Washington Post Op-Ed:  How Trump’s Sovereign Wealth Fund Could Solve a Tax Problem, by Joseph Bankman (Stanford) & Mark P. Gergen (UC-Berkeley):

President Donald Trump has signed an executive order to create a sovereign wealth fund — a government-owned fund that could invest in stocks, real estate or other private assets, allowing the American people to share those companies’ profits. Countries as disparate as Saudi Arabia and Norway have used their oil revenue to set up such funds, which are generally thought to have been quite successful. But the U.S. government doesn’t have that revenue because most oil here is privately owned.

However, there is a way the United States can establish a sovereign wealth fund and, at the same time, dramatically increase corporate productivity: by eliminating the corporate income tax and instead requiring corporations to issue a calculated number of nonvoting shares directly to the government. The government fund would be required to hold the shares as an investment, and the income they generate would replace the tax.

Under the current system, the corporate income tax gives the government a share of corporate profits — as well as a share in their losses, in the form of tax deductions. But the system is complicated and inefficient. U.S. companies hire tens of thousands of accountants and lawyers to help with tax planning and compliance; at one time, General Electric alone had nearly 1,000 in-house professionals. The big accounting firms have hundreds of thousands of employees, big law firms have tax departments (the American Bar Association’s tax section has more than 11,000 members), and the government has its own tax lawyers and accountants. Corporate tax planning is a big part of what these people do. The IRS and corporations battle over the interpretation and application of statutes and regulations. Almost all of this activity is what economists call a deadweight loss. It doesn’t produce more revenue for the government, and it doesn’t increase the goods companies provide. …

This is not a new idea. One of us has written extensively on a system that would produce a similar benefit — a small annual tax that would be paid by issuers on the market value of their publicly traded securities [Mark P. Gergen (UC-Berkeley), How to Tax Capital, 70 Tax L. Rev. 1 (2016)]. At a rate of 0.65 percent, that tax would generate $400 billion in revenue — comparable to the current corporate tax revenue.

As with any major proposal, there would be details, both practical and political, to hammer out. We would probably want independent, nonpartisan fund managers, with a bipartisan oversight committee. The managers would plot a course to ensure an inflation-adjusted stream of revenue for the federal government equal to the present corporate tax. We would probably still need to keep a corporate tax for foreign corporations. And privately held companies would continue to pay their taxes.

This idea for funding is unlike many sovereign wealth funds because the government will acquire its shares by fiat, and not by purchase – which might seem like a bad deal for corporations. But from their point of view, there is a quid pro quo: They would no longer have to bear the costs or complexity of the corporate income tax. The resulting savings should increase the value of corporate shares, enriching not only private investors but the government as a shareholder — that is, all of us. And it is a solid idea that could be maintained responsibly in the long haul.

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