Taxing the Robots
From truck drivers and cashiers to lawyers and doctors, it seems that no job is safe from automation. As robots and other artificial intelligence-based technologies continue to increasingly outperform humans in a wide variety of jobs, many have begun to fear the robots. In particular, there has been widespread public concern that this most recent automation revolution will result in extensive unemployment, plummeting tax revenues and increased economic inequality between workers and those who own the robots. To address these concerns, several proposals have been made worldwide to stem this tide by taxing the robots.
My recent article, Taxing the Robots, forthcoming in the Pepperdine Law Review, argues that a tax that singles out robots is bad policy. It gives rise to substantial issues and ultimately fails to address the underlying concerns raised by the robotics revolution. For instance, one of the main issues a robot tax raises is: how do we define a “robot” for these purposes? The question is more complicated than it seems. Is a “robot” any type of machine that replaces a human job with automation? Does it have to be physical or can it be something intangible? Does it include job-enhancing robots or only job-displacing robots and how do we make this distinction? Why are we only taxing this particular capital asset, but not other types of capital assets? A robot tax also involves a substantial element of arbitrariness and complexity to implement, which would increase compliance and administrative burdens, as well as tax litigation. To make matters worse, taxing robots is likely to hinder innovation and economic growth, while introducing additional inefficiencies into our tax system.
Although a robot tax is not the answer, there is no question that policy intervention is necessary to address the critical concerns raised by this new automation era. Tax policy can be a useful tool in this regard. As the article explains, many of these concerns are a symptom of a larger problem: namely, the manner in which we currently under-tax capital income and over-tax labor income. Thus, we need to rebalance our current tax system to tax capital income more in parity with labor income.
To achieve this balance, policymakers need to reform the payroll tax system to minimize its burden on employers and lower-income employees and introduce a less labor-focused tax system to offset the declining payroll tax revenues collected from human workers as automation continues to accelerate. Policymakers also need to reform the current income tax system to curtail many of the income tax preferences currently granted to capital income. By significantly favoring capital income over labor income, the current tax system encourages the non-optimal use of robots, creates tax gaming opportunities, magnifies the tax system’s effect on economic inequality, and contributes to a rapid decline in tax revenues as machines continue to displace human workers. Taxing capital income can help remedy many of these concerns.
Finally, policymakers also need to consider targeted tax and non-tax measures to harness the benefits of these technological innovations while also minimizing their negative effects. These policies should seek to provide a substantial investment in human capital, an adequate social safety net to help displaced workers, and promote innovation. For instance, recommended measures include additional funding to support education and training programs, increased spending on unemployment benefits, providing wage subsidies to help improve wages or subsidize reductions in working hours, increased spending on infrastructure and other public investment projects, expanding the earned income tax credit, increasing government funding for basic research, granting prizes to support specific innovations, reducing ineffective regulatory burdens and creating direct financial incentives for small business entrepreneurs and other job-creating businesses and activities, among other measures. Some have even suggested introducing universal basic income as a means to address the concerns raised by automation.
Ultimately, there is no easy answer to the difficult question of how to minimize unemployment, improve economic equality, and raise a sufficient manner of government tax revenues in an equitable and effective manner, especially in this automation era. However, it is clear that taxing the robots is not the answer and that the time for policymakers to act is now.