Proposal : United States Sovereign Capital Securities General Fund Direct Revenue Model
Summary
- EXECUTIVE SUMMARY
This proposal creates a new class of federal financing instrument:
United States Sovereign Capital Securities (US-SCS), commonly
referred to as “Sovereign Equity” or “U.S. Shares.”
Unlike Treasury bonds, bills, and notes issued under 31 U.S.C.
Chapter 31, US-SCS is NOT debt. It has no maturity date, no
obligation to repay principal, and no mandatory interest payment.
It is classified as equity capital contributed to the United States
General Fund.
Purpose: To create a source of General Fund receipts that is
NOT subject to the statutory debt limit (31 U.S.C. 3101), NOT
subject to mandatory repayment, and NOT counted as public debt,
while preserving full U.S. sovereignty with no voting rights
granted to holders.
This is NOT incorporation of the United States under Delaware
corporate law or any state corporation statute. It is a federal
sovereign equity instrument created by an Act of Congress under
the Spending Clause and Necessary and Proper Clause.
- LEGAL PROBLEM IN CURRENT U.S. LAW
(1) Debt Ceiling Constraint
Under 31 U.S.C. 3101, the face amount of public debt obligations
is limited by statute. Every Treasury security issued under
31 U.S.C. 3102-3104 counts toward this limit, triggering recurring
political crises.
(2) Limited Financing Tools
Under current law, the Treasury has only two ways to fund the
General Fund:
- Tax receipts (26 U.S.C. - Internal Revenue Code)
- Borrowing (31 U.S.C. Chapter 31)
There is no third category of “capital receipts” for permanent
non-debt financing. The U.S. Government, unlike a corporation,
cannot raise equity capital.
(3) Anti-Deficiency Act (31 U.S.C. 1341) requires all expenditures
to be appropriated. Any new financing tool must be explicitly
authorized by Congress as an appropriation receipt.
- LEGAL ARCHITECTURE - HOW TO COMPLY WITH U.S. LAW
(1) Required Legislation: Sovereign Equity Securities Act (SESA)
New Act to be enacted by Congress:
Section 101 - Definition
“United States Sovereign Capital Security means a non-voting,
perpetual, non-redeemable, non-cumulative equity interest in the
surplus of the United States General Fund, with no claim on
sovereign powers, no voting rights, and no right to compel
payment.”
Section 102 - Exclusion from Public Debt
Amends 31 U.S.C. 3101 definition of “public debt obligation”
to explicitly EXCLUDE US-SCS. This is the key provision. Because
it has no repayment obligation, it is not a “debt” under
31 U.S.C. 3101(b) and therefore not subject to the debt limit.
Legal precedent: U.S. Special Drawing Rights certificates and
certain Federal Reserve notes have been excluded from debt limit
by definition. Equity can be similarly excluded.
Section 103 - Authority to Issue
Authorizes the Secretary of the Treasury, with Congressional
authorization in annual Appropriations Acts, to issue US-SCS
directly into the General Fund as a receipt.
(2) Constitutional Basis
- Article I, Section 8, Clause 1: Power to lay and collect taxes
and provide for general welfare - receipts authority - Article I, Section 8, Clause 18: Necessary and Proper Clause
to create financing instruments - NOT Clause 2 (Power to borrow Money) - This is intentional.
We are not borrowing, so Clause 2 does not apply, avoiding debt
classification.
(3) Budgetary Treatment
Under the Congressional Budget Act of 1974, CBO and OMB must
score the instrument.
Proposed treatment:
- Receipts: Proceeds from issuance scored as “Other Receipts -
Sovereign Capital Contributions” to the General Fund, similar
to Federal Reserve earnings remittances, NOT as borrowing. - Outlays: Dividends scored as mandatory outlays only when paid,
from surplus, not as interest on debt (Function 900). - Deficit Impact: Improves unified budget deficit because proceeds
are receipts, not borrowing. Debt held by public does NOT increase. - Debt Subject to Limit: Does NOT increase.
(4) Securities Law
- Exempted security under Securities Act of 1933 Section 3(a)(2)
as a U.S. Government security, but classified as equity. - SEC and FINRA regulated, listed on NYSE as “USCS” - similar to
listed perpetual preferred stock.
- SECURITY DESIGN - GENERAL FUND MODEL
Issuer: United States Department of the Treasury, General Fund
Characteristics:
- Name: United States Sovereign Capital Security (US-SCS)
- Form: Book-entry via TreasuryDirect and Fedwire, $100 par
- Tenor: Perpetual, no maturity
- Principal Repayment: No obligation to repay. Government may
optionally repurchase and retire at market price if surplus exists. - Voting Rights: NONE. Explicitly prohibits any voting, governance,
or control over U.S. Government operations, elections, or policy.
Codified in statute: “No holder shall have any right to direct
or influence any sovereign act.” - Dividend: Non-cumulative, discretionary, payable ONLY from
current-year General Fund surplus as certified by Treasury.
Example: If surplus is $100B, up to 50% ($50B) may be allocated
by Congress as dividend pool. No surplus = no dividend. No arrears. - Source of Dividend: NOT from taxes earmarked, but from “surplus
receipts” defined as receipts exceeding outlays in that fiscal year,
plus earnings from federal commercial assets (e.g., spectrum lease
revenue, GSA property leases, mineral royalties). - Transferability: Fully tradable. Foreign ownership limit: 4.99%
per foreign person, 29.99% aggregate foreign ownership, enforced
via CFIUS-style review, per 31 CFR Part 800. - Tax Treatment: Dividend treated as qualified dividend (20%)
for U.S. taxpayers under 26 U.S.C. 1(h)(11). Proceeds to Treasury
are tax-free receipt.
- ACCOUNTING IN THE GENERAL FUND
Issuance:
Debit: Cash (General Fund)
Credit: Sovereign Capital - Permanent Equity (NOT public debt)
This increases Treasury General Account (TGA) balance without
increasing “Debt Held by Public” or “Debt Subject to Limit.”
CBO Score Example:
Year 1: Issue $300B US-SCS
- Receipts: +$300B
- Deficit: -$300B (improvement)
- Debt Subject to Limit: $0 change
- Public Debt: $0 change
Dividend Year:
If $20B dividend paid from surplus:
- Outlays: +$20B (mandatory)
- No effect on debt
This is analogous to how Federal Reserve remittances are treated.
- COMPARISON WITH EXISTING INSTRUMENTS
Treasury Bond:
- Obligation to repay, counts to debt ceiling, mandatory interest,
default risk if ceiling not raised.
Treasury Equity (US-SCS):
- No repayment, does NOT count to debt ceiling, no mandatory payment,
no default possible, price risk borne by holder.
This is economically similar to the UK Consols (perpetual gilt)
but legally classified as equity, not debt.
- RISKS AND MITIGANTS UNDER U.S. LAW
Risk 1: Debt Limit Evasion Challenge
Critics will argue this is disguised borrowing violating spirit of
31 U.S.C. 3101.
Mitigant: Explicit statutory exclusion and lack of repayment
obligation distinguishes it from debt under Supreme Court precedent
in Perry v. United States. GAO opinion to be requested pre-issuance.
Risk 2: Federal Reserve Monetization (31 U.S.C. 3101 + 12 U.S.C. 355)
If Fed buys US-SCS, is it monetizing equity?
Mitigant: SESA limits Federal Reserve System Open Market Account
(SOMA) holdings to <10% of outstanding, similar to statutory limits
on certain agency securities.
Risk 3: Constitutional Challenge - No Equity Power
Challenge that government has no power to issue equity.
Mitigant: U.S. Government already issues equity-like interests
via Federal Home Loan Banks stock and other GSE stock. Precedent
exists.
Risk 4: Market Crash and Political Pressure
If price crashes, political pressure for bailout.
Mitigant: Statutory “no bailout clause” - Treasury may not support
price except via discretionary repurchase from surplus. Risk
disclosure under SEC Rule 10b-5.
Risk 5: Foreign Control / CFIUS
Mitigant: Aggregate foreign cap and 5% single-holder cap, plus
authority for President to force divestiture under IEEPA if national
security threat.
- IMPLEMENTATION ROADMAP - U.S.
Phase 1 (Year 1): Enact SESA. Request GAO legal opinion. CBO score.
Amend 31 U.S.C. 3101 definition. Create new Treasury General Fund
receipt account 0899 - Sovereign Capital Contributions.
Phase 2 (Year 2): Pilot issuance $30B via TreasuryDirect for U.S.
persons only, marketed as “America Future Shares.” Listing on NYSE.
Phase 3 (Year 3+): Scale to $300B annually subject to appropriation.
Include in Treasury Quarterly Refunding statement as non-debt financing.
- CONCLUSION
US-SCS is not privatization of the United States. It is creation of
a third financing pillar beyond taxing and borrowing, using Congress’s
power to create sovereign equity.
It solves the debt ceiling trap because it is NOT debt. It solves
interest rate risk because dividend is discretionary. It preserves
sovereignty because it is non-voting.
Debt is borrowing from the future. Equity is inviting investment in
the surplus of the future.
END OF WHITE PAPER
Disclaimer: This is a policy concept, not legal advice. Requires
Act of Congress.