Let’s say in a hypothetical world, the U.S. budget was running a surplus. My guess is that realistically the excess funds would be used for either refunds to tax payers, debt repayment to the extent possible, or a combination thereof. My question, however, is if the government has the right to make equity investments with the funds. Is there anything that prohibits the U.S. government from owning an equity stake in a company (domestic or foreign)? What about holding corporate debt?
Back when Bill Clinton was president, the US ran at least two years of surpluses (FY 1999 & 2000). At least some of the surpluses were used to make payments on the national debt, as indicated in the CNN article I linked.
I seem to recall that Alaska used to run a state surplus regularly (maybe they still do) because of oil revenues. They would send a check to every citizen in the state for their portion of the surplus annually.
Is this different from nationalization of that company or corporation? I understand you’re looking at a matter of degree… but if the US Gov’t owned, say, 20% of Coca-Cola, then how could the FDA or any Commerce Department entity objectively regulate the company?
In practical terms, I don’t think anything prevents it – the Federal Reserve “exchanged” US dollars for Bear Stearns’ securities holdings via a pass-through loan, but when you examine who was holding which assets before and after the deal, it sure looks like a purchase to me.
There were concerns, early in the Bush administration, that if the debt were completely paid off using the surplus, then the US Gov’t would effectively destroy the bond market by eliminating US bonds (the - ahem - gold standard of bonds) from circulation. I wish we still had that problem to worry about!
Alaska’s oil revenues belong to the Alaska Permanent Fund, which is independent of the state budget. They do send dividend checks to nearly every Alaskan every year.
Given the size of our national debt, the first priority today would and should be retirement thereof, and as noted above this was done when the government ran an annual surplus during the late 1990’s.
Only once in American history, in the 1830’s, has the government paid off the national debt and still ran a surplus. At that time the excess was distributed as grants to the states.
No. Hybrid public/private ventures, in which the government owned part of the stock, were more common in the Nineteenth Century. The federal government owned 20% of the stock of the First and Second Banks of the United States, and the states chartered and partly owned railroad and canal companies. In more recent times, corporate bailouts sometimes involve equity kickers which result in the federal government briefly owning chunks of various companies, although the government is usually quick to cash out.
Likewise–no prohibition.
I’m not aware of any law against the government investing in private companies – I’ve never even bothered to look the subject up – but politically it is simply a non-starter. Even if the government were to invest in a S&P 500 index fund, every corporation on the Dow Jones would be screaming bloody murder about how the S&P is being subsidized, and so on. I can’t think of a way the government could make those investments without pissing someone off.
And, now that I think about it for a second, I’d bet that investing in private companies would violate a plethora of trade agreements regarding subsidies given to various industries.
Standard procedure in Canada is to pay off a chunk of the national debt with each surplus. The Conservatives have also reduced federal taxes; the GST is now 5% and it used to be 7%. See Table 2.3 from this page from the Canadian federal Department of Finance
A couple of points on this. The federal and state governments are already well entrenched in the stock market, mostly through public employee retirement funds. Usually these funds are set up to be at arms length from the day-to-day political arena, having independent boards. The California Public Employee Retirement System (CalPERS) is one of the largest stockholders in the world.
Also, I don’t see how buying stock at market rates would amount to subsidizing an industry, assuming the decisions are made by an independent board. You could get into a sticky situation if the volume of federal investment in the market allowed the government to de facto set the market price, but we’d have to be talking about a pretty massive surplus.
Wasn’t the Chrysler bailout essentially an investment by the government in a private company? As I recall, the investment was so good that the government made a ton of money on the deal.
When there was a surplus during the Clinton years, Bill specifically stated that it was the administration’s desire to use the surplus to prop up Social Security. Instead of using the money to pay down debt and mitigate the future debt that Social Security represents, his political opponents were screaming for tax cuts. You can draw your own conclusions as to which method is more fiscally responsible.
The Chrysler bailout was a loan guarantee, in return for which Chrysler granted “warrants” (stock options) to the federal government. Since it turned out that Chrysler didn’t default, the loan guarantee didn’t cost anything, and the warrants had value.
I’m pretty sure that the government sold the warrants, rather than exercising them and then selling the stock. So technically the government never owned any part of Chrysler. However there would certainly be no legal or constitutional bar to it doing so.
Yes, and the Federal government has a Thrift Savings Program which has similar assets. But ultimately this is an investment vehicle for retirements, which I don’t think the OP was talking about, namely, the government investing in businesses in an effort to profit.
I’m no trade expert, but here is the WTO’s definition of subsidy.
Would government investment in companies be a subsidy? It seems to me that a direct transfer of funds by equity infusion is involved, and the government would expect a benefit to be conferred in the terms of return on investment, but I’ll let the real lawyers sort that out.
During the time of big surplusses, there was an issue with paying down the debt too suddenly, as a lot of the bonds are in the form of 10 - 30 year bonds. They did buy back some of them IIRC before their time was due, but probably paid a premium for this privilege.
IMO they shouldn’t have done so, but rather, paid all the money possible toward paying bonds that were coming due. Then, instead of paying a premium to buy back long bonds, they should have paid back Americans out of the Social Security “Trust Fund” to the extent of the surplus. I’d be more than willing to get back the money I put in even for reduced benefits, as I’m not going to see any of that money anyway.
A wiser move would be to use the money in an anti-deficit lobbyist fund. That way, you safeguard against the next administration re-squandering the surplus. Imagine if the entire national debt was retired, and a permanent surplus could be built up. There would eventually be enough to eliminate Federal income tax entirely and permanently. Take that, Ben Franklin!
I’m no trade lawyer either (thank God!) but don’t many Europrean governments hold stock in some of their biggest corporations? I think this is relatively common in industries such as telecoms, airlines, energy, etc. as a sort of partial nationalization. I don’t know if the WTO has held such holdings to be a subsidy.