Trump and Biden Agree: Just Call Debt 'Wealth' Instead!

Both party leaders are selling the idea of a sovereign wealth fund, but it’s more political fantasy than fiscal fix.

Amidst campaign discord, a bipartisan idea is emerging: America can set aside taxpayer dollars for special projects and brand it a national "wealth fund" to help improve public perception of the national debt and deficit spending. 

Speaking at the Economic Club of New York last Thursday, former President Donald Trump asked, "Why don't we have a sovereign wealth fund? Other countries have wealth funds. We have nothing." He suggested that this new account would be capitalized with "tremendous amounts of money" that the federal government would take in by imposing tariffs and "other intelligent things," and that the United States would have the "greatest sovereign wealth fund of them all." How big might it be? Trump did not specify, but said he would consult with billionaire hedge fund manager and adviser John Paulson. In a separate interview, Paulson said, "it would be great to see America join this party and, instead of having debt, have savings." 

An appealing aspiration to be sure, though scarcely conceivable in the foreseeable future. He referenced Norway's $1.7 trillion wealth fund as a potential goal. That may sound like a lot of money—until one considers that the U.S. federal government spends that much in just four months. It is hard to fathom how it would be the basis of a long-term and meaningful store of national wealth in the context of the U.S. economy. (Norway has a population of just 5.6 million, so it's very meaningful there.) 

A fund that size would amount to barely 4 percent of the accumulated $35 trillion U.S. national debt. Trump predicted that the proposed wealth fund would "return a gigantic profit," which would help pay down the debt. That profit would have to be gigantic indeed—on the order of a 20-fold return, and soon—to offset our national debt. And that's assuming the debt didn't continue to increase in the meantime due to our structural deficits, currently running in the range of $2 trillion annually. We are effectively adding more than an entire Norwegian wealth fund to the national debt every year. In the annals of investing history, it would be a pretty impressive achievement for a pool of capital to appreciate at a rate sufficient to offset our preexisting and accumulating debt, if not totally unprecedented at this scale. 

As for the Biden-Harris Administration, Bloomberg reports that "top aides to President Joe Biden have been crafting a proposal to create a sovereign wealth fund," which they are eager to formalize in the remaining months of the administration. While senior administration aides are reportedly debating "the size, structure, funding, leadership, and potential guardrails for a proposed fund," no details were provided on how it might be possible to capitalize it.

Ironically, during the Economic Club luncheon's question and answer period, it was Trump's adviser Paulson himself who said that under Trump's economic plan, the deficit "would come down from items such as increased revenue from tariffs" but would be offset by lost revenue from not taxing tips. "What do you estimate will be the impact of the fiscal deficit from your policies?" Paulson asked the former president. Trump responded that the nation's current deficit is "crazy…it's just horrible actually," but he did not indicate how or by how much it might decline, let alone turn into a surplus under his leadership. 

Unless Trump has such a plan, the prospective returns of this new wealth fund would have to be even more implausibly grandiose to contribute to our wealth relative to the magnitude of debt we continue to incur. And note from Paulson's question, in his thinking, he has apparently already allocated the predicted new tariff revenues to contain the annual deficit, not to be the seed capital of our new national wealth fund as Trump suggested. Fiscal realities being what they are, it is extremely unlikely that discretionary funds of that magnitude will be available to the government anytime soon. Without a substantial reset of the U.S. budgetary structure, an American sovereign wealth fund could likely be launched only with borrowed money.

Notwithstanding the inherent contradiction of launching a supposed "wealth fund" with borrowed money, it would not be shocking if bipartisan political momentum takes us there.

 In addition to pretending that wealth can be created through slogans, both Biden and Trump seem especially allured by having access to a newfound store of "wealth" for their own favored priorities, outside regular congressional oversight. Biden officials reportedly think this fund could "help bolster US interests by providing first loss equity capital, guarantees, or bridge financing to illiquid but solvent companies competing with Chinese firms." 

Trump, for his part, said he seeks to "build extraordinary national development projects in everything from highways to airports and to transportation, infrastructure—all of the future. We'll be able to invest in state-of-the-art manufacturing hubs, advanced defense capabilities, cutting-edge medical research and help save billions of dollars in preventing disease in the first place." 

So, there is unity after all. Both parties are eager to create new language to hide our fiscal problems while directing a few trillion dollars to the most complex economic projects imaginable without oversight. Who says the two parties can't work together?

Comments

[Homer Thompson]

Who would want the government to own a percentage of their business?
Who would want to be co-investors with the government?
For Biden/Harris, this is probably part of a nationalization scheme going hand in hand with their idiotic wealth tax on unrealized gains. The feds and the university endowments will be the only buyers of assets at the end of the year when the largest holder of every large asset is forced to sell to pay a tax bill.

[psmoot]

Would the feds have to pay taxes on unrealized capital gains in a sovereign slush...er...wealth fund?

[Nelson]

Of course. Politically the "We pay taxes just like you" thing would deflect much of the criticism, since most people are too fiscally illiterate to understand that the government paying taxes to itself is functionally indistinguishable from not being taxed st all.

Of all the arenas in which politicians can lie without saying something untrue, macroeconomics is the sweet spot.

I mean, come on. Supply-side economics is literally built on the false premise that if you give companies tax breaks, or incentives, or any other type of fungible benefit, they will use it increase supplypp, driving down prices.

On the contrary, most will use the majority of it to benefit their investors and executives with stock buybacks, dividends, and raises for upper management. They will only increase the supply (and their payrolls) by the amount necessary to maximize revenue.

Unless the welfare ... I mean tax cuts ... specifically requires increasing supply or hiring more people, no one will do it willingly. Supply rises in response to demand but demand essentially only grows through reduction in price (existing products) or new/rare products (innovation).

Giving a slush fund to the Executive to distribute to their sycophants and supporters would be worse than the stinking, shit-covered, don't-even-bother-with-the-tax-part-just-spend system we have now.

And yes, Ds pretend to raise taxes. But
somehow (shocking, I know) the net deficit not only never reaches zero, it increases. Sometimes a little, sometimes a lot).

In the 90s, we found a perfect balance. The Ds had an incredibly popular President who the Rs couldn't afford to fight, scorched-earth style, for fear of being seen as obstructionist. The Rs had a newly-empowered Congressional majority that the President, for the exact same reason, had to suffer with.

More importantly, Republicans actually meant what they said about fiscal responsibility being a priority and they jammed it down the President's throat. The result? The only budget surpluses IN MY ENTIRE 53 YEARS ON TBE PLANET.

We had the exact same scenario after Obama's first midterms. The difference? Republicans had stopped caring about fiscal responsibility and were riding the Culture War Express. So instead of surpluses and fiscal sanity, we got "You lie!", "partial birth abortions" and birtherism.

As long as neither party cares about running deficits (and neither does) we'll never actually control the deficit. We all know the Ds aren't going to do it and any of them that say they will are lying.

So until the Rs stop manufacturing faux outrage about Drag Queen Story Hour and what someone else wants to call themselves and goes back to actually caring about deficits, we'll keep growing the debt until it crushes us.

[TJJ2000]

Oh the nation has one of those…
It’s Balance is -$35,000,000,000,000…
Each working citizen has the sovereign wealth of -$220,000…

Is there some ‘stupid’ plague going on in D.C.???
So sick of center-stage politicians selling their ‘Guns’ against citizens = $.

[psmoot]

"Is there some 'stupid' plague going on in D.C.???"

You must be new here.

[Nelson]

LOL!

[SQRLSY]

Just stamp out some trillion-dollar coins! Made out of unobtanium or some such! https://en.wikipedia.org/wiki/Trillion-dollar_coin

It should bear this legendary legend: "In Government Almighty We Trust"!

[Roberta]

Trump asked, "Why don't we have a sovereign wealth fund? Other countries have wealth funds. We have nothing."

I'm glad someone brings up a question I'm always bringing up here with regard to policies of all sorts: What experience is there from other countries? This particular proposal may be cockamamie, but the general method of empiric assessment is encouraging.

[Social Justice is neither]

The problem is the closest thing we have to a wealth fund would be SS and that is spent faster than it is brought in on unrelated items and has been for decades.

[Roberta]

It is not spent directly on unrelated items, but much of its cash holding has been used to buy Treasury bonds.

[Gaear Grimsrud]

All SS receipts go directly into the US Treasury and are immediately spent on current obligations. In return a ledger entry is made to what is erroneously called a "trust fund". The fund contains no assets. It is a debt instrument. An obligation of the taxpayers. That has been the process since the creation of SS. So it is accurate to say that payroll taxes are spent on other things.

[TJJ2000]

"spent on other things" Indeed.
SCOTUS already ruled SS-Tax is just like any other tax and the government can spend it however it wants.

[Roberta]

What they ruled is that it's within Congress's taxing power. For Congress to spend SS funds on other things would require amending FICA. The Act has been amended a few times, such as to establish Medicare. However, absent such an act of Congress, the Treasury can't treat SS's account like the general fund.

Since the establishment of SS, Congress has been extremely reluctant to breach down that wall. That's why they keep separate books, and SS is "off budget" as far as the general treasury is concerned. The fear is that if that wall is breached, that precedent will make it easy just to throw all the assets and liabilities into one pot, and the "security" part of Social Security will be lost as all compunctions are gone. This is why the elderly are such a powerful voting bloc; anyone close to retirement age is loathe to see any changes that might result in benefits not being honored. It was politically very hard even to get some modifications of the retirement age.

[Roberta]

It's accurate only in the sense that the account is accessible by the same authority, in this case Congress. If you've ever been a treasurer of an organization that had more than one fund, but kept them all in the same bank account, it works like that. The bank shows it as one account, but you keep records of how much is in fund A, fund B, etc. If your organization takes donations earmarked for a particular fund, those add up only for that fund, and they're spent only for those purposes that fund is established for.

If your rules allow one fund to lend to another, sure, you can do that and show the resulting liability as an IOU from one fund to another. But that's not the same as spending money from one fund for purposes a different fund was established for. In particular, if SS's cash ever went to 0, the general fisc could not borrow from it, and AFAIK SS doesn't have its own borrowing authority.

[JFree]

The problem is that sovereign wealth funds everywhere else are based on resources/land. The US ‘owns’ a lot of land – but in fact it is merely mismanaging land that it failed to hand over to tribes or states.

Even if the US stuck ‘national parks’ into that sovereign wealth fund, does any normie really think it would be a good idea for the feds to figure out how to privatize it to the largest campaign contributors?

There are probably plenty of resource royalty streams that could be used to create sovereign wealth funds – but again that land belongs to the states and tribes and 'offshore' is probably not huge. And there are rational reasons why just handing those over to the states/tribes might be worse than having them mismanaged by the feds.

We had our opportunity in the 19th century to transfer federal land to private owners in exchange for a federal land tax/royalty on those lands. We usually chose the most corrupt alternative instead. Which was one reason why we stopped handing that land over in the West.

[TJJ2000]

^THIS. Officially it's not "federal land" still but instead UN-titled State land in limbo hi-jacked by the 'feds' who are refusing to "dispose of"/title it.

Enter the FLPMA Act.
Introduced in the Senate Haskell (D–CO) on January 30, 1975.
Passed by a [D]-Congress majority.
Illegally (UN-Constitutionally) turning 33%+ of the entire US land mass Communist.

[psmoot]

"Trump: Why don't we have a sovereign wealth fund?"

Because we spend more than we raise in taxes. They don't. It's really not hard to understand for someone with a business degree from Wharton.

[Nelson]

Well Trump deserved to be in Wharton like George W Bush deserved to be at Yale. Legacy admissions at Ivy League schools are notoriously ... suspect.

Trump went to Fordham for two years and his brother, Fred, was in Wharton. Then, suddenly, the younger son of a prominent New York developer and brother of a Wharton School student (who, unlike Donald, could get into Penn as an undergraduate) suddenly is worthy not just of being at Penn, but being a student in the Wharton School? Sure he was.

But it would explain how a graduate of one of the most prestigious business schools in America could lack a basic understanding of fiscal and macroeconomic concepts.

However, the founder of Trump University can easily grasp what funding a "sovereign wealth fund" with deficit spending really is.

[Art Stone]

Fred was intended to be the heir of the Trump empire, but he decided he wanted to be an airline pilot, disappointing his father and opening the door to Donald. Fred became an alcoholic and died at a very young age.

[Roberta]

...

Trump predicted that the proposed wealth fund would "return a gigantic profit," which would help pay down the debt.

There's a name for a fund dedicated to retiring a debt: a sinking fund. That's not a bad idea if it can somehow be protected from being raided for more spending. The problem is that the body with the power to create such a fund would also have the power to raid it. But maybe there's a way legally to isolate such a thing.

[Gaear Grimsrud]

I don't see any mechanism currently that actually could isolate any fund at least until the sovereign debt is completely paid off. The federal government has multiple funds that purportedly are earmarked for specific purposes, the highway fund, SS, Medicare etc. The problem is that none of these funds contain any assets. They are accounting entries. We only have one Treasury and all federal receipts are deposited there and all federal obligations are paid from there. Employers send both payroll taxes and income taxes directly to the US Treasury. Social Security checks do not come from the SS Administration they are paid from the Treasury. Back in the 80s Al Gore famously proposed that congress could create a "lockbox" to protect the SS trust fund. Never happened. Structurally there is no way to segregate money held by the Treasury that I can imagine.

[Roberta]

Yet there are entities that have less than 0 net assets, and have sinking funds. How do they do it? When the US Sinking Fund (see link below) was established, the Treasury had no net assets AFAIK.

[Sometimes a Great Notion]

Fuck you cut spending

[Roberta]

A sinking fund provides a potential mechanism by which spending could be cut: reducing the pool available for spending from the treasury.

[Nelson]

I'm unfamiliar with sinking funds, but intrigued. Do you have a link to a primer or a good explain-complex-things-to-laypeople site?

[Nelson]

Tell me you don't understand macroeconomics ... or fiscal policy ... or math ... or long-term planning ... or, to be honest, most budgetary skills that successful adults employ ... without saying it.

Hint: much of the budget, especially the parts that are driving the deficit, aren't discretionary spending.

You can't just cut Social Security or Medicare or Medicaid or servicing the debt (over $3.4 trillion, combined). Literally the only one of the top five budget items that is discretionary is the military (another $805 billion). All non-military discretionary spending, combined, is $917 billion, a grand total of ... 15% of total spending.

Do you have any other mindless hot takes that will make you look more ignorant?

[Roberta]

I see by https://scholarship.law.nd.edu/cgi/viewcontent.cgi?article=4925&context=ndlr that in 1790 Congress did establish a Sinking Fund Commission. The article goes into its early operation but was focused on its constitutionality as a precedent for the Federal Reserve, but my skimming of it doesn't say anything about whether the fund continued in operation for more than a few years. Maybe it still exists.

[Mother's Lament]

Alberta, Alaska, Saudi Arabia and Norway's sovereign wealth funds work great, but every one of those funds used oil royalties, not taxes, to get there.

[Gaear Grimsrud]

Yes. Alaska can't print unlimited USDs. It has to pay it's bills and it can hold a fund with real assets. The US government is 35 trillion in debt and technically bankrupt. It can't hold assets in a fund because it has no assets.

[Roberta]

How long since the US had a general audit? How do we know it has no assets? The comprehensive annual financial statements of the states turn up assets most people don't realize are there.

[Nelson]

That seems like it would take a lot of people, a lot of time, a lot of money, or all three.

In a perfect world it would be a regular part of the government. Maybe once every 5 or 7 years? Definitely something that stays off-cycle from federal elections.

[middlefinger]

Bloomberg Law, breaking: Treasury will tax revenue on top 100 corporations income statements..instead of profit, due this October 2024.
Let the de-kulakization begin. We’re all Soviets now

[Roberta]

A gross revenues tax??! First of all, that would take an act of Congress. Second, it's not clear they have Constitutional authority to lay such a tax. Third, if they did, it might count as an excise that would require apportionment by state, which would be an interesting undertaking to say the least.

[middlefinger]

It’s a bill that will be put forth after the new one party congress is sworn in, January 2025. Somehow retroactively seizing wealth from extended tax returns?

The constitution, apparently the new bosses in town are going to set SCOTUS term limits, which would retire Thomas?

Like I said, we’re all Soviets now. Just listened to a lifelong left leaning podcaster who stated “The Democrats are the Stalinist Party.

[Nelson]

Seems like your definition of “left-leaning” is most people’s “center-right”. Possibly without the “center” part.

[Nelson]

Roberta, are you in finance? Or possibly an accountant of some kind? You seem to know a lot of relevant stuff.

[Zeb]

This seems dumb. Norway has what it has because it has a hugely productive and partly nationalized oil industry and a very small population. The oil money gave them a huge surplus. We would need to pay off the debt and then somehow get a large tax surplus before the idea would make any sense at all. And at that point, we should just keep spending low and cut taxes. The US is not like Norway in lots of ways. I don't see people here happily paying 50% income taxes while the government sits on $trillions of extra money.

[JFree]

And at that point, we should just keep spending low and cut taxes. I don’t see people here happily paying 50% income taxes while the government sits on $trillions of extra money.

I agree but that is why Norway will over time become increasingly richer than the US. We are simply fiscally irresponsible and do everything possible to get a free lunch. They set rules for how assets and revenues will be set aside, what they will be spent on – and they stick to that.

Their sovereign wealth fund is not just funded with oil revenues. It has become the depository for all budget surplus. eg the SS ‘trust fund’ (the surplus of higher FICA taxes for many years) could very easily have been invested in actual assets rather than govt debt IOU’s to distort the cost of govt debt. It wasn’t, likely for corrupt reasons involving govt bureaucrats and Wall St. So now we have a government pension fund (the technical name for Norway’s sovereign wealth fund) that is disappearing – will cause both an increase in taxes and a reduction in pensions – created a massive increase in govt debt which never gets paid off (thus ensuring a permanent revenue stream for those who now own govt capital decisions) – and no one even knows how any of it works or if it even exists.

Having budget surpluses is not necessarily a bad thing. Making promises and keeping promises is important. Understanding the difference between capital and current spending is useful. It’s not all about ‘let’s create bogus govt accounts so that the nanosecond there’s some ‘surplus’ we can give everything to ‘taxpayers”.

Obviously the risk of behaving responsibly as a society can lead to the possibility that people will trust the society to behave responsibly in future as well. And thus lead to a predisposition to fund future promises – AS a society. Horrors!

[Zeb]

Some kind of surplus fund so government doesn't have to take on debt in an emergency is probably a good idea. Beyond that I say let people keep their own money as much as possible.

[Nelson]

"could very easily have been invested in actual assets rather than govt debt IOU’s"

So I always assumed that it was literally an IOU (so a theoretical slip of paper that theoretically says "I O Social Security $6 billion. XOXO", not an actual instrument). Is it, in fact, a Treasury bond? And if so, does that create illusory debt that is actually owed to America by America?

I have no idea if you or Roberta (you two seem to be the most knowledgeable here) have that much in-the-weeds geeky knowledge, but if so I would love to know.

"Having budget surpluses is not necessarily a bad thing."

Yes!

"Making promises and keeping promises is important."

YES!

"It’s not all about ‘let’s create bogus govt accounts so that the nanosecond there’s some ‘surplus’ we can give everything to ‘taxpayers”."

PREACH, BROTHER!

"Obviously the risk of behaving responsibly as a society can lead to the possibility that people will trust the society to behave responsibly in future as well. And thus lead to a predisposition to fund future promises – AS a society."

Jesus Christ, man. Now I want to nominate you for Treasury Secretary!

[Art Stone]

Anytime the idea is brought up of investing the social security surplus into the stock market generates howls from the Democrats about the stock market (aka capitalism) being too risky.

That notion is probably actually a good thing, because as soon as the federal government would become a direct investor in the companies, that would encourage them to take control of the board of directors and change the operations. Depending on your political perspective, that’s either socialism or fascism.

Most of the largest institutional investors in the stock market are state teacher and government employee pension funds. For instance, the California CalPers is holding over $400 billion in assets. When people talk about the greedy billionaires that control America, they probably are not thinking about their school teacher from second grade.

[Gaear Grimsrud]

"We would need to pay off the debt and then somehow get a large tax surplus before the idea would make any sense at all. And at that point, we should just keep spending low and cut taxes."
Exactly this.

[JFree]

We're never going to pay off the debt or even pay down the debt to Norway's level (35% of GDP - similar to the US in the 70's and early 80's - before our 'sovereign wealth pension SS trust fund' incentivized creating debt using surplus FICA taxes). So this becomes just a perpetual excuse to cut taxes for the next election and never cut spending or debt.

[Nelson]

"cut taxes"

Which taxes? Middle class? Agreed. Top third of individuals? No. Corporate? Hell no. Supply-side economics has screwed the deficit by pretending it works and then spinning tales about why it failed to deliver. It doesn't. It never has. It never will.

[Uncle Jay]

So, the question remains, what is Trump or Harris going to do, or not do, if the US economy collapses and the dollar is worthless, and why aren't more people asking this vital question?

[JFree]

Why will the dollar be worthless? Usually in any fiscal crisis or recession, the dollar rises in value because a reserve currency means there is a lot of dollar-denominated debt around the world and the deflationary side of that means a scramble for dollars to pay the principal installments.

We don’t ‘print money’. We don’t monetize commodities or coinage. We create/issue debt – which is inflationary at the front end and deflationary at the back end.

[Just Eric]

Bad headline. Article describes good rough idea without achievable implementation in short term, but calls for wealth fund are not confusing present debt with aspirational wealth.

[Get To Da Chippah]

I think I'll take out a personal loan at a 10% interest rate and put all that money into a high yield savings account that earns 3% interest.

What could go wrong?

[Nelson]

LOL!