Sovereign Wealth Funds: A Bad Idea for Texas and the Nation

Originally published at Texans for Fiscal Responsibility.

Recent proposals by President Donald Trump to establish a U.S. Sovereign Wealth Fund (SWF) and by Texas Lieutenant Governor Dan Patrick to remove the cap on Texas’s Economic Stabilization Fund (ESF) are deeply flawed. Both ideas assume that government-run investment funds can replace responsible fiscal policy. Instead of hoarding excess taxpayer money, Texas and the federal government should cut taxes, limit spending, and allow the free market to drive economic growth.

Federal Concerns: A Sovereign Wealth Fund Amidst Mounting Debt

On February 3, 2025, President Trump signed an executive order directing the Treasury and Commerce Departments to develop a plan for a U.S. sovereign wealth fund within 90 days. The administration argues that such a fund could:
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• Promote fiscal sustainability,
• Reduce tax burdens on American families and businesses, and
• Generate long-term national wealth by leveraging government assets.
  
  

But here’s the problem: Washington cannot be trusted with an investment fund, especially with how bloated and overbearing it has become. 

The U.S. national debt now exceeds $36 trillion, and unfunded liabilities from Social Security and Medicare surpass $100 trillion. While well-intentioned, creating a sovereign wealth fund would not fix these problems—instead, it would give future politicians another pot of money to mismanage.

Rather than relying on government-run investment schemes, the real solution is quite simple:

• Cut spending to reduce the federal deficit,
• Lower taxes to boost economic growth, and
• Let private investors, not bureaucrats, manage capital allocation.

Texas’s Rainy Day Fund

At the state level, Lieutenant Governor Dan Patrick’s Senate Bill 23 (SB 23), authored by Senator Charles Schwertner, proposes removing the cap on the Economic Stabilization Fund (ESF), also known as the rainy day fund. The ESF—created in 1988—was initially designed to help Texas manage revenue volatility from oil and gas production, which once accounted for 25% of Texas’s economy (compared to less than 10% today).
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Currently, the ESF cap is 10% of certain general revenue over the previous biennium. Based on Comptroller Glenn Hegar’s January 2025 Biennial Revenue Estimate, the fund is expected to hit its $26.51 billion cap by 2026. Without the cap, the fund could balloon to over $80 billion by 2035—money that should instead go back to taxpayers.

The Case for Cutting Severance Taxes Instead

​Instead of removing the ESF cap and hoarding revenue, Texas lawmakers should cut severance taxes on oil and gas production.

• Texas currently imposes a 4.6% severance tax on oil production and a 7.5% tax on natural gas production—both of which increase the cost of domestic energy.
• These taxes disadvantage Texas producers compared to heavily subsidized unreliable energy sources like wind and solar.
• Wind and solar projects receive massive federal and state subsidies, distorting the market and hurting Texas’s historically reliable energy grid.

The recent $5 billion Texas Energy Fund, which subsidizes natural gas projects, is a band-aid solution to a problem caused by overregulation and an unlevel playing field in the energy market. Instead of forcing taxpayers to subsidize natural gas, Texas should cut severance taxes to make oil and gas more competitive against unreliable renewables.

Why Removing the Cap Is a Bad Idea

Removing the ESF cap would:

• Keep tax revenue locked away instead of returning it to Texans. A growing Rainy Day Fund means taxpayers continue to be overtaxed.
• Encourage wasteful spending. An unlimited ESF balance could be used to justify expanding government programs instead of cutting spending.
• Ignore fiscal responsibility. The ESF’s original purpose was to stabilize state finances during an economic downturn—not to serve as a permanent government slush fund.
  
  

A Better Path Forward: Reduce Government, Cut Taxes

Rather than removing the ESF cap or creating a sovereign wealth fund, Texas should:

• Lower the ESF cap to at least 7% of certain general revenue, keeping enough for real emergencies while preventing excessive government savings.
• Cut severance taxes to support Texas’s energy industry and reduce costs for consumers.
• Phase out school district M&O property taxes using surplus revenue so Texans can finally own their homes without paying perpetual rent to the government.
• Freeze state and local government spending and improve the constitutional spending limit to cover their spending at a maximum rate of population growth plus inflation, helping Texas be fiscally conservative.

Bottom Line: Let People Prosper, Not Politicians

While well-intentioned, Trump’s proposed federal sovereign wealth fund and Patrick’s push to remove the ESF cap suffer from the same flaw: they prioritize government control over taxpayer freedom.

Texans and Americans don’t need more government-run investment funds—they need lower taxes, limited government, and free-market energy policies.

Texas and the federal government shouldn’t hoard money when it could be used to cut taxes, promote economic growth, and strengthen the energy industry.
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Let people prosper--not politicians.