Economist Dean Baker has an elegant and radical solution to the problem of corporate tax reform: Scrap the corporate income tax entirely, and require that every corporation turn over 25 to 30 percent of their stock to the government.
When you own a stock, the company pays you a regular dividend out of its profits. When the company or anyone else buys the stock, you get paid for the purchase. With Baker's idea, those dividends and payouts become a source of government revenue. But the proposal is also a clever backdoor way for the U.S. federal government to embrace a far more ambitious idea: Namely, a sovereign wealth fund.
A sovereign wealth fund is just a portfolio of stocks, bonds, and other assets held and managed by the government. It derives income from that portfolio, just like an individual investor. The government then plows that money back into expanding the portfolio or takes it as budget revenue, opening up room for more public investment or spending on the safety net.
In fact, seven U.S. state governments have had a sovereign wealth fund of their own for years — Alaska, Alabama, North Dakota, Texas, Wyoming, Louisiana, and New Mexico.
Here are five reasons to follow their example:
1. It's particularly capitalism-friendly. One undeniable thing about taxing corporate profits is that companies feel it — and react to it. They try to game the system, lobby for loopholes, and so on. But with a sovereign wealth fund, the hand of government is invisible. Contrary to cries of "socialism," Baker argues that all the shares owned by the government could be non-voting. Upper management, the board of directors, and private stock owners would still make all the operating decisions for any given company. They would still have every reason to maximize profits. It's just that when they all benefit, the government does to — and the American people by extension.
2. It would fight inequality and worker disenfranchisement. All the income generated in the U.S. economy goes to either workers or owners of capital, but only the latter's slice is growing. Corporations have exploited weak labor markets, monopoly power, and the collapse of unions to drive down workers' wages, and pocket near-historic profits for themselves. Rising payouts to capital ownership have been the single biggest driver of rising income inequality.
A sovereign wealth fund would be a neat and tidy solution to all of this: If the government owns a hefty chunk of all the capital assets in the market, then those profits and payouts go to the government rather than to the 1 percent. From there, the government can plow more money into jobs, investment, and income support for ordinary Americans.
3. It could promote a socially conscious economy. Take green energy as an example: Its value to American society is obvious, but that value can't always be monetized into profits. So private financial markets don't invest in green energy as much as they should. Same goes for business investment in poor and minority communities.
But a government with a sovereign wealth fund would be a fundamentally different kind of investor, with fundamentally different incentives. It wouldn't interfere with decision-making at any individual company. But as sociologist Dalton Conley pointed out, the government could use its investment decisions to give certain projects access to resources and capital they wouldn't get from Wall Street. This would need to be balanced against the obligation to prudently oversee the sovereign wealth fund and seek good returns. But that balance could be built into the laws governing management of the portfolio.
4. It could help state governments in particular. The federal government's borrowing is backstopped by the Federal Reserve; the central bank can create limitless demand for U.S. debt by printing new reserves. Ultimately, a debt crisis for the federal government is impossible. It can only cause an inflation crisis.
But state governments don't control the currency in which they tax, spend, and borrow. So their need for the revenue a sovereign wealth fund would generate is particularly acute — especially since states often rely on regressive forms of revenue like sales taxes. A national sovereign wealth fund could provide permanent streams of revenue to all 50 state governments. Or it could provide seed money for each state to launch its own fund.
5. It would promote a real ownership society. Here's a dirty secret of capitalism: No one created the land or our natural resources. No one owns the knowledge and wisdom that school teachers, academics, tradesmen, mechanics, and more all pass down to new generations. The families and communities and social norms that underlie our economy are all a collective social effort. A vast portion of the wealth our economy generate can't be attributed to any individual effort — instead, its a common inheritance owed to all.
A national sovereign wealth fund would embody this reality in an especially concrete way.
In fact, Alaska already takes this logic one step further: Its sovereign wealth fund regularly pays out a check to every Alaskan resident, no strings attached. Effectively, the state uses its sovereign wealth fund to finance a universal basic income (UBI) — albeit one whose benefit level varies from year to year. The program is so wildly popular that even Alaska's Republicans insist its totally consistent with conservative values. Matt Bruenig recommends creating a national UBI with exactly this approach.
The most obvious way to run the sovereign wealth fund might be to have the president and the Senate appoint managers, same as they do with Cabinets or the Fed. But Conley also suggests an alternative: Give every American one inalienable share in the national sovereign wealth fund, and thus their own stream of dividend payouts, and one vote in annual elections to pick the people who manage the portfolio.
If you really want to give every American a stake in the wealth creation of our society, this is one way to do it.