to better address the issues at hand and will help to increase efficiency in overall government activity. Finding ways to decentralize some of these standard federal programs will free up capital to help fund the sovereign wealth fund.

This series of government changes should be packaged together in one piece of legislation so everything can be implemented quickly. The bill should also include a series of “sin taxes” specifically earmarked to fund the sovereign wealth fund.

The first of these sin taxes would be on alcohol and tobacco. Congress should pass an across the board flat tax on all alcohol and tobacco sales nationally. All revenue created by this tax would go straight into the sovereign wealth fund. Here are some practical numbers to get an idea of what could be generated by this type of tax: We set a preliminary goal of 20 billion dollars annually. Alcohol sales are about 250 billion dollars annually and tobacco sales are about 80 billion annually, that is about 330 billion dollars total. This will be a flat rate sales tax outside of any already existing excise taxes on these types of products. A flat rate tax looks like: Target Rev./Total Sales = 20 billion/330 billion = 6%. A 6% flat rate national sales tax on alcohol and tobacco would generate 20 billion dollars annually. The demand for alcohol and tobacco is relatively inelastic so this type of tax should not change spending habits too much at a large scale. 100% of the revenue created by these taxes will be dedicated to the sovereign wealth fund and then invested to generate returns intended to reduce the national debt over time.

A couple PR framing ideas: work with the tobacco and alcohol companies that are generally demonized at a national level. Figure out a way to allow them to take credit for helping to save the country. Getting the executives and workers in these industries onboard for this plan would help a lot to sway public opinion. Make sure that Congress and the public at large realize this is a necessary step towards fiscal responsibility and debt reduction. The initial goal would be to reduce the current debt to GDP ratio to at least 60%. I would personally like to see it go lower than that but that seems like a reasonable and pragmatic initial goal.

The legislation will include instructions on how the fund will be formed and operated. The US sovereign wealth fund will be managed by a 13 person board. This board will have full autonomy to manage the fund as they see fit and set the investment parameters free from outside political pressure. Each member will be given a 20 year appointment. They can retire early if they desire to and they can also be impeached if there is a legitimate reason. The impeachment process would work similar to the president or supreme court, articles would have to be introduced in congress and a public hearing would be had. If the congress votes a 2/3 super-majority then that member of the board will be fired and then replaced. To decentralize the initial selection process and get people excited about this process at a state and local level the board will be appointed by state legislatures: 13 individuals appointed by 13 state legislatures, the states that appoint the individuals will be chosen at random by a lottery, 6 red states and 6 blue states with 1 wildcard. Each state legislature will be given a mandate to determine it’s own unique selection process and then they will come together to vote and appoint their own individual board member. Every time a member of the board retires or is impeached a new state will be chosen by the same lottery ( excluding the states that are already represented on the board ). The board will operate independently and determine all of their own investment strategies, once they have determined a plan of attack they will vote to approve the investment strategies. As the fund gets going they will be free to reanalyze their strategies and submit for changes to the investment strategy but any official changes to the official strategy of the fund will have to be voted on by the board the same way the initial strategy was.

The second major sin tax that will be used to fund the sovereign wealth fund will be a tax on the derivatives market. It is widely accepted that the derivatives market is a haven for speculation and corporate greed, the derivatives market is also huge and could potentially be a untapped treasure trove of potential. Let’s look at some practical numbers: say we want to generate 50 billion dollars annually assuming a conservative estimate of 10 trillion dollars for the entire derivatives market with the tax being imposed as a flat tax on all profit or notional value. Flat rate = target revenue/market value = 50 billion/10 trillion = 0.5%. Yes you read that correctly, with just a 0.5% flat tax on derivatives transactions we could generate 50 billion dollars annually in revenue. All the revenue created by this tax would be earmarked for the sovereign wealth fund for long-term debt reduction. This tax could also indirectly slightly reduce unnecessary speculative trading and lower overall market volatility. There will probably be some financial sector resistance as well but we would use the same strategy we did with alcohol and tobacco and make them seem like heroes that are saving the future generations.

Back to the possibility of audits for securing more initial seed money. The audits would need to be public so that everyone knows where the money is coming from and what it was already being used for. A few more possible sources of fund reallocation: overseas military presence, farm subsidies, oil and gas subsidies ( potentially all federal subsidies ), NASA ( continue to privatize ), EPA ( decentralize to the state and local level ).

One last idea for generating the initial seed money: use a crowdfunding strategy. This would foster public engagement in the effort to reduce the national debt. The federal government would create a secure online platform ( potentially with private sector assistance ) using existing crowdfunding sites as a model, making sure that everything was public and transparent in relation to how much had been raised. The federal government could incentivize the public to participate in this program by offering income tax credits to everyone that contributes. This will allow the public to take on an active role which should increase awareness and engagement. The tax credit system would be a progressive credit: people earning 50k a year annually or less would get 75% of the value of their donation back as a tax credit, people earning 50 - 100k per year would get 50% and people earning 100k or more would get 25%. This system would make the tax credits more impactful for lower and middle income tax payers.

In conclusion I want to talk a little bit about the Norwegian sovereign wealth fund which is my main source of inspiration for this strategy. Norway has the most successful sovereign wealth fund in the world, they use the revenue of that fund for other purposes but the overarching concept is the same. The first transfer to the Norwegian fund occurred in 1996 with the equivalent value of about 320 million USD, as of 2023 the fund had a value of about 1.3 trillion USD. The fund has achieved an average annual return of about 5.8% adjusting for inflation. The fund is highly diversified it is invested in 9200 different companies in 74 different countries. Norway allows for 3% of the funds value to be used annually with clear congressional mandates explaining what the money is intended to be used for. Our fund will be for the single purpose of paying down the federal debt. Given the size of the US economy even a fraction of the growth seen by Norway could result in substantial sums of money being generated to reduce the national debt and stabilize the budget over time. Our fund would have a targeted use mechanism: we would prioritize interest payments first. This would prevent the debt from growing due to the accumulation of interest. Once the interest payments are stabilized the remaining earnings could be used to reduce the principal debt itself. This strategy would bring down the overall debt to GDP ratio gradually. There would also need to be a reinvestment strategy (this is one of the main reasons the Norwegian fund has grown so astronomically). The reinvestment strategy will be crucial for growth overtime. Congress should set this threshold at 5% annual returns. Returns exceeding 5% would be automatically reinvested in the fund. This ensures the fund does not deplete overtime and continues to generate revenue. All returns up to 5% annually would be directly earmarked for national debt reduction. Assume the fund starts with an initial value of 500 billion. 5% of that would generate 25 billion for debt reduction. Over the course of a decade or more this approach could contribute significantly to reducing the national debt, this would establish a great balance between immediate debt repayment and long-term financial sustainability.

-Guthrie Crull