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What Is the Alternative to Income and Corporate Taxes? Can a Government Be Run Without Taxes?

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In our report on the strategic risks of taxes, we discussed in detail the risks & problems associated with raising corporate and income taxes (see report on strategic risks of taxes and antibusiness policies). In this report, the alternative to corporate and income tax is discussed, i.e., how the government can decrease inequality, increase the standard of living,

without taxes and how taxes, over time, can be eliminated.

When a government taxes an individual or a corporation, the result is a simple outflow. The money deducted does not provide any direct benefits in return to the taxed subject. For corporations, such outflows also reduce net income, and over time, cause a reduction in equity.

If somehow, a corporation or person was taxed precisely the amount of the public services they used, the tax outflow would still be reasonable. However, taxing a tech company at the same rate that perhaps uses a fraction of public services, as a trucking company or another company highly reliant on public services, isn't exactly fair and equitable.

One obvious solution would be to charge companies the present value of the public services used. Nonetheless, presently, this isn't practical. Similarly, privatization of essential public services also wouldn't be accepted by the majority of constituents.

The need is to devise a solution that benefits the taxpayers by converting tax outflows into return generating assets, while at the same time, the generated money working towards improving the welfare of the population, reducing inequality. If tax outflows become an asset, they would strengthen the financial position of businesses and individuals, reducing the strategic risk facing the western economies; this would also build the market's confidence in businesses, especially regarding their solvency and liquidity.

In an ideal system, nonetheless, taxes as an instrument of revenue generation would be eliminated, with the government generating its own revenue through collaboration with economic agents over time.

Taxation is fundamentally about funding the government and reducing inequality in the country. The binary answer for the requirement of revenue generation, implemented since 3000 BCE, is perhaps the only financial solution of the old world that we still use. It is an uncreative, myopic, and coercive mechanism, implemented by the parochial order of economists that cannot think beyond a distributive solution; the lack of an integrative, win-win solution, perhaps, reflects their distributive mindset.

We cannot expect anything creative from the old order at this point. Furthermore, as this lack of creativity has seeped into the U.S. political class, especially those ideologically at the extremes of their political leanings. Demagogues parrot what they know is possible; no demagogue ever took the mic to argue a complex solution to problems calmly, with a professorial tone.

When you lack creativity and you are an opportunist trying to gain power through the manipulation of emotions of the masses . . . what would you do? You would propose sweeping, simple solutions to complex problems that require intricate solutions. Thus, demagogues and opportunists, as they do not know better, and cannot devise a more complex and fruitful solution, give dramatic performances to establish their resolve to better the economic circumstance of the masses, unfortunately.

If this method, of those willing to gain power at all cost persists, it can do significant damage to the western economies, especially now as these economies face fundamental weaknesses and Japanification in the future is a real possibility (see relevant report for further discussion).

An end to this 'solution' for raising revenues from 3000 BCE is a necessity. Logical economic actors in some jurisdictions will inevitably come to understand that the future of raising revenue for the government is through alternative means, and whosoever does it first, will gain substantial capital inflows.

So, what is the viable alternative to taxes?

How can governments raise revenue and reduce inequality of the masses without taxation? Primarily, through the creation of new wealth. The solution expounded in this report builds on and utilizes the solution presented by Shafqat (2020), however, it is considerably modified (link to article).

Rather than an agency that extracts wealth from wealth-generating agents in the economy, an agency that generates wealth, symbiotically, with the same agents is needed. And while it may not immediately be able to meet the revenue requirements of the governments altogether, over time, it would generate more than a taxation system can, and thus, would enable the elimination of taxes entirely. Furthermore, it would also attract foreign wealth that would further aid in the objectives of wealth generation, as more investment would be drawn into the economy from abroad due to the announcement of the strategic elimination of taxes in the long term.

What type of agency can generate revenues for the government without taxes?

Primarily, an agency that is a type of sovereign wealth fund (SWF), a vehicle of wealth generation that acts as a paradigm shift to move the economy away from taxes and to increase the nation's wealth, is required to accomplish the stated objective. Such an approach, as explained below, would aid in making the poor rich rather than making the rich poor.

The type of entity that can accomplish such an objective may resemble the Alaskan Permanent Fund, which provides every citizen of Alaska Dividend payment of $1000-$2000 p.a. (APFC, 2021). Other examples worth mentioning here are Norway's Government Pension Fund Global (NGPFG), through the strategic investments of which every Norwegian citizen is worth approximately $250,000 (Norges Bank, 2021); the province of Alberta Canada also has an SWF entity, similar in nature to the aforementioned. A modified version of such entities is needed to accomplish this agenda.

Thus, a strategic entity similar in nature to the SWF can be utilized for a paradigm shift in government revenue generation and the eradication of inequity by exponentially boosting businesses and investment in the economy and creating productivity generating opportunities.

A modified model of Shafqat (2020) is presented in the figure below for an SWF entity:

How to run a government without taxes. alternative of taxes for revenue.
Figure.1 model for the proposed SWF

135 years of calulations attached below

Note: The numerical calculations are discussed in the paragraph below, instead of a representation in a mathematical formula form, for the ease of understanding of a wider audience.

In the calculations presented above, an initial 18 trillion is put in the SWF to offset government spending and start the entities' investment positions. The second line item is the investment inflow – the amount of money that would be tax outlay, collected at a historic rate, but not as a tax, but as a revenue-generating asset, similar to a government bond.

Individuals and corporations, instead of paying a tax and then receiving no direct tangible benefit, would instead pay an SWF fund asset purchase outlay. This would not be a tax with just a different name as those paying such a due would receive a return for such outlay (approximately 0.5% long-term); as a return generating asset, it would also be an asset that can be sold on the open market (discussed later).

The returns could be capped at 50 years from the date of initial payment, or may also be issued as perpetual return generating notes. The fourth line indicates the required growth of government spending. The amount invested at the beginning of the fund, pooled with the funds received in lieu of taxes (before they are paid out for spending), would be used to invest back into the economy to provide seed money to new viable businesses, provide viable growth ventures with capital, buy financial assets, build infrastructure that has a positive NPV (net present value) with an 11% cost of capital (the average rate of return of other SWFs).

The fifth line indicates the increase in the capital required as revenue for the government, p.a. The sixth line shows the growth rate of the capital investment of the amount collected from the civil sector; as this amount would be pooled with the funds at the beginning of the year, before they are paid out, it is realistic to expect at least a 1% return on these funds in their circulation period (from the time they are collected to the time they are paid out).

The seventh line shows the civil inflows after the 1% appreciation at the end of the period. The eighth line, mentioned as the Capital growth rate for the beginning of the period amount, stated at 11%, is the average growth rate for the above-mentioned SWFs of Alaska, Alberta, Norway, and New Zealand's SWF. The growth rate, of course, may fluctuate, but, long term, the average rate of return should mirror the growth rate of other significant SWFs. Scenario analysis can also be carried out to run a simulation on worst-case and best-case scenarios (Bauer, 2018, Shafqat, 2020).

The capital after appreciation, i.e., the initial capital inflow at the beginning of the year, plus the appreciation at an 11% rate, is presented in the ninth line. The tenth line presents the total capital after appreciation available at the end of the year, the government's initial investment, and the inflow from individuals and corporations, which would be received by the SWF instead of a tax, and provide a return generating asset to the individual and corporations in return.

Line eleven is the total capital outflow required p.a., it is the total tax amount collected by the U.S. government (for the calculation, estimated a 6% more than the 2019 amount collected and 9% more than the 2020 total collected amount); line twelve is the 10-year growth rate of the U.S. government spending (OMB, 2021). The thirteenth line presents the total estimated amount that the government would collect in the next period as per the growth in revenue collection (if a tax system was implemented), it is the estimate of line eleven, growing at a 3.2% rate, as discussed above, the 10-year growth rate of the U.S. government spending.

Here it may be argued that the growth rate of the total government revenue collection should be used; however, the growth rate of the expenditure should suffice. It must be understood that the capital injected in the economy, in conjunction with the growth rate of the financial investments of the SWF, should provide a certain degree of flexibility. Furthermore, just as the government has the power to increase taxes, in this model, it would have the power to increase the obligatory inflow required in the fund, i.e., the rate of profits of earnings that are required to be invested in the fund by the civil sector (line four).

Nonetheless, these required capital obligations are opposite in nature to taxation, as the cash outlay of the firms and individuals doesn't just go out of the balance sheet of the firms that pay it, or the accounts of the individuals, but would be added as an interest generating asset on the balance sheet, an asset that may be traded on the open market for cash if need be.

Line fourteen shows the total net gain on the investment amount from the beginning of the year to the end of the year, on both the capital invested in starting the SWF and the capital inflows from individuals and businesses (till the year-end, when it is paid as expenditure). Line fifteen indicates the repayment of interest on the initial $18 trillion borrowed to start the SWF, till this amount is entirely repaid in year 50.

Line sixteen indicates the capital available at the end of the period; this would be the capital inflow at the beginning of the period, and the inflows from firms and individuals, appreciated by the end of the period at the estimated capital appreciation rate for the respected inflows, minus the total capital outlay required to run the government.

This line, of course, is the total amount available for distribution at the end of the period, which would also be the amount carried as the beginning amount for the next period. It shows the total appreciation on the capital inflows into the fund, minus the required capital outflows (expenditure to run the government), minus the 0.5% return on the capital inflows from individuals and businesses, minus the repayment of interest on the initial loan of $18 trillion.

Lines nineteen to twenty-one show the total inflow per year from businesses and individuals (amount in lieu of taxes), the value of their total inflows by year as a percentage of the total year-end amount of the SWF, and the interest payment they will receive.

How would this system work?

The preliminary calculations presented in figure 1 (calculations and modeling for 135 years, attached at the end of the report) show that an SWF approach to funding the government, bearing in mind the performance and returns of other SWFs, is possible. A modified version of an SWF, long-term, can be used to eliminate taxes as we know them over time.

Additionally, the calculations presented show that an alternative approach that is not based on taxation can be implemented and can steer western economies away from a distributive funding approach to an integrative, win-win approach.

The SWF would need a strategic investment to start the fund; this can practically be an amount in the range of $18 Trillion. This may seem like an exorbitant amount. However, it would be a one-time requirement in year 1 of the fund to start the fund initially. Also, the amount compared to the total budget resources made available for the Covid-19 response/relief is about four times that of the $4.5 trillion budget resources made available for the Covid pandemic (U.S. DEPARTMENT OF THE TREASURY, 2021).

Thus, comparatively, for a strategic paradigm shift, it is not an exorbitant amount at all. Finally, it must be understood that investments in a return generating SWF should not be considered an amount spent. The amount borrowed would be converted into high-yielding assets, and as per the calculations, the entire initial investment, or amount borrowed, can be repaid in year 50.

Thus, this amount should not be considered as 'purely debt,' as an equally offsetting and appreciating asset for the same amount would exist in the SWF. The debt to asset ratio of the U.S. government would not increase as even though the debt would be raised for the initial investment in the fund, an equal amount of appreciating assets would be acquired, offsetting the increase in debt by the increase in appreciating assets.

The system would work by individuals and businesses making a mandatory asset purchase at a designated fixed level, taking into account their income; for the mandatory asset purchase level, let's use the current tax rates for the analysis (for example, if previously a firm paid $21 as tax for every $100 net income, in this system, it would pay the same as a compulsory notes purchases form the SWF and these notes will yield a return for the acquiring individual of business).

It may be argued, however, that if there is an obligatory outlay in this proposed system, then how is it different from taxes?

This system is drastically different as the outlay amount that individuals and corporations would pay won't just be a foregone amount like taxes presently are, but it would provide the payer with interest revenue-earning assets, i.e., the amount they pay would be exchanged for an exact amount of, let's just call it 'interest-paying notes.' Finally, this system would work to limit required inflows from economic agents at a fixed level, $3.7 trillion annually, and as the economy grows, the obligatory outflow burden would lower year by year, completely eliminated after year 50.

Furthermore, because these notes received in exchange for the outlay amount would be interest-earning, they would have a market value – the present value of the capital inflows (interest received) – which can be capped at 50 years, etcetera, or issued as interest-paying in perpetuity. Here again, an argument may arise regarding the viability of the repayment of these inflows, which may be considered as debt.

However, classifying these inflows as debt wouldn't be accurate. This money collected from individuals and businesses would, in conjunction with the primary amount of the fund, be injected into the economy and the economic agents that receive payments from the SWF, or the equity that the SWF buys would be assets held by the SWF, a portion of which would be used to pay the businesses and individuals that provide the inflows to the SWF. Therefore, the inflows for the providers of inflows should be considered as equity they hold, with the SWF acting as an intermediary.

The SWF would issue debt and acquire equity based on the inflows it receives, those that provide the inflows, if we bypass the middle entity the SWF, essentially those that provided the capital inflows into the SWF, the individuals and the businesses, would be the residual owners of the debt issued and the opportunities created through investments into the economy. This would apply for the percentage of the capital they provide.

how a sovereign wealth fund can help eliminate taxes in the US
Figure 2. SWF mechanism and its functionality

The diagram above shows that the primary agents that provided the capital would be the residual owners of the portion of the debt or equity the SWF buys from their would act as an allocating authority, and they shall receive returns for the capital they provide the SWF.

This amount would be fixed at $3.7 trillion p.a. for the first 50 years of the fund, and as the US GDP grows, the relative weight of this amount would decline year by year till the obligatory inflows are entirely eliminated, the debt at the start of the fund, the $18 trillion would also be entirely paid off in year 50, and thereafter, the fund would be able to sustain the expenditure of the government entirely through its investment profits.

The calculations presented in this technical report illustrate how an initial investment and capital inflows from businesses and individuals, collected in return for providing them interest-generating notes, can be used to steer the economy away from taxes, and a generational leap can be made possible to bring about fundamental economic change.

With such a move, the stagnating U.S. economy would boom with considerable investment injected into the economy. The new economic opportunities will help push millions out of poverty and also attract enormous amounts of international investment.

The yearly growth rate of the fund would fluctuate from year to year, however, the long-term average of an SWF, mirroring other such entities, should generate returns that are close to the returns of other such entities.

It may be argued that a period of exceptional economic distress may impact the SWF negatively and thus can increase strategic risks that the economy faces. It must be understood that this method moves us away from taxation; nonetheless, if the expenditure requirements of the government increase exponentially, the government can temporarily bring back taxation to overcome short-term fluctuations.

The end of taxation is very much inevitable as some government somewhere would come to understand the catabolic nature of taxation and the anabolic benefits of eliminating taxes as we know them. It's important to note that the first major government to implement such a move will enjoy significant strategic advantages compared to second movers, it would attract substantial amounts of international investment, and its national economy would boom considerably, ushering in an economic revitalization and renaissance.

For further discussion or consultation on this topic, feel free to contact us!

Calculations for 135 years:


Bauer, A. (2021). How Good are Sovereign Wealth Funds at Investing Money Made from Natural Resources? Natural Resource Governance Institute.

Home - Alaska Permanent Fund Corporation. (n.d.). Retrieved 10 02, 2021, from

Norges Bank. (2021). Government Pension Fund Global Annual report 2018. Norges Bank Investment Management. Retrieved from

OMB. (2021). Historical Tables. OFFICE OF MANAGEMENT AND BUDGET. Retrieved from

Shafqat, Shahrukh, Universal Basic Income: A Theoretical Review, and an Exploration of a Possible Solution Based on Creation of New Wealth (April 7, 2020). Available at SSRN: or

U.S. DEPARTMENT OF THE TREASURY. (2021). Covid-19 Economic Relief. The United States Government. Retrieved from

World Bank. (2021). GDP (current US$). World Bank. Retrieved from


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